DEFM14A 1 ea143425-defm14a_rumbleon.htm DEFINITIVE PROXY STATEMENT
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

SCHEDULE 14A INFORMATION

 

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934

(Amendment No. __)

 

Filed by the Registrant  

Filed by a Party other than the Registrant  

 

Check the appropriate box:

 

Preliminary Proxy Statement
Confidential, For Use of the Commission Only (As Permitted by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material under §240.14a-12

 

  RumbleOn, Inc.    
  (Name of Registrant as Specified In Its Charter)  
     
 

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

 

Payment of Filing Fee (Check the appropriate box):

 

No fee required

 

Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

(1)Title of each class of securities to which transaction applies: Class B common stock, par value $0.001 per share
(2)Aggregate number of securities to which transaction applies: 5,833,333
(3)Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): $35.85
(4)Proposed maximum aggregate value of transaction: $209,144,530
(5)Total fee paid: $22,818.00

 

Fee paid previously with preliminary materials.

 

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

 

(1)Amount Previously Paid:
(2)Form, Schedule or Registration Statement No.:
(3)Filing Party:
(4)Date Filed:

 

 

 

 

 

 

 

TRANSACTION PROPOSED — YOUR VOTE IS VERY IMPORTANT

 

The board of directors (the “Board”) of RumbleOn, Inc., a Nevada corporation (“RumbleOn” or the “Company,” or “we,” “us,” and “our”), has approved a Plan of Merger and Equity Purchase Agreement dated March 12, 2021, as amended on June 17, 2021 (the “Transaction Agreement”) by and among the Company and certain of the Company’s wholly owned subsidiaries (each such subsidiary as defined in the Transaction Agreement, and collectively, the “Merger Subs”), Bill Coulter (“Coulter”), Mark Tkach, (“Tkach,” and together with Coulter, the “Principal Owners”), certain other persons who own equity interests in an aggregate of 46 entities operating under the RideNow brand of powersports (we refer these entities collectively as “RideNow” or the “Target Companies” and we refer to the other persons who own equity interests in the Target Companies, together with the Principal Owners, as the “Sellers” and each a “Seller”), and Mr. Tkach as the representative of the Sellers (the “Sellers’ Representative”). Under the terms of the Transaction Agreement, RumbleOn will either acquire through the Merger Subs or will purchase the equity interests in the Target Companies (such acquisitions or purchases of equity interests, together with the other transactions contemplated in the Transaction Agreement, the “Transaction”).

 

Upon completion of the Transaction, the Target Companies will be wholly owned subsidiaries of RumbleOn, Inc. RumbleOn’s Class B common stock will continue to trade on the Nasdaq Capital Market (“Nasdaq”), under the symbol “RMBL.” On June 30, 2021, the closing price per share of RumbleOn Class B common stock as reported by Nasdaq was $40.47. You are urged to obtain current market quotations for the shares of RumbleOn Class B common stock.

 

If the Transaction is completed, Sellers will receive (i) cash in the aggregate amount of $400,400,000 less any adjustments for net working capital and closing indebtedness and (ii) 5,833,333 shares (the “Closing Shares”) of RumbleOn’s Class B common stock having an aggregate value of $175,000,000 based on an agreed to value at signing of $30.00 per share. The number of Closing Shares issued in the Transaction may be increased if either (A) the volume weighted average price (“VWAP”) of the Company’s Class B common stock for the twenty (20) trading days immediately before the closing date of the Transaction (“Closing Date”) or (B) the value on a per share basis paid for the Class B common stock by any person who purchases Class B common stock from the Company from the date of the Transaction Agreement until the Closing Date is less than $30.00. Ten percent (10%) of the Closing Shares will be considered escrow shares and will be released pursuant to the terms of the Transaction Agreement.

 

In addition to the share issuance in connection with the Transaction, the Board asks that you approve an amendment to the Company’s Articles of Incorporation to increase the number of shares of Class B common stock authorized for issuance from 4,950,000 to 100,000,000. RumbleOn will also ask stockholders to approve an increase in the number of shares of Class B common stock issuable under the Company’s 2017 Stock Incentive Plan (the “Incentive Plan”) from 700,000 to 2,700,000 and to extend the Incentive Plan for an additional ten years.

 

RumbleOn will hold a special meeting of its stockholders to vote on these three matters. Whether or not you plan to attend the special meeting, please take the time to cause your shares to be voted by completing and mailing the enclosed proxy card or submitting your proxy by telephone or through the Internet, using the procedures in the proxy voting instructions included with your proxy card. Even if you return the proxy, you may attend the special meeting and vote your shares in person at the meeting.

 

YOUR VOTE IS IMPORTANT. Each of these three matters are conditions to completing the Transaction and as such, RumbleOn stockholders must approve the proposals relating to these three matters in order for the Transaction to close. The Board has determined that the Transaction Agreement and the transactions contemplated thereby are advisable and in the best interests of RumbleOn and its stockholders. The Board unanimously recommends that RumbleOn stockholders vote to approve each of the three proposals required to close the Transactions at a special meeting of RumbleOn stockholders to be held on July 30, 2021, as set forth on the Notice of Special Meeting of Stockholders accompanying this proxy statement.

 

This document describes the proposed Transaction and other matters to be considered in more detail. RumbleOn encourages you to read this entire document carefully, including the Transaction Agreement, which is included as Annex A, and the section discussing “Risk Factors” relating to the Transaction and the combined company beginning on page 8.

 

RumbleOn looks forward to seeing you at the special meeting and to the successful completion of the Transaction.  

  

   

Marshall Chesrown

  Chief Executive Officer and Chairman
  RumbleOn, Inc.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the matters described in this proxy statement or the RumbleOn Class B common stock to be issued pursuant to the Transaction, or determined if this proxy statement is accurate or adequate. Any representation to the contrary is a criminal offense.

 

This proxy statement is dated July 1, 2021 and, together with the accompanying proxy card, is first being mailed or otherwise delivered to RumbleOn stockholders as of June 21, 2021, the record date for the special meeting, on or about July 1, 2021.

 

 

 

 

THIS PROXY STATEMENT INCORPORATES ADDITIONAL INFORMATION

 

This document incorporates by reference important business and financial information about RumbleOn from other documents filed with the Securities and Exchange Commission (the “SEC”) that are not included in or delivered with this proxy statement. This information is available to you without charge upon your written or oral request. For a list of the documents incorporated by reference into this proxy statement, see “Where You Can Find More Information.” You can obtain electronic or hardcopy versions of the documents that are incorporated by reference into this proxy statement, without charge, from the Investor Resources section of RumbleOn’s website or by requesting them in writing or by telephone, in each case as set forth below:

 

    Electronic:   www.rumbleon.com
(please see “Investor Resources” page in the Investors portion of the site)
       
  By Mail:   901 W. Walnut Hill Lane
Irving, Texas 75038
Attention: Investor Resources
       
  E-mail Address:   investors@rumbleon.com
       
  By Telephone:   (214) 771-9952

 

IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY JULY 16, 2021 IN ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.

 

SUBMITTING A PROXY ELECTRONICALLY, BY INTERNET, TELEPHONE, OR BY MAIL

 

RumbleOn stockholders of record on June 21, 2021 may submit their proxies as follows:

 

  Through the Internet, by visiting the website established for that purpose at www.FCRvote.com/RMBLSM before 11:59 P.M. Eastern time on July 29, 2021 and following the instructions;

 

  By telephone, by calling the toll-free number 1 (866) 402-3905 in the United States, Canada, or Puerto Rico on a touch-tone phone before 11:59 P.M. Eastern time on July 29, 2021 and following the recorded instructions; or

 

  By mail, by marking, signing, and dating the enclosed proxy card and returning it in the postage-paid envelope provided or returning it pursuant to the instructions provided on the proxy card.

 

If you are a beneficial owner, please refer to your proxy card or the information forwarded by your bank, broker or other holder of record to see which options are available to you.

 

 

 

 

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

To Be Held On July 30, 2021

 

Dear RumbleOn Stockholder:

 

RumbleOn and RideNow are proposing to combine their businesses to create the first - and only - omnichannel powersport platform in the US, offering the fastest, easiest, and most transparent transaction process available in powersports today. As part of the process of completing this transaction the Board of Directors of RumbleOn is pleased to invite you to attend a special meeting of the stockholders of RumbleOn which will be held on Friday, July 30, 2021 at 8:00 A.M. Central time, at 901 W. Walnut Hill Lane, Irving, Texas 75038, Conference Room A.

 

The purpose of the special meeting is to consider and to vote upon the following proposals:

 

1.a proposal to approve the issuance of shares of RumbleOn Class B common stock in connection with the Transaction, which we refer to as the “Stock Issuance Proposal”;

 

2.a proposal to amend RumbleOn’s Articles of Incorporation to increase the number of shares of authorized Class B common stock from 4,950,000 to 100,000,000 shares, which we refer to as the “Authorized Stock Proposal”;

 

3.a proposal to amend RumbleOn’s 2017 Stock Incentive Plan to increase the number of shares of Class B common stock issuable thereunder from 700,000 to 2,700,000 shares and to extend the Incentive Plan for an additional ten years, which we refer to as the “Incentive Plan Proposal”; and

 

4.a proposal to approve an adjournment of the special meeting, if necessary, to solicit additional proxies in favor of the foregoing proposals, which we refer to as the “Adjournment Proposal.”

 

The RumbleOn Board has unanimously determined that the Transaction Agreement and the transactions contemplated by it, are advisable and in the best interests of RumbleOn and its stockholders and recommends that RumbleOn stockholders vote “FOR” each of the Stock Issuance Proposal, the Authorized Stock Proposal, the Incentive Plan Proposal, and the Adjournment Proposal at the special meeting of RumbleOn stockholders.

 

Your vote is very important. Each of the Stock Issuance, Authorized Stock, and Incentive Plan Proposals are conditions to completing the Transaction and as such, RumbleOn stockholders must approve all three of these proposals in order for the Transaction to close. The Board unanimously recommends that stockholders vote to approve each of the proposals to be presented at the special meeting.

 

The close of business on June 21, 2021 has been fixed as the record date for the special meeting (the “Record Date”). Only holders of record of RumbleOn Class A and Class B common stock on the Record Date are entitled to notice of, and to vote at, the special meeting or any adjournments or postponements of the special meeting. A list of holders of Class A and Class B common stock entitled to vote at the special meeting will be available for examination by any RumbleOn stockholder for any purpose germane to the special meeting at RumbleOn’s principal executive offices at 901 W. Walnut Hill Lane, Irving, Texas 75038, for ten days before the special meeting, during normal business hours, and at the time and place of the special meeting as required by law.

 

RumbleOn directs your attention to the proxy statement accompanying this notice for more detailed information regarding the matters to be acted upon at the special meeting. You are encouraged to read the entire proxy statement carefully, including the Transaction Agreement, which is included as Annex A to the proxy statement, and the section titled “Risk Factors” beginning on page 8.

 

SO THAT YOUR SHARES WILL BE REPRESENTED WHETHER OR NOT YOU ATTEND THE SPECIAL MEETING, PLEASE SUBMIT A PROXY AS SOON AS POSSIBLE BY MAIL, BY TELEPHONE OR THROUGH THE INTERNET. INSTRUCTIONS ON THESE DIFFERENT WAYS TO SUBMIT YOUR PROXY ARE FOUND ON THE ENCLOSED PROXY CARD. YOU MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE SPECIAL MEETING. REMEMBER, YOUR VOTE IS IMPORTANT, SO PLEASE ACT TODAY!

  

  By Order of the Board of Directors,
   
   

Marshall Chesrown

  Chairman and Chief Executive Officer
   
  July 1, 2021

  

 

 

 

TABLE OF CONTENTS

 

SUMMARY 1
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING 6
RISK FACTORS 8
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 21
PROPOSAL 1:  THE STOCK ISSUANCE PROPOSAL 22
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION 74
REGULATORY MATTERS 74
PROPOSAL 2: THE AUTHORIZED STOCK PROPOSAL 75
PROPOSAL 3: INCENTIVE PLAN PROPOSAL 78
PROPOSAL 4: THE ADJOURNMENT PROPOSAL 89
THE SPECIAL MEETING 90
AUDITORS, TRANSFER AGENT AND REGISTRAR 93
FUTURE STOCKHOLDER PROPOSALS 93
WHERE YOU CAN FIND MORE INFORMATION 93
INDEX TO RIDENOW FINANCIAL STATEMENTS F-1
ANNEX A — TRANSACTION AGREEMENT A-1
ANNEX B — OAKTREE WARRANT B-1
ANNEX C — OPINION OF B. RILEY SECURITIES, INC. C-1
ANNEX D — EXECUTIVE INCENTIVE PROGRAM D-1
ANNEX E — AMENDMENT TO ARTICLES OF INCORPORATION E-1
ANNEX F — AMENDMENT TO RUMBLEON 2017 STOCK INCENTIVE PLAN F-1

 

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SUMMARY

 

This summary highlights information contained elsewhere in this proxy statement. It does not contain all of the information that may be important to you. You are urged to read carefully this entire document, including the attached annexes, and the other documents to which this proxy statement refers you in order for you to understand fully the Transaction. See “Where You Can Find More Information.”

 

The Companies

 

RumbleOn, Inc.

 

RumbleOn, Inc., a Nevada corporation, is a technology driven, motor vehicle dealer and e-commerce platform provider disrupting the vehicle supply chain using innovative technology that aggregates, processes and distributes inventory in a faster and more cost-efficient manner.

 

We operate an infrastructure-light platform that facilitates the ability of all participants in the supply chain, including RumbleOn, other dealers and consumers to Buy-Sell-Trade-Finance-Transport pre-owned vehicles. Our goal is to transform the way VIN-specific pre-owned vehicles are bought and sold by providing users with the most comprehensive, efficient, timely and transparent transaction experiences. While our initial customer facing emphasis through most of 2018 was on motorcycles and other powersports, in 2019 we enhanced our platform to accommodate nearly any VIN-specific vehicle, and via our October 2018 acquisition of Wholesale, Inc., we made a concerted effort to grow our cars and light truck categories. In August 2020, we launched RumbleOn 3.0, bringing traditional brick and mortar powersports dealers across the country online. Then, in March 2021, we announced a definitive agreement to combine our e-commerce platform with the RideNow powersports group, the nation’s largest powersports retailer. Completion of this transaction is subject to a number of conditions, including stockholder approval of the proposals described in this proxy statement. We expect to close the Transaction during the third quarter of 2021.

 

For more information, please visit www.rumbleon.com. The information contained on RumbleOn’s website is not deemed part of this proxy statement.

 

RideNow

 

RideNow, founded in 1983, has grown into the largest powersports retailer group in the United States through its dealership consolidation strategy. RideNow compliments its vehicle sales with complete parts, service, accessories, and after sales offerings. For more information, please visit www.ridenow.com. The information contained on RideNow’s website is not deemed part of this proxy statement.

 

The Transaction

 

The Plan of Merger and Equity Purchase Agreement, dated March 12, 2021, as amended on June 17, 2021, among RumbleOn, the Merger Subs, the Sellers, and the Sellers’ Representative, which is referred to as the Transaction Agreement, is included as Annex A to this proxy statement. RumbleOn encourages you to carefully read the Transaction Agreement in its entirety because it is the principal legal agreement that governs the Transaction.

 

Structure of the Transaction

 

Subject to the terms and conditions of the Transaction Agreement, RumbleOn will either acquire through the Merger Subs or will purchase the equity interests in the Target Companies.

 

Upon completion of the Transaction, the Target Companies will be wholly owned subsidiaries of RumbleOn, Inc. RumbleOn’s Class B common stock will continue to trade on Nasdaq under the symbol “RMBL.”

 

Consideration

 

RumbleOn Stockholders. No consideration is being paid to RumbleOn stockholders in the Transaction. RumbleOn stockholders will continue to own their existing shares of RumbleOn Class A or Class B common stock after the Transaction.

 

Holders of Interests in the Target Companies. If the Transaction is completed, Sellers will receive (i) cash in the aggregate amount of $400,400,000 less any adjustments for net working capital and closing indebtedness and (ii) 5,833,333 shares of RumbleOn’s Class B common stock having an aggregate value of $175,000,000 based on an agreed to value at signing of $30.00 per share. The number of Closing Shares issued in the Transaction may be increased if either: (A) the VWAP of the Company’s Class B common stock for the twenty (20) trading days immediately before the Closing Date or (B) the value on a per share basis paid for the Class B common stock by any person who purchases Class B common stock from the Company from the date of the Transaction Agreement until the Closing Date, is less than $30.00 (each of the foregoing (A) and (B) referred to as the “Closing Share Increase Metric”). Ten percent (10%) of the Closing Shares will be considered escrow shares and will be released pursuant to the terms of the Transaction Agreement.

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Financing

 

The cash portion of the transaction consideration is expected to be financed through a combination of approximately $280,000,000 of debt provided by Oaktree Capital Management, L.P. (“Oaktree”) and the remainder through the issuance of new equity.

 

RumbleOn entered into a commitment letter for the debt financing (the “Commitment Letter”) with Oaktree on March 12, 2021 and expects to enter into a definitive agreement regarding the financing at the closing of the Transaction (“Closing”). The Commitment Letter provides that, subject to the conditions set forth therein, Oaktree commits to provide senior secured term loan facilities in an aggregate principal amount of up to $400,000,000 (the “Credit Facility”), comprised of (i) an initial advance of $280,000,000 primarily to fund part of the cash consideration in the Transaction and (ii) a delayed draw term facility of up to $120,000,000 to fund permitted acquisitions and similar investments and related fees and expenses of such transactions. Completion of the Transaction is subject to Oaktree providing this funding in accordance with the terms of the Commitment Letter. Definitive documents relating to the Credit Facility are expected to be signed at Closing.

 

In connection with the Commitment Letter, in lieu of a cash commitment fee, the Company has agreed to issue to Oaktree a warrant to purchase a number of shares of Class B common stock (the “Warrant Shares”) at an exercise price per share to be determined at Closing (the “Warrant”). A copy of the Warrant is included as Annex B to this proxy statement. If issued at the Closing, in accordance with its terms, the Warrant will be for that number of shares equal to $40,000,000 divided by the lowest price per share at which equity is issued in connection with financing the Transaction, which price shall also be the exercise price. If the Commitment Letter is terminated before Closing, the Warrant will be issued to purchase that number of shares equal to five percent (5%) of the Company’s fully diluted market capitalization at the close of business on the day after a termination of the Commitment Letter is publicly announced divided by the weighted average price of the Company’s Class B common stock for the five days immediately before such date, which price shall also be the exercise price. The Warrant is immediately exercisable after the Closing or five days after the termination of the Commitment Letter and will expire eighteen (18) months after the Closing Date or termination of the Commitment Letter.

 

As a condition to Closing, RumbleOn has committed to raising at least $135.0 million in additional equity capital to fund in part the cash consideration in the Transaction and provide RumbleOn with sufficient funds to pay expenses of the Transaction and provide working capital for the Company post-closing (the “Transaction Equity Raise”). Completing the Transaction Equity Raise is also a condition to closing on the Credit Facility.

 

Ownership of RumbleOn after the Transaction

 

As of June 21, 2021, RumbleOn has 50,000 shares of Class A common stock outstanding and 3,343,062 shares of Class B common stock outstanding. The number of shares of Class B common stock outstanding excludes:

 

982,107 shares of Class B common stock underlying the Company’s 6.75% Convertible Senior Notes due 2025 (the “2025 Convertible Notes”);

 

382,611 shares of Class B common stock underlying outstanding restricted stock units and 2,636 options granted under the Incentive Plan;

 

154,476 shares of Class B common stock reserved for issuance under the Incentive Plan, such amount does not include 306,090 shares of Class B common stock underlying restricted stock units subject to stockholder approval of the Incentive Plan Proposal;

 

16,052 shares of Class B common stock underlying currently outstanding warrants; and

 

  1,052,632 shares of Class B common stock underlying the Oaktree Warrant (based on the closing price of RumbleOn Class B common stock as reported on Nasdaq on the Record Date), assuming the Warrant will be issued at Closing.

 

Under the terms of the Transaction Agreement, at Closing, RumbleOn will issue to the Sellers an aggregate of 5,833,333 shares of Class B common stock (assuming neither Closing Share Increase Metric is triggered). In addition, assuming the Transaction Equity Raise is completed at a per share price of $38.00 based on the closing price of RumbleOn Class B common stock as reported on Nasdaq on the Record Date, the Company will issue at least an additional 3,552,632 shares in connection with the Transaction. We can provide no assurance at what price the Company can raise equity capital.

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Based on the foregoing and assuming the vesting of all outstanding restricted stock units at Closing, immediately after Closing the Transaction, 13,417,728 shares of Class B common stock will be issued and outstanding and (1) the shares issued to Sellers in the Transaction will represent approximately 43.2% of the outstanding Class B common stock and approximately 41.6% of the aggregate voting power of the Company, taking account of the ten votes per share provided to the Class A common stock and (2) the shares of Class B common stock held by RumbleOn stockholders before Closing and the Transaction Equity Raise will represent approximately 24.7% of the outstanding Class B common stock and approximately 27.4% of the aggregate voting power of the Company, taking account of the ten votes per share provided to the Class A common stock. The foregoing are estimates of post-Transaction shares of Class B common stock and are subject to the number of shares actually issued in the Transaction Equity Raise and to whether either of the Closing Share Increase Metrics are triggered.

 

Interests of RumbleOn Executive Officers and Directors in the Transaction

 

When you consider the Board’s recommendations that stockholders vote in favor of the proposals described in this proxy statement, you should be aware that RumbleOn executive officers and directors may have interests that may be different from, or in addition to, RumbleOn stockholders’ interests, including the anticipated executive employment agreements to be entered into at closing. For additional information see “Interests of RumbleOn Executive Officers and Directors in the Transaction.”

 

Accounting Treatment

 

RumbleOn will account for the Transaction as an acquisition of the Target Companies by using the acquisition method of accounting in accordance with United States generally accepted accounting principles (“GAAP”). RumbleOn expects that, upon completion of the Transaction, holders of interests in the Target Companies will receive approximately 43.2% of the outstanding Class B common stock and 41.6% of the voting power of the combined company and RumbleOn stockholders will retain 24.7% of the outstanding Class B common stock and 27.4% of the voting power of the combined company, with the balance to be held by purchasers in the Transaction Equity Raise and new stockholders resulting from the issuance of shares underlying RSUs that will vest at closing. In addition to considering these relative voting powers, RumbleOn also considered the proposed composition of the combined company’s board of directors and the board committees, and the proposed members of the executive management team of the combined company, in determining the acquirer for accounting purposes. Based on the weighting of these factors, RumbleOn has concluded that it is the accounting acquirer.

 

Under the acquisition method of accounting, the assets, including identifiable intangible assets, and liabilities of the Target Companies as of the effective time of the Transaction will be recorded at their respective fair values and added to those of RumbleOn. Any excess of the purchase price for the Transaction over the net fair value of the Target Companies’ assets and liabilities will be recorded as goodwill. The results of operations of the Target Companies will be combined with the results of operations of RumbleOn beginning at the closing of the Transaction. The consolidated financial statements of RumbleOn after closing will not be restated retroactively to reflect the historical financial position or results of operations of the Target Companies. Following the Transaction, and subject to the finalization of the purchase price allocation, the earnings of RumbleOn will reflect the effect of any purchase accounting adjustments, including any increased depreciation and amortization associated with fair value adjustments to the assets acquired and liabilities assumed.

 

The allocation of the purchase price used in the unaudited pro forma financial statements included in this proxy statement is based upon a preliminary valuation by management. The final estimate of the fair values of the assets and liabilities will be determined with the assistance of a third-party valuation firm. RumbleOn’s preliminary estimates and assumptions are subject to materially change upon the finalization of internal studies and third-party valuations of assets, including investments, property and equipment, intangible assets including goodwill, and certain liabilities.

 

Listing of RumbleOn Stock

 

RumbleOn has agreed to use its best efforts to cause the shares of Class B common stock issued in the Transaction to be approved for listing on Nasdaq.

 

Board of Directors After the Transaction

 

In connection with the Closing, the RumbleOn Board will be increased to nine members, with Mark Tkach and Bill Coulter added as members. The Board’s Nominating and Corporate Governance Committee will review its current independent membership in advance of Closing and, if appropriate, make recommendations regarding Board membership for consideration of the full Board.

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Executive Officers After the Transaction

 

RumbleOn and the Target Companies have agreed that upon completion of the Transaction, the following persons will serve as executive officers of the Company and hold the offices set forth next to their names:

 

Name

  Title
Marshall Chesrown   Chief Executive Officer and Chairman of the Board
Bill Coulter   Executive Vice Chairman and Director
Mark Tkach   Chief Operating Officer and Director
Peter Levy   President and Director
Beverley Rath   Interim Chief Financial Officer

 

Conditions to Completion of the Transaction

 

Each party’s obligations to effect the Transaction are subject to the satisfaction or waiver of mutual conditions, including, among others:

 

the making of all filings and other notifications required to be made under any Antitrust Law (as defined in the Transaction Agreement) for the consummation of the Transaction, the expiration or termination of all waiting periods relating thereto, and the receipt of all clearances, authorizations, actions, non-actions, or other consents required from a governmental authority under any Antitrust Law for the consummation of the Transaction;

 

the Closing Shares being approved for listing on Nasdaq;

 

no order issued by any governmental body prohibiting or preventing the Equity Purchases and the Mergers (each as defined in the Transaction Agreement);

 

the receipt of consent to the Transaction from powersports manufacturers representing at least 95% of new vehicle sales of the Target Companies for the twelve months ended December 31, 2020;

 

absence of material adverse effect on either party;

 

RumbleOn obtaining the RumbleOn Stockholder Approval (as defined below); and

 

delivery by each party of the closing documents specified in the Transaction Agreement.

 

Termination of the Transaction Agreement

 

The Transaction Agreement may be terminated at any time before the effective time of the Equity Purchases and Mergers by mutual written consent of RumbleOn and the Sellers’ Representative.

 

The Transaction Agreement may also be terminated by either RumbleOn or the Sellers’ Representative if:

 

the Transaction has not been completed on or before July 31, 2021;

 

the Transaction is enjoined pursuant to a final, non-appealable ruling;

 

upon substantial breach by the other party that remains uncured after thirty (30) days; or

 

if the RumbleOn Stockholder Approval is not obtained.

 

The Special Meeting

 

The special meeting of RumbleOn stockholders will be held on Friday, July 30, 2021 at 8:00 A.M. Central time, at 901 W. Walnut Hill Lane, Irving, Texas 75038, Conference Room A. At the special meeting, RumbleOn stockholders will be asked to approve each of the Stock Issuance, Authorized Stock, and the Incentive Plan Proposals. Stockholders may also be asked to approve the Adjournment Proposal, if necessary, to solicit additional proxies in favor of any or all of the foregoing proposals.

 

Each of the Stock Issuance Proposal, the Authorized Stock Proposal, and the Incentive Plan Proposal is a condition to completing the Transaction and as such, RumbleOn stockholders must approve all three of these proposals in order for the Transaction to close. We refer to the approval of these three proposals collectively as the “RumbleOn Stockholder Approval.” For additional information about voting on each of these proposals, as well as the impact on the approval of the proposals of abstentions or broker non-votes, see the section of this proxy statement titled “The Special Meeting.”

4

 

Stock Ownership of Directors and Executive Officers. On the Record Date, directors and executive officers of RumbleOn and their respective affiliates owned and were entitled to vote 50,000 shares of Class A common stock and 272,567 shares of Class B common stock, or approximately 18.5% of the voting power of the Company’s common stock outstanding on the Record Date. To RumbleOn’s knowledge, the directors and executive officers of RumbleOn and their respective affiliates intend to vote their shares of Company common stock in favor of all proposals presented at the special meeting and any adjournment or postponement thereof.

 

Recommendations of the Board

 

YOUR VOTE IS IMPORTANT. RumbleOn stockholders must approve each of the Stock Issuance Proposal, the Authorized Stock Proposal, and the Incentive Plan Proposal in order for the Transaction to close.

 

The Board has determined that the Transaction Agreement and the transactions contemplated thereby are advisable and in the best interests of RumbleOn and its stockholders. The Board unanimously recommends that RumbleOn stockholders vote:

 

FOR” the Stock Issuance Proposal;

 

FOR” the Authorized Stock Proposal;

 

FOR” the Incentive Plan Proposal; and

 

FOR” the Adjournment Proposal.

 

In making its recommendation, the Board considered, among other matters, the strategic benefits of combining the companies, the strong financial foundation of the combined company, the benefits and cost savings expected to be achieved by the Transaction, the strengthened management team of the combined company and the growth opportunities available to the combined company. For additional information see “The Transaction— Rationale for the Transaction.” In addition, in making its respective recommendation, the Board considered those further matters set forth under the heading “The Transaction — Reasons for the Transaction.” For additional information see “The Special Meeting — Board Recommendations.”

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING

 

Q:What will happen in the Transaction?

 

A:RumbleOn and RideNow are proposing to combine their businesses to create the first - and only - omnichannel powersports platform in the US, offering the fastest, easiest, and most transparent transaction process available in powersports today. Under the terms of the Transaction Agreement, RumbleOn will either acquire through the Merger Subs or will purchase the equity interests in the Target Companies.

 

Upon completion of the Transaction, the Target Companies will be wholly owned subsidiaries of RumbleOn, Inc. RumbleOn’s Class B common stock will continue to trade on Nasdaq under the symbol “RMBL.” On the Record Date, the closing price per share of RumbleOn Class B common stock as reported by Nasdaq was $38.00. You are urged to obtain current market quotations for the shares of RumbleOn Class B common stock.

 

If the Transaction is completed, Sellers will receive (i) cash in the aggregate amount of $400,400,000 less any adjustments for net working capital and closing indebtedness and (ii) 5,833,333 shares of RumbleOn’s Class B common stock having an aggregate value of $175,000,000 based on an agreed to value at signing of $30.00 per share. The number of Closing Shares issued in the transaction may be increased if either (A) the VWAP of the Company’s Class B common stock for the twenty (20) trading days immediately before the closing date or (B) the value on a per share basis paid for the Class B common stock by any person who purchases Class B common stock from the Company from the date of the Transaction Agreement until the closing date is less than $30.00. Ten percent (10%) of the Closing Shares will be considered escrow shares and will be released pursuant to the terms of the Transaction Agreement.

 

Q:What votes of RumbleOn stockholders are required to complete the Transaction?

 

A:In order to complete the Transaction, RumbleOn stockholders must approve the issuance of RumbleOn Class B common stock in connection with the Transaction. In addition, RumbleOn stockholders must approve an increase in the number of authorized shares of Class B common stock to allow for the share issuance in the Transaction, and an increase in the number of shares of Class B common stock available for issuance under the Incentive Plan and an extension of the Incentive Plan for an additional ten years. Each of these three matters is a condition to closing the Transaction, and if RumbleOn stockholders do not approve any one of these matters, the Transaction will not occur.

 

Q:When and where is the special meeting?

 

  A: A special meeting of RumbleOn stockholders will be held on Friday, July 30, 2021 at 8:00 A.M. Central time, at 901 W. Walnut Hill Lane, Irving, Texas 75038, Conference Room A, to consider and vote on the proposals related to the Transaction.

 

Q:What are the quorum requirements for the special meeting?

 

A:Under Nevada law and the RumbleOn bylaws, a quorum of RumbleOn’s stockholders at the special meeting is necessary to transact business. The presence of holders representing one-third in voting power of all outstanding Company common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business.

 

Q:Why is my vote important?

 

A:Each of the Stock Issuance Proposal, the Authorized Stock Proposal, and the Incentive Plan Proposal is a condition to completing the Transaction and as such, RumbleOn stockholders must approve all three of these proposals in order for the Transaction to close.

 

Q:What do I do if I want to change my vote?

 

A:You can change your vote at any time before the special meeting. You can do this in one of four ways:

 

you can send a signed notice of revocation of proxy;

 

you can grant a new, valid proxy bearing a later date;

 

you can submit a proxy again by telephone or through the Internet; or

 

if you are a holder of record, you can attend the applicable special meeting and vote in person, but your attendance alone will not revoke any proxy that you have previously given.

 

If you choose either of the first two methods, you must send your notice of revocation or your new proxy to the Company’s Corporate Secretary at: 901 W. Walnut Hill Lane, Irving, Texas 75038 Attention: Corporate Secretary, so that it is received no later than the beginning of the special meeting. If you are a stockholder, you can find further details on how to revoke your proxy in “The Special Meeting — Revocation of Proxies.”

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Q:If my shares are held in “street name” by my broker, will my broker vote my shares for me?

 

A:Your broker is not permitted to vote on the Stock Issuance Proposal, the Authorized Stock Proposal, or the Incentive Plan Proposal unless you provide your broker with voting instructions on each proposal. You should instruct your broker to vote your shares by following the directions your broker provides you. Please review the voting information form used by your broker to see if you can submit your voting instructions by telephone or Internet.

 

Q:What if I fail to instruct my broker with respect to those items that are necessary to consummate the Transaction?

 

A:A broker non-vote occurs when a beneficial owner fails to provide voting instructions to his or her broker as to how to vote the shares held by the broker in street name and the broker does not have discretionary authority to vote without instructions. See “The Special Meeting.”

 

A broker non-vote will have the same effect as a vote “AGAINST” the Authorized Stock Proposal. A broker non-vote will have no effect on the Stock Issuance Proposal or the Incentive Plan Proposal. For additional information, see “The Special Meeting.”

 

Q:What do I do now?

 

A:Carefully read and consider the information contained in and incorporated by reference into this proxy statement, including its annexes.

 

In order for your shares to be represented at the special meeting:

 

you can submit a proxy by telephone or through the Internet by following the instructions included on your proxy card;

 

you can indicate on the enclosed proxy card how you would like to vote and sign and return the proxy card in the accompanying pre-addressed postage paid envelope; or

 

you can attend the special meeting in person and vote at the meeting.

 

Q:Are there risks involved in undertaking the Transaction?

 

A:Yes. In evaluating the Transaction, RumbleOn stockholders should carefully consider the factors discussed in “Risk Factors” beginning on page 8 of this proxy statement and other information about RumbleOn and RideNow included in this proxy statement and the documents incorporated by reference into this proxy statement.

 

Q:When do you expect to complete the Transaction?

 

A:RumbleOn is working to complete the Transaction as quickly as practicable. However, RumbleOn cannot assure you when or if the Transaction will be completed even if it receives the RumbleOn Stockholder Approval. Completion of the Transaction is subject to satisfaction or waiver of the conditions specified in the Transaction Agreement, including receipt of the RumbleOn Stockholder Approval, the approval of certain powersports manufacturers (“OEMs”), and any necessary regulatory approvals. It is possible that factors outside the control of RumbleOn could result in the Transaction being completed later than expected. Although the exact timing of the completion of the Transaction cannot be predicted with certainty, RumbleOn anticipates completing the Transaction in the third quarter of 2021. If the Transaction is not completed on or before July 31, 2021, the Transaction Agreement may be terminated by RumbleOn or the Sellers’ Representative, unless RumbleOn and the Sellers’ Representative mutually agree to extend the term. See “The Transaction Agreement — Conditions to Closing.”

 

Q:Whom should I call with questions?

 

A:If you have additional questions about the Transaction or the special meeting, you should contact:

 

RumbleOn, Inc.
901 W. Walnut Hill Lane,

Irving, Texas 75038
Attention: Investor Resources
Phone Number: (214) 771-9952
E-mail Address: investors@rumbleon.com

 

If you would like additional copies of this proxy statement or you need assistance voting your shares, you should contact:

 

Alliance Advisors, LLC

200 Broadacres Drive, 3rd Floor

Bloomfield, New Jersey 07003

Phone: (973) 873-7700

Website: www.allianceadvisors.com 

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RISK FACTORS

 

In addition to the other information included and incorporated by reference into this proxy statement, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements” below, you should carefully consider the following risk factors before deciding how to vote on the matters presented to stockholders at the special meeting. In addition to the risk factors set forth below, you should read and consider other risk factors specific to RumbleOn’s business and securities that will also affect the combined company after the Transaction, which are described in Part I, Item 1A of RumbleOn’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 31, 2021, and incorporated by reference into this proxy statement. If any of the risks described below or in the periodic reports incorporated by reference into this proxy statement actually occur, the businesses, financial condition, results of operations, prospects, or stock price of RumbleOn or the combined company could be materially adversely affected. See “Where You Can Find More Information.”

 

Risk Factors Summary

 

The following is a summary of the principal risks included in this proxy statement that could adversely affect our business, operations and financial results.

 

Risks Related to the Transaction

 

Completion of the Transaction is subject to the conditions contained in the Transaction Agreement and if these conditions are not satisfied, the Transaction will not be completed.

Failure to complete the Transaction could negatively impact our stock price and our future business and financial results.

The Transaction will involve substantial costs.

In connection with the Transaction, we will incur additional indebtedness, which could adversely affect us, including our business flexibility and will increase our interest expense.

Certain directors and executive officers of RumbleOn may have interests that may be different from, or in addition to, interests of RumbleOn stockholders generally.

 

Risks Related to the Combined Company if the Transaction is Completed

 

Our business relationships, those of RideNow or the combined company may be subject to disruption due to uncertainty associated with the Transaction.

If we are unable to maintain effective internal control over financial reporting for the combined companies, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial statements.

The combined company’s ability to incur additional debt could have a material adverse effect on its business, financial condition, results of operations, and cash flows.

RideNow may have liabilities that are not known, probable or estimable at this time.

RumbleOn stockholders will experience dilution as a consequence of the issuance of the Class B common stock in connection with the Transaction.

RumbleOn may experience difficulties integrating RideNow’s businesses.

The combined company may not fully realize the anticipated benefits of the Transaction within the timing anticipated or at all.

Charges to earnings resulting from the application of the acquisition method of accounting may adversely affect the market value of RumbleOn Class B common stock following the Transaction.

The combined company’s goodwill or other intangible assets may become impaired, which could result in material non-cash charges to its results of operations.

The combined company may be unable to manage its growth effectively.

The combined company may be unable to execute its acquisition growth strategy.

RideNow and RumbleOn are investing significantly in their brand extension strategy, and if these strategic initiatives are not successful, the combined company will have incurred significant expenses without the benefit of improved financial results.

If we are not able to maintain and enhance our retail brands and reputation or to attract consumers to our own digital channels, or if events occur that damage our retail brands, reputation, or sales channels, our business and financial results may be harmed.

Our largest stockholders, Bill Coulter and Mark Tkach, may have the ability to exert substantial influence over actions to be taken or approved by our stockholders.

The loss of key personnel could have a material adverse effect on the combined company’s financial condition, results of operations and growth prospects.

 

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Risks Related to RideNow’s Business and the Powersports Retail Industry

 

The powersports retail industry is sensitive to unfavorable changes in general economic conditions and various other factors that could affect demand for RideNow’s products and services, which could have a material adverse effect on its business, its ability to implement its strategy, and its results of operations.
Adverse conditions affecting one or more of the powersports manufacturers with which RideNow holds franchises, or their inability to deliver a desirable mix of vehicles that RideNow’s consumers demand, could have a material adverse effect on RideNow’s business, results of operations, financial condition, and cash flows.
RideNow’s business, financial condition, and results of operations may be materially adversely affected by increases in interest rates.
RideNow’s vehicle and watercraft sales, financial condition, and results of operations may be materially adversely affected by changes in costs or availability of consumer financing.
Substantial competition in powersports sales and services may have a material adverse effect on RideNow’s results of operations.
RideNow is dependent upon its relationships with the manufacturers of vehicles that it sells and is subject to restrictions imposed by, and significant influence from, these vehicle manufacturers. Any of these restrictions or any changes or deterioration of these relationships could have a material adverse effect on RideNow’s business, financial condition, results of operations, and cash flows.
Manufacturers may also limit RideNow’s ability to divest one or more of its dealerships in a timely manner or at all. Most of RideNow’s dealer agreements provide the manufacturer with a right of first refusal to purchase any of the manufacturer’s franchises RideNow seek to sell. Divestitures may also require manufacturer consent and failure to obtain consent would require RideNow to find another potential buyer or wait until the buyer is able to meet the requirements of the manufacturer. A delay in the sale of a dealership could have a negative impact on RideNow’s business, financial condition, results of operations, and cash flows.
If vehicle manufacturers reduce or discontinue sales incentive, warranty or other promotional programs, RideNow’s financial condition, results of operations, and cash flows may be materially adversely affected.
If state laws that protect powersports retailers are repealed, weakened, or superseded by RideNow’s framework agreements with manufacturers, its dealerships will be more susceptible to termination, non-renewal, or renegotiation of their dealer agreements, which could have a material adverse effect on its business, results of operations and financial condition.
A failure of any of RideNow’s information systems or those of its third-party service providers, or a data security breach with regard to personally identifiable information about RideNow’s customers or employees, could have a material adverse effect on its business, results of operations, financial condition and cash flows.
RideNow’s operations are subject to extensive governmental laws and regulations. If RideNow is found to be in purported violation of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are enacted that adversely affect its operations, its business, results of operations, financial condition, cash flows, reputation and prospects could suffer.
RideNow is subject to risks related to the provision of employee health care benefits, which could have a material adverse effect on its business, results of operations, financial condition and cash flows.
RideNow is, and expects to continue to be, subject to legal and administrative proceedings, which, if the outcomes are adverse to it, could have a material adverse effect on its business, results of operations, financial condition, cash flows, reputation and prospects.
Lawsuits for product liability claims which exceed RideNow’s insurance coverage limits could have a material adverse impact on RideNow’s results of operations.
RideNow is subject to risks associated with imported product restrictions or limitations, foreign trade and currency valuations.
If RideNow is unable to acquire and successfully integrate additional dealerships into its business, its revenue and earnings growth may be adversely affected.
Natural disasters and adverse weather events can disrupt RideNow’s business.

 

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Risks Related to the Transaction

 

Completion of the Transaction is subject to the conditions contained in the Transaction Agreement and if these conditions are not satisfied, the Transaction will not be completed.

 

The completion of the Transaction is subject to various closing conditions, including (a) the making of all filings and other notifications required to be made under any Antitrust Law (as defined in the Transaction Agreement) for the consummation of the Transaction, the expiration or termination of all waiting periods relating thereto, and the receipt of all clearances, authorizations, actions, non-actions, or other consents required from a governmental authority under any Antitrust Law for the consummation of the Transaction, (b) performance in all respects by each party of its covenants and agreements, (c) the RumbleOn Stockholder Approval, (d) the shares of our Class B common stock to be issued as consideration in the Transaction being approved for listing on Nasdaq, and (e) the receipt of consent to the Transaction from powersports manufacturers representing at least 95% of new vehicle sales of the Target Companies for the twelve months ended December 31, 2020.

 

Many of the conditions to the closing of the Transaction are not within our control, and we cannot predict with certainty when or if these conditions will be satisfied. The failure to satisfy any of the required conditions could delay the completion of the Transaction or prevent it from occurring. Any delay in completing the Transaction could cause us not to realize some or all of the benefits that we expect to achieve if the Transaction is successfully completed within the expected timeframe. There can be no assurance that the conditions to the closing of the Transaction will be satisfied or that the Transaction will be completed or that if completed we will realize the anticipated benefits.

 

Failure to complete the Transaction could negatively impact our stock price and our future business and financial results.

 

If the Transaction is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the benefits of having completed the Transaction, we could be subject to a number of negative consequences, including, among others: (i) we may experience negative reactions from the financial markets, including negative impacts on our stock price; (ii) we will still be required to pay certain significant costs relating to the Transaction, including legal, accounting, and financial advisor costs; and (iii) matters related to the Transaction (including integration planning) require substantial commitments of our time and resources, which could result in our inability to pursue other opportunities that could be beneficial to us. If the Transaction is not completed or if completion of the Transaction is delayed, any of these risks could occur and may adversely affect our business, financial condition, financial results, and stock price.

 

The Transaction will involve substantial costs.

 

We have incurred, and expect to continue to incur, a number of non-recurring costs associated with the Transaction. The substantial majority of the non-recurring expenses will consist of transaction and regulatory costs related to the Transaction. We will also incur transaction fees and costs related to formulating and implementing integration plans, including system consolidation costs and employment-related costs. We continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred from the Transaction and integration. Although we anticipate that the elimination of duplicative costs and the realization of other efficiencies and synergies related to the integration should allow us to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

 

In connection with the Transaction, we will incur additional indebtedness, which could adversely affect us, including our business flexibility and will increase our interest expense.

 

We will have increased indebtedness following completion of the Transaction, which could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing our interest expense. We will also incur various costs and expenses related to the financing of the Transaction. The amount of cash required to pay interest on our increased indebtedness following completion of the Transaction and thereby the demands on our cash resources will be greater than the amount of cash flow required to service our indebtedness prior to the Transaction. The increased levels of indebtedness following completion of the Transaction could also reduce funds available for working capital, capital expenditures, and other general corporate purposes, and may create competitive disadvantages for us relative to other companies with lower debt levels. If we do not achieve the expected synergies and cost savings from the Transaction, or if our financial performance after the Transaction does not meet our current expectations, then our ability to service the indebtedness may be adversely impacted.

 

Certain directors and executive officers of RumbleOn may have interests that may be different from, or in addition to, interests of RumbleOn stockholders generally.

 

Some of the directors of RumbleOn who recommend that RumbleOn stockholders vote in favor of the RumbleOn share issuance, and the executive officers of RumbleOn who provided information to the Board relating to the Transaction, have employment arrangements and other benefits in connection with the Transaction, and rights to ongoing indemnification and insurance that may provide them with interests in the Transaction. Stockholders of RumbleOn should be aware of these interests when considering the Board’s recommendations that they vote in favor of the proposals to be presented at the special meeting.

 

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Risks Related to the Combined Company if the Transaction is Completed

 

Our business relationships, those of RideNow, or the combined company may be subject to disruption due to uncertainty associated with the Transaction.

 

Parties with which we or RideNow do business may experience uncertainty associated with the Transaction, including with respect to current or future business relationships with us, RideNow or the combined company. Our and RideNow’s business relationships may be subject to disruption, as customers, distributors, suppliers, vendors, and others may seek to receive confirmation that their existing business relations with us or RideNow, as the case may be, will not be adversely impacted as a result of the Transaction or attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us, RideNow, or the combined company as a result of the Transaction. Any of these other disruptions could have a material adverse effect on our or RideNow’s businesses, financial condition, or results of operations or on the business, financial condition or results of operations of the combined company, and could also have an adverse effect on our ability to realize the anticipated benefits of the Transaction.

 

If we are unable to maintain effective internal control over financial reporting for the combined companies, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial statements.

 

We and RideNow currently maintain separate internal control over financial reporting with different financial reporting processes and different process control software. We plan to integrate our internal control over financial reporting with those of RideNow. We may encounter difficulties and unanticipated issues in combining our respective accounting systems due to the complexity of the financial reporting processes. We may also identify errors or misstatements that could require audit adjustments. If we are unable to implement and maintain effective internal control over financial reporting following completion of the Transaction, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decline.

 

The combined company’s ability to incur additional debt could have a material adverse effect on its business, financial condition, results of operations, and cash flows.

 

At the close of the Transaction, the combined company will have total debt in excess of $400 million. The combined company’s debt service obligations could have important consequences to it for the foreseeable future, including the following: (i) its ability to obtain additional financing for acquisitions, capital expenditures, working capital or other general corporate purposes may be impaired; (ii) a substantial portion of its cash flow from operating activities will be dedicated to the payment of principal and interest on its debt, thereby reducing the funds available for operations and other corporate purposes; (iii) some of its borrowings are and will continue to be at variable rates of interest, which exposes the combined company to risks of interest rate increases; and (iv) it may be or become substantially more leveraged than some of its competitors, which may place the combined company at a relative competitive disadvantage and make it more vulnerable to changes in market conditions and governmental regulations.

 

In addition to limits on the combined company to incur additional debt in the future, there are operating and financial restrictions and covenants in the Credit Facility and the indenture governing its senior notes such as leverage covenants, may adversely affect the combine company’s ability to finance its future operations or capital needs or to pursue certain business activities. The combined company’s failure to comply with any of these covenants in the future could constitute a default under the relevant agreement, which would have a material adverse effect on the combined company’s business, financial condition, results of operations and/or cash flows. In some cases, a default under one of the debt agreements, could trigger cross-default provisions in one or more of its other debt agreements. There can be no assurance that the combined company’s creditors would agree to an amendment or waiver of its covenants, if necessary. In the event the combined company needed to obtain an amendment or waiver, it would likely incur additional fees and higher interest expense.

 

In addition to the financial and other covenants contained in the combined company’s debt agreements, certain of its lease agreements contain covenants that give its landlords the right to terminate the lease, seek significant cash damages, or evict RideNow from the applicable property, if it fails to comply. Similarly, the combined company’s failure to comply with any financial or other covenants in any of its framework agreements, would give the relevant manufacturer certain rights, including the right to reject proposed acquisitions, and may give it the right to repurchase its franchises. Events that give rise to such rights, could inhibit the combined company’s ability to acquire additional dealerships or require that the combined company sell one or more of its dealerships at any time, and could have a material adverse effect on the combined company’s business, financial condition, results of operations and cash flows. Manufacturers may also have the right to restrict the combined company’s ability to provide guarantees of its operating companies, pledges of the capital stock of its subsidiaries and liens on its assets, which could materially adversely affect its ability to obtain financing for its business and operations on favorable terms or at desired levels, if at all.

 

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RideNow may have liabilities that are not known, probable or estimable at this time.

 

After the Transaction, the Target Companies will remain subject to certain past, current, and future liabilities. There could be unasserted claims or assessments against or affecting the Target Companies, including the failure to comply with applicable laws and regulations. In addition, there may be liabilities of the Target Companies that are neither probable nor estimable at this time that may become probable or estimable in the future, including indemnification requests received from customers of the Target Companies relating to claims of infringement or misappropriation of third party intellectual property or other proprietary rights, tax liabilities arising in connection with ongoing or future tax audits and liabilities in connection with other past, current and future legal claims and litigation. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our financial results. We may learn additional information about the Target Companies that adversely affects us, such as unknown, unasserted, or contingent liabilities and issues relating to compliance with applicable laws or infringement or misappropriation of third party intellectual property or other proprietary rights.

 

RumbleOn stockholders will experience dilution as a consequence of the issuance of the Class B common stock in connection with the Transaction.

 

RumbleOn stockholders will experience dilution upon the issuance of additional shares of Class B common stock pursuant to the Transaction Agreement. Under the terms of the Transaction Agreement, the Class B common stock was valued based on an agreed to $30.00 per share price. However, under the Transaction agreement, the total number of shares of Class B common stock to be issued as “Closing Payment Shares,” will be equal to a value of $175,000,000, valued equally, on a per share basis, based upon the lowest value of: (A) $30.00; (B) the VWAP of the Purchaser Class B Common Stock for the twenty (20) trading days immediately preceding the Closing; and (C) the value on a per share basis paid for the Class B common stock or any shares underlying securities convertible into or exercisable for Class B common stock by any person which purchases Class B common stock or any shares underlying securities convertible into or exercisable for Class B Common Stock from the Purchaser from the date of the Transaction Agreement until Closing, not including purchases of Class B common stock underlying currently outstanding options, warrants, convertible notes, or other derivative securities, minus Escrow Shares (as defined in the Transaction Agreement), which Escrow Shares shall be retained solely from the consideration payable to the Principal. Such dilution will, among other things, limit the ability of the current RumbleOn stockholders to influence management of RumbleOn, including through the election of directors following the Transaction.

 

RumbleOn may experience difficulties integrating RideNow’s businesses.

 

Achieving the anticipated benefits of the Transaction will depend in significant part upon whether RumbleOn and the Target Companies integrate their businesses in an efficient and effective manner. Due to legal restrictions, RumbleOn has been able to conduct only limited planning regarding the integration of the companies following the Transaction and have not yet determined the exact nature of how the businesses and operations of the companies will be combined after the Transaction. The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. The companies may not be able to accomplish the integration process smoothly, successfully or on a timely basis. The necessity of coordinating geographically separated organizations, systems of controls, and facilities and addressing possible differences in business backgrounds, corporate cultures and management philosophies may increase the difficulties of integration. The companies operate numerous systems and controls, including those involving management information, purchasing, accounting and finance, sales, billing, employee benefits, payroll and regulatory compliance. The integration of operations following the Transaction will require the dedication of significant management and external resources, which may temporarily distract management’s attention from the day-to-day business of the combined company and be costly. Employee uncertainty and lack of focus during the integration process may also disrupt the business of the combined company. Any inability of management to successfully and timely integrate the operations of the companies could have a material adverse effect on the business and results of operations of the combined company.

 

The combined company may not fully realize the anticipated benefits of the Transaction within the timing anticipated or at all.

 

RumbleOn and RideNow entered into the Transaction Agreement because each company believes that the Transaction will be beneficial to each of RumbleOn and RideNow primarily as a result of the anticipated benefits resulting from the combined company’s operations. The companies may not be able to achieve the anticipated long-term strategic benefits of the Transaction. An inability to realize the full extent of, or any of, the anticipated benefits of the Transaction, as well as any delays that may be encountered in the integration process, which may delay the timing of such benefits, could have an adverse effect on the business and results of operations of the combined company, and may affect the value of RumbleOn Class B common stock after the completion of the Transaction.

 

Charges to earnings resulting from the application of the acquisition method of accounting may adversely affect the market value of RumbleOn Class B common stock following the Transaction.

 

In accordance with GAAP, RumbleOn will be considered the acquiror of the Target Companies for accounting purposes. RumbleOn will account for the Transaction using the acquisition method of accounting. There may be charges related to the acquisition that are required to be recorded to RumbleOn’s earnings that could adversely affect the market value of RumbleOn Class B common stock following the completion of the Transaction. Under the acquisition method of accounting, RumbleOn will allocate the total purchase price to the assets acquired, including identifiable intangible assets, and liabilities assumed from the Target Companies based on their fair values as of the date of the completion of the Transaction, and record any excess of the purchase price over those fair values as goodwill. For certain tangible and intangible assets, revaluating them to their fair values as of the completion date of the Transaction may result in RumbleOn’s incurring additional depreciation and amortization expense that may exceed the combined amounts recorded by RumbleOn and the Target Companies prior to the Transaction. This increased expense will be recorded by RumbleOn over the useful lives of the underlying assets. In addition, to the extent the value of goodwill or intangible assets were to become impaired after the Transaction, RumbleOn may be required to incur charges relating to the impairment of those assets.

 

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The combined company’s goodwill or other intangible assets may become impaired, which could result in material non-cash charges to its results of operations.

 

The combined company will have goodwill and other intangible assets resulting from the Transaction. At least annually, or whenever events or changes in circumstances indicate a potential impairment in the carrying value as defined by GAAP, the combined company will evaluate this goodwill and other intangible assets for impairment based on the fair value of each reporting unit. Estimated fair values could change if there are changes in the combined company’s capital structure, cost of debt, interest rates, capital expenditure levels, operating cash flows, or market capitalization. Impairments of goodwill or other intangible assets could require material non-cash charges to the combined company’s results of operations.

 

The combined company may be unable to manage its growth effectively.

 

The combined company’s growth strategy will place significant demands on its financial, operational and management resources. In order to continue its growth, the combined company may need to add administrative and other personnel, and will need to make additional investments in operations and systems. There can be no assurance that the combined company will be able to find and train qualified personnel, or do so on a timely basis, or expand its operations and systems to the extent, and in the time, required.

 

The combined company may be unable to execute its acquisition growth strategy.

 

The combined company’s ability to execute its growth strategy depends in part on its ability to identify and acquire desirable acquisition candidates as well as its ability to successfully integrate RideNow’s operations into its business. The consolidation of RumbleOn’s operations with the operations of the Target Companies will present significant challenges to management, particularly during the initial phases of combining the operations of RumbleOn and the Target Companies.

 

Additional factors may negatively impact the combined company’s growth strategy. The combined company’s strategy may require spending significant amounts of capital. If the combined company is unable to obtain additional needed financing on acceptable terms, it may need to reduce the scope of its acquisition growth strategy, which could have a material adverse effect on its growth prospects. If any of the aforementioned factors force management to alter the combined company’s growth strategy, the combined company’s growth prospects could be adversely affected.

 

RideNow and RumbleOn are investing significantly in their brand extension strategy, and if these strategic initiatives are not successful, the combined company will have incurred significant expenses without the benefit of improved financial results.

 

RideNow and RumbleOn have invested and will continue to invest substantial resources in marketing activities with the goals of, among other things, extending and enhancing the “RideNow Powersports” and “RumbleOn” retail brands. The companies are also investing significantly in their brand extension strategy, which includes branded parts and accessories, branded customer financial services products, stand-alone used vehicle sales and service centers, and parts distribution centers. The roll-out of these strategic initiatives may be impacted by a number of variables, including customer adoption, demand for our branded products, market conditions, and our ability to identify, acquire, and build out suitable locations in a timely manner. In addition, we depend on sourcing our branded parts and accessories through various partnerships and third-party suppliers. Our partners and third-party suppliers may be adversely impacted by a number of factors, including supply shortages, rising raw material costs, delays in shipping, economic downturns, liquidity concerns, natural disasters, labor strikes or shortages, fluctuations in currency exchange rates, product defects, litigation, governmental laws and regulations, tariffs and export product restrictions, and adverse publicity relating to their employment, environmental, or other business practices. There can be no assurance that those initiatives will be successful or that the amount we invest in those initiatives will result in improved financial results. If our initiatives are not successful, we will have incurred significant expenses without the benefit of improved financial results, and we may be required to incur impairment charges.

 

If we are not able to maintain and enhance our retail brands and reputation or to attract consumers to our own digital channels, or if events occur that damage our retail brands, reputation, or sales channels, our business and financial results may be harmed.

 

RideNow built an excellent reputation as a powersports vehicle retailer in the South and Southwest. All of RideNow’s stores are unified under the RideNow PowerSports retail brand and the RumbleOn technology we gain access to as a result of the Transaction. We believe that our continued success will depend on our ability to maintain and enhance the value of our retail brands across all of our sales channels, including in the communities in which we operate, and to attract consumers to our own digital channels.

 

Consumers are increasingly shopping for new and used vehicles, vehicle repair and maintenance services, and other vehicle products and services online and through mobile applications, including through third-party online and mobile sales platforms, with which we compete, that are designed to generate consumer sales leads that are sold to vehicle dealers. If we fail to preserve the value of our retail brands, maintain our reputation, or attract consumers to our own digital channels, our business could be adversely impacted.

 

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An isolated business incident at a single store could materially adversely affect our other stores, retail brands, reputation, and sales channels, particularly if such incident results in adverse publicity, governmental investigations, or litigation. In addition, the growing use of social media by consumers increases the speed and extent that information and opinions can be shared, and negative posts or comments on social media about RideNow, RumbleOn or any of our stores could materially damage our retail brands, reputation, and sales channels.

 

Our largest stockholders may have the ability to exert substantial influence over actions to be taken or approved by our stockholders.

 

After the closing of the Transaction, the executive officers and directors and their affiliates of the combined company will beneficially own approximately 45.8% of the voting power in the combined company. As a result, these individuals may have the ability to exert substantial influence over actions to be taken or approved by our stockholders, including the election of directors and any transactions involving a change of control.

 

In the future, our largest stockholders may acquire or dispose of shares of our Class B common stock and thereby increase or decrease their ownership stake in us. Significant fluctuations in the levels of ownership of our largest stockholders could impact the volume of trading, liquidity, and market price of our Class B common stock.

 

The loss of key personnel could have a material adverse effect on the combined company’s financial condition, results of operations and growth prospects.

 

The success of the combined company will depend on the continued contributions of key employees and officers. The loss of the services of key employees and officers, whether such loss is through resignation or other causes, or the inability to attract additional qualified personnel, could have a material adverse effect on the combined company’s financial condition, results of operations and growth prospects.

 

Risks Related to RideNow’s Business and the Powersports Retail Industry

 

The powersports retail industry is sensitive to unfavorable changes in general economic conditions and various other factors that could affect demand for RideNow’s products and services, which could have a material adverse effect on its business, its ability to implement its strategy, and its results of operations.

 

RideNow’s future performance will be impacted by general economic conditions including: changes in employment levels; consumer demand, preferences and confidence levels; the lessening of the impact the COVID-19 pandemic had on social distancing and working from home which resulted in heightened demand for RideNow’s products in 2020; the availability and cost of credit; fuel prices; levels of discretionary personal income; and interest rates. RideNow is also subject to economic, competitive, and other conditions prevailing in the various markets in which it operates, even if those conditions are not prominent nationally.

 

Retail powersports sales are cyclical and historically have experienced periodic downturns characterized by oversupply and weak demand, which could result in a need for RideNow to lower the prices at which it sells vehicles and watercraft, which would reduce its revenue per vehicle or watercraft sold and its margins. Additionally, a shift in consumer’s vehicle preferences driven by pricing, fuel costs or other factors may have a material adverse effect on RideNow’s revenues, margins and results of operations.

 

Changes in general economic conditions may make it difficult for RideNow to execute its business strategy. In such an event, RideNow may be required to enter into certain transactions in order to generate additional cash, which may include, but not be limited to, selling certain of its dealerships or other assets or increasing borrowings under its existing, or any future, credit facilities. There can be no assurance that, if necessary, RideNow would be able to enter into any such transactions in a timely manner or on reasonable terms, if at all. Furthermore, in the event RideNow were required to sell dealership assets, the sale of any material portion of such assets could have a material adverse effect on its revenue and profitability.

 

Adverse conditions affecting one or more of the powersports manufacturers with which RideNow holds franchises, or their inability to deliver a desirable mix of vehicles that RideNow’s consumers demand, could have a material adverse effect on RideNow’s business, results of operations, financial condition, and cash flows.

 

Historically, RideNow has generated most of its revenue through new vehicle sales, and new vehicle sales tend to lead to sales of higher-margin products and services, such as finance and insurance products and vehicle-related parts and service. As a result, RideNow’s profitability is dependent to a great extent on various aspects of vehicle manufacturers’ operations, many of which are outside of its control. RideNow’s ability to sell new vehicles is dependent on its manufacturers’ ability to design and produce, and willingness to allocate and deliver to RideNow’s dealerships, a desirable mix of popular new vehicles that consumers demand. Popular vehicles may often be difficult to obtain from manufacturers for a number of reasons, including the fact that manufacturers generally allocate their vehicles to dealerships based on sales history and capital expenditures associated with such dealerships. Further, if a manufacturer fails to produce desirable vehicles or develops a reputation for producing undesirable vehicles or produces vehicles that do not comply with applicable laws or government regulations, and RideNow owns dealerships which sell that manufacturer’s vehicles, RideNow’s revenues from those dealerships could be adversely affected as consumers shift their vehicle purchases away from that brand.

 

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Although RideNow seeks to limit its dependence on any one vehicle manufacturer, there can be no assurance the brand mix allocated and delivered to its dealerships by the manufacturers will be appropriate or sufficiently diverse to protect RideNow from a significant decline in the desirability of vehicles manufactured by a particular manufacturer or disruptions in a manufacturer’s ability to produce vehicles. For the year ended December 31, 2020, manufacturers representing 10% or more of RideNow’s revenues from new vehicle sales were as follows:

 

 

Manufacturer (Vehicle Brands):  % of Total New Vehicle Revenues 
Polaris   31%
BRP   24%
Harley-Davidson   13%

 

Similar to vehicle retailers, vehicle manufacturers may be affected by the long-term U.S. and international economic climate. In addition, RideNow remains vulnerable to other matters that may impact the manufacturers of the vehicles it sells, many of which are outside of its control, including: (i) changes in their respective financial condition; (ii) changes in their respective marketing efforts; (iii) changes in their respective reputation; (iv) manufacturer and other product defects, including recalls; (v) changes in their respective management; (vi) disruptions in the production and delivery of vehicles and parts due to natural disasters or other reasons; and (vii) issues with respect to labor relations. RideNow’s business is highly dependent on consumer demand and brand preferences for its manufacturers’ products. Manufacturer recall campaigns are a common occurrence that have accelerated in frequency and scope. Manufacturer recall campaigns could adversely affect RideNow’s new and used vehicle sales or customer residual trade-in valuations, could cause RideNow to temporarily remove vehicles from its inventory, could force RideNow to incur increased costs, and could expose RideNow to litigation and adverse publicity related to the sale of recalled vehicles, which could have a material adverse effect on its business, results of operations, financial condition and cash flows. Vehicle manufacturers that produce vehicles outside of the U.S. are subject to additional risks including changes in quotas, tariffs or duties; fluctuations in foreign currency exchange rates; regulations governing imports and the costs related thereto; and foreign governmental regulations.

 

Adverse conditions that materially affect a vehicle manufacturer and its ability to profitably design, market, produce or distribute desirable new vehicles could in turn materially adversely affect RideNow’s ability to (i) sell vehicles produced by that manufacturer, (ii) obtain or finance RideNow’s new vehicle inventories, (iii) access or benefit from manufacturer financial assistance programs, (iv) collect in full or on a timely basis any amounts due therefrom, and/or (v) obtain other goods and services provided by the impacted manufacturer. In addition, RideNow depends on manufacturers’ ability to design, produce, and supply parts to it and any failure to do so could have a material adverse effect on its parts and services business. RideNow’s business, results of operations, financial condition, and cash flows could be materially adversely affected as a result of any event that has an adverse effect on any vehicle manufacturer.

 

In addition, if a vehicle manufacturer’s financial condition worsens and it seeks protection from creditors in bankruptcy or similar proceedings, or otherwise under the laws of its jurisdiction of organization, (i) the manufacturer could seek to terminate or reject all or certain of RideNow’s franchises, (ii) if the manufacturer is successful in terminating all or certain of RideNow’s franchises, RideNow may not receive adequate compensation for those franchises, (iii) RideNow’s cost to obtain financing for its new vehicle inventory may increase or no longer be available from such manufacturer’s captive finance subsidiary, (iv) consumer demand for such manufacturer’s products could be materially adversely affected, especially if costs related to improving such manufacturer’s financial condition are factored into the price of its products, (v) there may be a significant disruption in the availability of consumer credit to purchase or lease that manufacturer’s vehicles or negative changes in the terms of such financing, which may negatively impact RideNow’s sales, or (vi) there may be a reduction in the value of receivables and inventory associated with that manufacturer, among other things. The occurrence of any one or more of these events could have a material adverse effect on RideNow’s business, results of operations, financial condition, and cash flows.

 

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In addition, the powersports manufacturing supply chain spans the globe. As such, supply chain disruptions resulting from natural disasters, adverse weather and other events may affect the flow of vehicle and parts inventories to RideNow or its manufacturing partners. For example, in early 2020, the outbreak of the novel coronavirus in Wuhan, China led to quarantines of a significant number of Chinese cities and other cities worldwide and widespread disruptions to travel and economic activity in most countries. Until such time as the coronavirus is contained, ongoing quarantines may lead RideNow to experience disruptions in the (i) supply of vehicle and parts inventories, (ii) ability and willingness of its customers to visit its stores to purchase products or service their vehicles, and (iii) overall health of its labor force. Although during 2020 the impact of the coronavirus resulted in significant increases in RideNow’s sales and profitability as its customers purchased significantly more vehicles presumably to pursue an entertainment option which complied with social distancing measures and because its customers were limited to fewer other alternatives, it is unclear what effect, if any, the outbreak and resulting disruptions may have on the vehicle manufacturing, vehicle and parts supply chain, the health of RideNow’s labor force and the ability and willingness of its customers to visit its stores to purchase products or service their vehicles. Such disruptions could have a material adverse effect on RideNow’s business, results of operations, financial condition, and cash flows.

 

All of RideNow’s manufacturers will require their consent to consummate the Transaction. Ultimately, if RideNow fails to obtain the consent with respect to dealership locations representing less than 5% of revenue of the dealership locations from the sale of new vehicles for the twelve (12) months ending December 31, 2020, it is permitted to close the Transaction anyway. This may result in the loss of critical brand name vehicles to certain dealership locations which in turn may have a material adverse effect on their performances if not replaced by other manufacturers’ products.

 

RideNow’s business, financial condition, and results of operations may be materially adversely affected by increases in interest rates.

 

RideNow generally finances its purchases of new vehicle inventory, has the ability to finance the purchases of used vehicle inventory, and has the availability to borrow funds for working capital under its senior secured credit facilities that charge interest at variable rates. Therefore, RideNow’s interest expense from variable rate debt will rise with increases in interest rates. In addition, a significant rise in interest rates may also have the effect of depressing demand in the interest rate sensitive aspects of RideNow’s business, particularly new and used vehicle sales and the related profit margins and revenue per vehicle, because most of its customers finance their vehicle purchases. As a result, rising interest rates may have the effect of simultaneously increasing RideNow’s capital costs and reducing its revenues. When considered in connection with reduced expected sales as and if interest rates increase, any such increase could materially adversely affect RideNow’s business, financial condition and results of operations.

 

RideNow’s vehicle and watercraft sales, financial condition, and results of operations may be materially adversely affected by changes in costs or availability of consumer financing.

 

The majority of vehicles and watercraft purchased by RideNow’s customers are financed. Reductions in the availability of credit to consumers have contributed to declines in RideNow’s vehicle sales in past periods. Reductions in available consumer credit or increased costs of that credit could result in a decline in RideNow’s vehicle sales, which would have a material adverse effect on its financial condition and results of operations.

 

Lenders that have historically provided financing to those buyers who, for various reasons, do not have access to traditional financing, including those buyers who have a poor credit history or lack the down payment necessary to purchase a vehicle, are often referred to as subprime lenders. If market conditions cause subprime lenders to tighten credit standards, or if interest rates increase, the ability to obtain financing from subprime lenders for these consumers to purchase vehicles could become limited, resulting in a decline in RideNow’s vehicle sales, which in turn, could have a material adverse effect on its financial condition and results of operations.

 

Substantial competition in powersports sales and services may have a material adverse effect on RideNow’s results of operations.

 

The powersports retail and service industry is highly competitive with respect to price, service, location, and selection. RideNow’s competition includes: (i) franchised vehicle dealerships in its markets that sell the same or similar new and used vehicles and boats; (ii) privately negotiated sales of used vehicles and boats; (iii) other used vehicle and boat retailers, including regional and national vehicle rental companies; (iv) internet-based used vehicle brokers that sell used vehicles and boats to consumers; (v) service center and parts supply chain stores; and (vi) independent service and repair shops.

 

RideNow does not have any material cost advantage over other retailers in purchasing new vehicles from manufacturers. RideNow typically relies on its advertising, merchandising, sales expertise, service reputation, strong local branding, and dealership location to sell new vehicles. Because RideNow’s dealer agreements only grant it a non-exclusive right to sell a manufacturer’s product within a specified market area, its revenues, gross profit and overall profitability may be materially adversely affected if competing dealerships expand their market share. Further, RideNow’s vehicle manufacturers may decide to award additional franchises in its markets in ways that negatively impact its sales.

 

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Internet and text messaging have become a significant part of the advertising and sales process in RideNow’s industry. Customers are using the internet to shop, and compare prices, for new and used vehicles, repair and maintenance services, finance and insurance products, and other powersports products. If RideNow is unable to effectively use the internet or text messaging to attract customers to its own on-line channels and mobile applications, and, in turn, to its stores, its business, financial condition, results of operations, and cash flows could be materially adversely affected. Additionally, the growing use of social media by consumers increases the speed and extent that information and opinions can be shared, and negative posts or comments on social media about RideNow or any of its stores could damage RideNow’s reputation and brand names, which could have a material adverse effect on its business, financial condition, results of operations, and cash flows.

 

Additionally, if one or more companies are permitted to circumvent the state franchise laws of several states in the United States thereby permitting them to sell their new vehicles without the requirements of establishing a dealer-network, they may be able to have a competitive advantage over the traditional dealers, which could have a material adverse effect on RideNow’s sales in those states.

 

RideNow is dependent upon its relationships with the manufacturers of vehicles that it sells and is subject to restrictions imposed by, and significant influence from, these vehicle manufacturers. Any of these restrictions or any changes or deterioration of these relationships could have a material adverse effect on RideNow’s business, financial condition, results of operations, and cash flows.

 

RideNow is dependent on its relationships with the manufacturers of the vehicles it sells, which have the ability to exercise a great deal of control and influence over its day-to-day operations, as a result of the terms of its dealer, framework, and related agreements. RideNow may obtain new vehicles from manufacturers, service vehicles, sell new vehicles, and display vehicle manufacturers’ trademarks only to the extent permitted under these agreements. The terms of these agreements may conflict with RideNow’s interests and objectives and may impose limitations on key aspects of its operations, including acquisition strategy and capital spending.

 

For example, manufacturers can set performance standards with respect to sales volume, sales effectiveness and customer satisfaction, and require RideNow to obtain manufacturer consent before it can acquire dealerships selling a manufacturer’s vehicles. From time to time, RideNow may be precluded under agreements with certain manufacturers from acquiring additional franchises, or subject to other adverse actions, to the extent RideNow is not meeting certain performance criteria at its existing stores (with respect to matters such as sales volume, customer satisfaction and sales effectiveness) until its performance improves in accordance with the agreements, subject to applicable state franchise laws. In addition, many vehicle manufacturers place limits on the total number of franchises that any group of affiliated dealerships may own and certain manufacturers place limits on the number of franchises or share of total brand vehicle sales that may be maintained by an affiliated dealership group on a national, regional or local basis, as well as limits on store ownership in contiguous markets, which limits may be applicable to the Company as a result of the Transaction. If RideNow reaches any of these limits, it may be prevented from making further acquisitions, or it may be required to dispose of certain dealerships, whether as a result of the Transaction or otherwise, which could adversely affect its future growth. RideNow cannot provide assurance that manufacturers will approve future acquisitions timely, if at all, which could significantly impair the execution of its acquisition strategy.

 

In addition, certain manufacturers use a dealership’s manufacturer-determined customer satisfaction index score as a factor governing participation in incentive programs. To the extent RideNow does not meet minimum score requirements, its future payments may be materially reduced or it may be precluded from receiving certain incentives, which could materially adversely affect its business, financial condition, results of operations and cash flows.

 

Manufacturers also typically establish facilities and minimum capital requirements for dealerships on a case-by-case basis. In certain circumstances, including as a condition to obtaining consent to a proposed acquisition, a manufacturer may require RideNow to remodel, upgrade or move its facilities, and capitalize the subject dealership at levels it would not otherwise choose to fund, causing RideNow to divert its financial resources away from uses that management believes may be of higher long-term value to it. Delays in obtaining, or failing to obtain, manufacturer consent, would impede RideNow’s ability to execute acquisitions that it believes would integrate well with its overall strategy and limit its ability to expand its business.

 

Manufacturers can also establish new franchises or relocate existing franchises, subject to applicable state franchise laws. The establishment or relocation of franchises in RideNow’s markets could have a material adverse effect on the business, financial condition and results of operations of its dealerships in the market in which the action is taken.

 

Manufacturers may also limit RideNow’s ability to divest one or more of its dealerships in a timely manner or at all. Most of RideNow’s dealer agreements provide the manufacturer with a right of first refusal to purchase any of the manufacturer’s franchises RideNow seeks to sell. Divestitures may also require manufacturer consent and failure to obtain consent would require RideNow to find another potential buyer or wait until the buyer is able to meet the requirements of the manufacturer. A delay in the sale of a dealership could have a negative impact on RideNow’s business, financial condition, results of operations, and cash flows.

 

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Manufacturers may terminate or may not renew RideNow’s dealer and framework agreements, or may compel RideNow to divest its dealerships for a number of reasons, including, default under the agreement, any unapproved change of control (which specific changes vary from manufacturer to manufacturer, but which include material changes in the composition of RideNow’s Board during a specified time period, the acquisition of 5% or more of RideNow’s voting stock by another vehicle manufacturer or distributor, the acquisition of 20% or more of RideNow’s voting stock by third parties, and the acquisition of an ownership interest sufficient to direct or influence management and policies), or certain other unapproved events (including certain extraordinary corporate transactions such as a merger or sale of all or substantially all of RideNow’s assets). Restrictions on any unapproved changes of ownership or management may adversely impact RideNow’s value, as they may prevent or deter prospective acquirers from gaining control of it. In addition, actions taken by a manufacturer to exploit its bargaining position in negotiating the terms of renewals of franchise agreements or otherwise, could also have a material adverse effect on RideNow’s revenues and profitability.

 

There can be no assurances that RideNow will be able to renew its dealer and framework agreements on a timely basis, on acceptable terms, or at all. RideNow’s business, financial condition, and results of operations may be materially adversely affected to the extent that its rights become compromised or its operations are restricted due to the terms of its dealer or framework agreements or if it loses franchises representing a significant percentage of its revenues due to termination or failure to renew such agreements.

 

If vehicle manufacturers reduce or discontinue sales incentive, warranty or other promotional programs, RideNow’s financial condition, results of operations, and cash flows may be materially adversely affected.

 

RideNow benefits from certain sales incentive, warranty, and other promotional programs of vehicle manufacturers that are intended to promote and support their respective new vehicle sales. Key incentive programs include: (i) customer rebates on new vehicles; (ii) dealer incentives on new vehicles; (iii) special financing or leasing terms; (iv) warranties on new and used vehicles; and (v) sponsorship of used vehicle sales by authorized new vehicle dealers.

 

Vehicle manufacturers often make many changes to their incentive programs. Any reduction or discontinuation of manufacturers’ incentive programs for any reason, including a supply and demand imbalance, may reduce RideNow’s sales volume which, in turn, could have a material adverse effect on its results of operations, cash flows, and financial condition.

 

If state laws that protect powersports retailers are repealed, weakened, or superseded by RideNow’s framework agreements with manufacturers, its dealerships will be more susceptible to termination, non-renewal, or renegotiation of their dealer agreements, which could have a material adverse effect on its business, results of operations and financial condition.

 

Applicable state laws generally provide that a vehicle manufacturer may not terminate or refuse to renew a dealer agreement unless it has first provided the dealer with written notice setting forth “good cause” and stating the grounds for termination or non-renewal. Some state laws allow dealers to file protests or petitions or allow them to attempt to comply with the manufacturer’s criteria within a notice period to avoid the termination or non-renewal. RideNow’s framework agreements with certain manufacturers contain provisions that, among other things, attempt to limit the protections available to dealers under these laws, and, though unsuccessful to date, manufacturers’ ongoing lobbying efforts may lead to the repeal or revision of these laws. If these laws are repealed in the states in which RideNow operates, manufacturers may be able to terminate RideNow’s franchises without providing advance notice, an opportunity to cure or a showing of good cause. Without the protection of these state laws, it may also be more difficult for RideNow to renew its dealer agreements upon expiration. Changes in laws that provide manufacturers the ability to terminate RideNow’s dealer agreements could materially adversely affect its business, financial condition, and results of operations. Furthermore, if a manufacturer seeks protection from creditors in bankruptcy, courts have held that the federal bankruptcy laws may supersede the state laws that protect vehicle retailers resulting in the termination, non-renewal or rejection of franchises by such manufacturers, which, in turn, could materially adversely affect RideNow’s business, financial condition, and results of operations.

 

A failure of any of RideNow’s information systems or those of its third-party service providers, or a data security breach with regard to personally identifiable information about RideNow’s customers or employees, could have a material adverse effect on its business, results of operations, financial condition and cash flows.

 

RideNow depends on the efficient operation of its information systems and those of its third-party service providers. RideNow relies on information systems at its dealerships in all aspects of its sales and service efforts, as well in the preparation of its consolidated financial and operating data. All of RideNow’s dealerships currently operate on a common dealership management system (“DMS”). RideNow’s business could be significantly disrupted if (i) the DMS fails to integrate with other third-party information systems, customer relations management tools or other software, or to the extent any of these systems become unavailable to RideNow or fail to perform as designed for an extended period of time, or (ii) RideNow’s relationship with its DMS provider or any other third-party provider deteriorates. Additionally, any disruption to access and connectivity of RideNow’s information systems due to natural disasters, power loss or other reasons could disrupt its business operations, impact sales and results of operations, expose RideNow to customer or third-party claims, or result in adverse publicity.

 

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Additionally, in the ordinary course of business, RideNow and its partners receive significant confidential personal information about its customers in order to complete the sale or service of a vehicle and related products. RideNow also receives confidential personal information from its employees. The regulatory environment surrounding information security and privacy is increasingly demanding, with numerous state and federal regulations, as well as payment card industry and other vendor standards, governing the collection and maintenance of confidential personal information from consumers and other individuals. RideNow believes the powersports dealership industry is a particular target of identity thieves, as there are numerous opportunities for a data security breach, including cyber-security breaches, burglary, lost or misplaced data, scams, or misappropriation of data by employees, vendors or unaffiliated third parties. Because of the increasing number and sophistication of cyber-attacks, and despite the security measures RideNow has in place and any additional measures it may implement or adopt in the future, its facilities and systems, and those of its third-party service providers, could be vulnerable to security breaches, computer viruses, lost or misplaced data, programming errors, scams, burglary, human errors, acts of vandalism, and/or other events. Alleged or actual data security breaches can increase costs of doing business, negatively affect customer satisfaction and loyalty, expose RideNow to negative publicity, individual claims or consumer class actions, administrative, civil or criminal investigations or actions, and infringe on proprietary information, any of which could have a material adverse effect on its business, financial condition, results of operations, or cash flows.

 

RideNow’s operations are subject to extensive governmental laws and regulations. If RideNow is found to be in purported violation of or subject to liabilities under any of these laws or regulations, or if new laws or regulations are enacted that adversely affect its operations, its business, results of operations, financial condition, cash flows, reputation and prospects could suffer.

 

The powersports retail industry, including RideNow’s facilities and operations, is subject to a wide range of federal, state, and local laws and regulations, such as those relating to motor vehicle and boat sales, retail installment sales, leasing, finance and insurance, marketing, licensing, consumer protection, consumer privacy, escheatment, anti-money laundering, environmental, vehicle emissions and fuel economy, and health and safety. In addition, with respect to employment practices, RideNow is subject to various laws and regulations, including complex federal, state, and local wage and hour and anti-discrimination laws. The violation of the laws or regulations to which RideNow is subject could result in administrative, civil, or criminal sanctions against RideNow, which may include a cease and desist order against the subject operations or even revocation or suspension of its license to operate the subject business, as well as significant fines and penalties. Violation of certain laws and regulations to which RideNow is subject may also subject it to consumer class action or other lawsuits or governmental investigations and adverse publicity. RideNow currently devotes significant resources to comply with applicable federal, state, and local regulation of health, safety, environmental, zoning, and land use regulations, and it may need to spend additional time, effort, and money to keep its operations and existing or acquired facilities in compliance therewith.

 

In addition, there is a risk that RideNow’s employees could engage in misconduct that violates the laws or regulations to which it is subject. It is not always possible to detect or prevent employee misconduct, and the precautions RideNow takes to detect and deter this activity may not be effective in all cases. If any of RideNow’s employees were to engage in misconduct or were to be accused of such misconduct, its business and reputation could be adversely affected.

 

The Dodd-Frank Act, which was signed into law on July 21, 2010, established the Consumer Financial Protection Bureau (the “CFPB”), an independent federal agency funded by the United States Federal Reserve with broad regulatory powers and limited oversight from the United States Congress. Although vehicle dealers are generally excluded, the Dodd-Frank Act could lead to additional, indirect regulation of vehicle dealers, in particular, their sale and marketing of finance and insurance products, through its regulation of vehicle finance companies and other financial institutions. In addition, the CFPB possesses supervisory authority with respect to certain non-bank lenders, including vehicle finance companies, participating in vehicle financing. The Dodd-Frank Act also provided the Federal Trade Commission (the “FTC”) with new and expanded authority regarding vehicle dealers. Since then, the FTC has been gathering information on consumer protection issues through roundtables, public comments and consumer surveys. The FTC may exercise its additional rule-making authority to expand consumer protection regulations relating to the sale, financing and leasing of motor vehicles.

 

Continued pressure from the CFPB, FTC, and other federal agencies could lead to significant changes in the manner that dealers are compensated for arranging customer financing, and while it is difficult to predict how any such changes might impact RideNow, any adverse changes could have a material adverse impact on its finance and insurance business and results of operations. Furthermore, RideNow expects that new laws and regulations, particularly at the federal level, in other areas may be enacted, which could also materially adversely impact its business.

 

Environmental laws and regulations govern, among other things, discharges into the air and water, storage of petroleum substances and chemicals, the handling and disposal of hazardous wastes, and investigation and remediation of contamination. Similar to many of its competitors, RideNow has incurred and expects to continue to incur capital and operating expenditures and other costs to comply with such federal and state statutes. In addition, RideNow may become subject to broad liabilities arising out of contamination at its currently and formerly owned or operated facilities, at locations to which hazardous substances were transported from such facilities, and at such locations related to entities formerly affiliated with it. For such potential liabilities, RideNow believes it is entitled to indemnification from other entities. However, RideNow cannot provide assurance that such entities will view their obligations as it does or will be able or willing to satisfy them. Failure to comply with applicable laws and regulations, or significant additional expenditures required to maintain compliance therewith, could have a material adverse effect on RideNow’s business, results of operations, financial condition, or cash flows.

 

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A significant judgment against RideNow or the imposition of a significant fine could have a material adverse effect on its business, financial condition and future prospects. RideNow further expects that, from time to time, new laws and regulations, particularly in the environmental area will be enacted, and compliance with such laws, or penalties for failure to comply, could significantly increase its costs. For example, vehicle manufacturers are subject to government-mandated fuel economy and greenhouse gas emission standards, which continue to change and become more stringent over time. Failure of a manufacturer to develop vehicles that meet fuel economy or greenhouse gas emission standards could subject the manufacturer to substantial penalties, increase the cost of vehicles sold to RideNow, and adversely affect RideNow’s ability to market and sell vehicles to meet consumer needs and desires, which could have a material adverse effect on its business, results of operations, financial condition, or cash flows.

 

RideNow is subject to risks related to the provision of employee health care benefits, which could have a material adverse effect on its business, results of operations, financial condition, and cash flows.

 

RideNow uses insurance for health care plans. It records expenses under those plans based on estimates of the costs of expected claims, administrative costs, stop-loss insurance premiums, and expected health care trends. Actual costs under these plans are subject to variability that is dependent upon participant enrollment, demographics, and the actual costs of claims made. Negative trends in any of these areas could cause RideNow to incur additional unplanned health care costs, which could adversely impact its business, financial condition, results of operations, and cash flows. In addition, if enrollment in RideNow’s health care plans increases significantly, the additional costs that it will incur may be significant enough to materially affect its business, financial condition, results of operations, and cash flows.

 

RideNow is, and expects to continue to be, subject to legal and administrative proceedings, which, if the outcomes are adverse to it, could have a material adverse effect on its business, results of operations, financial condition, cash flows, reputation and prospects.

 

RideNow is involved and expects to continue to be involved in numerous legal proceedings arising out of the conduct of its business, including litigation with customers, employment-related lawsuits, class actions, purported class actions, and actions brought by governmental authorities. RideNow does not believe that the ultimate resolution of any known matters will have a material adverse effect on its business, financial condition, results of operations, cash flows, reputation or prospects. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material adverse effect on RideNow’s business, financial condition, results of operations, and cash flows.

 

Property loss or other uninsured liabilities could have a material adverse impact on RideNow’s results of operations.

 

RideNow is subject to substantial risk of property loss due to the significant concentration of property at dealership locations, and concentration of dealerships themselves, including vehicles and parts. RideNow has historically experienced business interruptions from time to time at several of its dealerships, due to actual or threatened adverse weather conditions or natural disasters, such as hurricanes, tornadoes, floods, and hail storms, or other extraordinary events. Concentration of property at dealership locations also makes the powersports retail business particularly vulnerable to theft, fraud, and misappropriation of assets. Illegal or unethical conduct by employees, customers, vendors, and unaffiliated third parties can result in loss of assets, disrupt operations, impact brand reputation, jeopardize manufacturer and other relationships, result in the imposition of fines or penalties, and subject RideNow to governmental investigations or lawsuits. While RideNow maintains insurance to protect against a number of losses, including cyber-security breaches or attacks, its insurance coverage often contains significant deductibles. In addition, RideNow “self-insures” a portion of its potential liabilities, meaning it does not carry insurance from a third-party for such liabilities, and is wholly responsible for any related losses including for certain potential liabilities that some states prohibit the maintenance of insurance to protect against. In certain instances, RideNow’s insurance may not fully cover a loss depending on the applicable deductible or the magnitude and nature of the claim. Additionally, changes in the cost or availability of insurance in the future could substantially increase RideNow’s costs to maintain its current level of coverage or could cause it to reduce its insurance coverage and increase its self-insured risks. To the extent RideNow incurs significant additional costs for insurance, suffers losses that are not covered by in-force insurance or suffers losses for which it is self-insured, its financial condition, results of operations, or cash flows could be materially adversely impacted.

 

RideNow is subject to risks associated with imported product restrictions or limitations, foreign trade and currency fluctuations.

 

RideNow’s business involves the sale of vehicles, parts or vehicles composed of parts that are manufactured outside the United States. As a result, its operations are subject to risks of doing business outside of the United States and importing merchandise, including import duties, exchange rates, trade restrictions, work stoppages, natural or man-made disasters, and general political and socio-economic conditions in other countries. The United States or the countries from which RideNow’s products are imported may, from time to time, impose new quotas, duties, tariffs or other restrictions or limitations, or adjust presently prevailing quotas, duties, or tariffs. The imposition of new, or adjustments to prevailing, quotas, duties, tariffs or other restrictions or limitations could have a material adverse effect on RideNow’s business, financial condition, results of operations and cash flows. Relative weakness of the U.S. dollar against foreign currencies in the future may result in an increase in costs to RideNow and in the retail price of such vehicles or parts, which could discourage consumers from purchasing such vehicles and adversely impact its revenues and profitability.

 

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If RideNow is unable to acquire and successfully integrate additional dealerships into its business, its revenue and earnings growth may be adversely affected.

 

RideNow believes that the vehicle retailing industry is a mature industry whose sales are significantly impacted by the prevailing economic climate, both nationally and in local markets. Accordingly, RideNow believes that its future growth depends in part on its ability to manage expansion, control costs in its operations and acquire and effectively integrate acquired dealerships into its organization. When seeking to acquire other dealerships, RideNow often competes with several other national, regional and local dealership groups, and other strategic and financial buyers, some of which may have greater financial resources than it. Competition for attractive acquisition targets may result in fewer acquisition opportunities for RideNow, and it may have to forgo acquisition opportunities to the extent it cannot negotiate such acquisitions on acceptable terms.

 

RideNow also faces additional risks commonly encountered with growth through acquisitions. These risks include, but are not limited to: (i) failing to obtain manufacturers’ consents to acquisitions of additional franchises; (ii) incurring significant transaction-related costs for both completed and failed acquisitions; (iii) incurring significantly higher capital expenditures and operating expenses; (iv) failing to integrate the operations and personnel of the acquired dealerships and impairing relationships with employees; (v) incorrectly valuing entities to be acquired or incurring undisclosed liabilities at acquired dealerships; (vi) disrupting its ongoing business and diverting its management resources to newly acquired dealerships; (vii) failing to achieve expected performance levels; and (viii) impairing relationships with manufacturers and customers as a result of changes in management.

 

RideNow may not adequately anticipate all the demands that its growth will impose on its personnel, procedures and structures, including its financial and reporting control systems, data processing systems, and management structure. Moreover, its failure to retain qualified management personnel at any acquired dealership may increase the risks associated with integrating the acquired dealership. If RideNow cannot adequately anticipate and respond to these demands, it may fail to realize acquisition synergies and its resources will be focused on incorporating new operations into its structure rather than on areas that may be more profitable.

 

Natural disasters and adverse weather events can disrupt RideNow’s business.

 

RideNow’s stores are concentrated in states and regions in the United States, including primarily Florida, Texas, Arizona and California, in which actual or threatened natural disasters and severe weather events (such as hail storms, hurricanes, earthquakes, fires, tornadoes, snow storms, and landslides) may disrupt its store operations, which may adversely impact its business, results of operations, financial condition, and cash flows. In addition to business interruption, the vehicle retail business is subject to substantial risk of property loss due to the significant concentration of property values at store locations.

 

RideNow cannot assure you that it will not be exposed to uninsured or underinsured losses that could have a material adverse effect on its business, financial condition, results of operations, or cash flows. In addition, natural disasters may adversely impact new vehicle production and the global vehicle supply chain, which in turn could materially adversely impact RideNow’s business, results of operations, financial conditions, and cash flows.

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “projects,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are neither historical facts nor assurances of future performance. These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in RumbleOn’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 31, 2021, and incorporated by reference into this proxy statement, and in particular, the risks discussed under the caption “Risk Factors” included in this proxy statement. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

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PROPOSAL 1: THE STOCK ISSUANCE PROPOSAL

 

The following discussion contains important information relating to the Transaction. The Plan of Merger and Equity Purchase Agreement, dated March 12, 2021, among RumbleOn, the Merger Subs, the Sellers, and the Sellers’ Representative, which is referred to as the Transaction Agreement, is included as Annex A to this proxy statement. RumbleOn encourages you to carefully read the Transaction Agreement in its entirety because it is the principal legal agreement that governs the Transaction.

 

The Companies

 

RumbleOn, Inc.

 

RumbleOn, Inc., a Nevada corporation, is a technology driven, motor vehicle dealer and e-commerce platform provider disrupting the vehicle supply chain using innovative technology that aggregates, processes and distributes inventory in a faster and more cost-efficient manner.

 

We operate an infrastructure-light platform that facilitates the ability of all participants in the supply chain, including RumbleOn, other dealers and consumers to Buy-Sell-Trade-Finance-Transport pre-owned vehicles. Our goal is to transform the way VIN-specific pre-owned vehicles are bought and sold by providing users with the most comprehensive, efficient, timely and transparent transaction experiences. While our initial customer facing emphasis through most of 2018 was on motorcycles and other powersports vehicles, we continue to enhance our platform to accommodate nearly any VIN-specific vehicle including motorcycles, ATVs, boats, RVs, cars and trucks. Of the 3,500 vehicles we sold during the three-months ended March 31, 2021, 2,494 (71%) were automotive and 1,006 (29%) were powersports vehicles. For the three-months ended March 31, 2020, we sold 7,420 vehicles of which 4,603 (62%) were automotive and 2,817 (38%) were powersports vehicles. In August 2020, we launched RumbleOn 3.0, bringing traditional brick and mortar powersports dealers across the country online. Then, in March 2021, we announced a definitive agreement to combine our e-commerce platform with the RideNow powersports group, the nation’s largest powersports retailer, as discussed further below. The combination of RumbleOn and RideNow will become the first omnichannel platform in powersports. This channel is a full-service platform that will revolutionize the customer experience. This omnichannel platform will offer the consumer the fastest, easiest, and most transparent transaction online or in store while providing customers the most comprehensive offering that includes:

 

Buy, Sell or Trade without Leaving Your Home
Virtual Inventory Listings Online and In Store
Physical Retail and Service Locations
Proprietary Supply Aggregation
Apparel, Parts, Service and Accessories
Vehicle Transportation and Logistics
Online Cash Offers
Proprietary Secondary Online Financing

 

The combination of RumbleOn and RideNow is well positioned to capitalize on the secular changes in consumer behavior accelerated by COVID-19. These changes include:

 

Shift in Demographics(1)

 

New demographic groups are coming to powersports - increasing diversity, from gender to ethnicity to age
Number of female motorcycle owners nearly doubled from 2000 to 2020 and the average age of female riders declined 10 years
Powersports give Millennials and Gen Z the “experience culture” they crave
These generations prefer entry point provided by pre-owned
Growth in first-time riders drives lifetime enthusiast

 

Transition to Outdoor Lifestyle(1)

 

Outdoor sports equipment surged
Escaping the indoors
Social yet socially distant
Interactive exercise

 

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Digital Adoption Accelerated(1)

 

E-commerce grew from 15% in 2019 to over 44% in 2020
Today 2/3 of new car shoppers are comfortable completing the entire process online

 

We believe today’s consumer is experience focused; RumbleOn’s acquisition platform for pre-owned vehicles enables the combined business to capture incremental market share as new riders continue to enter the category.

 

 

 

 

(1)       Source: NPD, National Marine Manufacturers Association, U.S. Department of Commerce, Cox Automotive, Boston Consulting Group, McKinsey & Company.

 

This document incorporates important business and financial information about RumbleOn from other documents that are not included in or delivered with this proxy statement. For a list of the documents incorporated by reference into this proxy statement, see “Where You Can Find More Information.”

 

RideNow

 

RideNow Group and Affiliates, a non-legal entity, (“RideNow” or “The Group”) is an affiliated group of powersports franchise dealerships that has been accumulated primarily through acquisition over the past 37 years by its principal owners Bill Coulter and Mark Tkach. Today, RideNow is the nation’s largest powersports dealer group with 45 locations in 11 states predominantly in the Sunbelt region of the United States. For the year ended December 31, 2020, combined revenue, gross profit, and net income were $900 million, $256 million, and $93 million, respectively. The Group sells new and used motorcycles, all-terrain vehicles, personal watercraft, other powersports vehicles, and related products and services, including repair and maintenance services, parts and accessories, riding gear, and apparel. The core brands sold by RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph, which are sold through franchise dealer agreements. RideNow prides itself on bringing quality vehicles, service, and experience to the communities it serves and has long been admired by industry leaders as the largest and most professionally operated Powersports dealer group in the U.S.

 

RideNow was founded by William Coulter in 1983 as a Honda powersports distributor under the name “Coulter Town & Country Honda” located in Tempe, Arizona. Mark Tkach became the General Manager of this location in 1989. In 2005, RideNow first introduced the tradename “RideNow Powersports” for use in all of the franchise retail stores which had no uniform or identifiable common name prior to that time.

 

Since inception, management has believed in an “acquisition strategy” acquiring inefficient operators in a highly fragmented industry. RideNow’s business strategy is to acquire and operate existing retail locations in the Sunbelt states where the weather permits use year-round. Management has focused on centralizing services which benefit from economies of scale such as heavy maintenance, inventory, IT and distribution centers while locating and maintaining high caliber local management who are aficionados of the vehicles offered. Establishing consistent operating procedures at all locations, enhanced bonus opportunities, employee training, shared product knowledge and a customer centered approach has often resulted in the turnaround of poorly performing retail locations after acquisition. Facility renovations and enhancements are often required as well to improve the physical appearance of the retail space. Marketing and advertising campaigns using the “RideNow” logo provide enhancement and better customer recognition. Finally, the strong financing capabilities of the owners present timely and needed cash infusions when necessary. The strong historic relationships of Mr. Coulter and Mr. Tkach with the equipment manufacturers add credibility to the retail locations permitting at times brand expansion.

 

Today approximately 47.3% of revenue is from sales of off-road vehicles (UTVs, ATV, Dirt Bikes), 46.4% from sales of motorcycles and 6.3% from sales of personal watercraft, and other vehicles. The following table summarizes RideNow’s operating performance for the three years ended December 31, 2020 as well as for the quarter ended March 31, 2021. You should also review RideNow’s complete financial statements for these periods beginning on page F-1 of this proxy statement.

 

   March 31,   Years Ended December 31, 
   2021   2020   2019   2018 
                 
Revenue  $245,182,051   $898,890,398   $736,240,720   $699,354,705 
Gross Profit  $74,580,374   $256,220,771   $181,549,444   $172,573,860 
Net Income  $30,680,594   $92,623,076   $32,716,897   $31,702,281

 

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RideNow Group

Management Discussion and Analysis of Financial Condition and Results of Operations
for the Quarterly Periods ended March 31, 2021 and March 31, 2020

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) of the RideNow Group is provided as a supplement to, and should be read in conjunction with, the unaudited Combined Financial Statements and Notes thereto for the three months ended March 31, 2021 and 2020, which are included in this report.

 

Overview

 

RideNow Group and Affiliates, a non-legal entity, (“RideNow” or “The Group” or the “Company”) is a collection of franchised dealerships operating in the powersports industry. The Group is engaged in the sale of new and used motorcycles, all-terrain vehicles, personal watercraft, other powersports vehicles, and related products and services, including repair and maintenance services, parts and accessories, riding gear, and apparel. As of March 31, 2021, RideNow owned and operated more than 43 retail dealerships in the United States, predominately in the Sunbelt region. The core brands sold by RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph, which are sold through franchise dealer agreements.

 

On March 31, 2021, and December 31, 2020 RideNow had two operating segments: (1) Harley-Davidson motor sports dealerships and (2) Metric motor sports dealerships (representing all Non-Harley-Davidson motor sports dealerships). RideNow’s Harley-Davidson dealership segment is comprised of retail franchises that sell new and used motorcycles and related accessories, riding gear and apparel, replacement parts, equipment repair and maintenance services, and also arrange for the delivery of finance and insurance products through third party providers. RideNow’s Metric dealerships segment is comprised of retail franchises that sell new and used motorcycles (non-Harley-Davidson) and other motor sports equipment, including all-terrain vehicles, utility terrain vehicles, boats, personal watercraft, snowmobiles and scooters from manufacturers such as Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph. Additionally, dealerships in RideNow’s Metric segment sell related products and services, including repair and maintenance services and also arrange for the delivery of finance and insurance products through third party providers. RideNow has determined that the operating segments also represent the reportable segments. The reportable segments identified above are the business activities of RideNow for which discrete financial information is available and for which operating results are regularly reviewed by the chief operating decision maker to assess operating performance and allocate resources. RideNow’s chief operating decision maker is comprised of its two owners, who are also RideNow’s (1) Chairman of the Board and (2) Chief Executive Officer.

 

For the three months ended March 31, 2021, new vehicle sales accounted for 58.4% of the Company’s revenue and 37.4% of total gross profit compared to 50.5% and 23.6% of the Company’s revenue and gross profit, respectively in 2020. Used vehicle sales accounted for 15.9% of the Company’s revenue and 9.7% of total gross profit for the three months ended March 31, 2021, compared to 21.4% and 10.0%, of the Company’s revenue and gross profit, respectively, in 2020. Service, parts and others accounted for 17.8% of the Company’s revenue and 26.9% of total gross profit for the three months ended March 31, 2021, compared to 20.2% and 36.5%, respectively in 2020. Finance and insurance, accounted for 7.9% of the Company’s revenue and 26.0% of total gross profit compared to 7.9%% and 29.9%, respectively in 2020.

 

Acquisition by RumbleOn

 

On March 12, 2021, RumbleOn, Inc. announced a definitive agreement to combine with the RideNow Group to create the only omnichannel customer experience in powersports and the largest publicly traded powersports dealership platform (the “RideNow Transactions”). Under the terms of the definitive agreement, RumbleOn will combine with up to 46 entities operating under the RideNow brand for a total consideration of up to $575.4 million, consisting of $400.4 million of cash and approximately 5.8 million shares of RumbleOn Class B Common Stock. RumbleOn will finance the cash consideration through a combination of up to $280.0 million of debt and the remainder through the issuance of new equity. RumbleOn has entered into a commitment letter with Oaktree Capital Management, L.P. (“Oaktree”) to provide for the debt financing, subject to certain conditions (the “Oaktree Financing”). The number of shares to be issued to RideNow is subject to increase as described in the definitive agreement. The RideNow Transaction is subject to successful completion of the debt and equity financing, RumbleOn stockholder approval, manufacturer approval, other federal and state regulatory approvals, and other customary closing conditions as described in the definitive agreement. We expect to close the RideNow Transaction during the third quarter of 2021.

 

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COVID-19 Update

 

In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. The rapid spread of COVID-19 resulted in governmental authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, shutdowns and vaccines. We initially took aggressive action in response to the Pandemic, furloughing nearly 45% of our workforce. However, we quickly rebounded as we found the Pandemic was actually creating great demand as people, weary of staying at home found riding an off-road vehicle in the wide-open, socially distant spaces of tracks and trails to be appealing. While the manufacturers curtailed or shut down operations for a time, and our supply of new vehicles declined, our off-road vehicle demand increased significantly. For the quarter ended June 30, 2020, our vehicles sold, revenue and gross profit were up 57.1%, 49.8% and 58.1%, respectively compared to the quarter ending March 31, 2020. This trend continued throughout the remainder of 2020, and we believe demonstrates that we have been successful in navigating the impact of COVID-19 on our business to date and that our business model makes us well-positioned to meet expected customer demand during the current COVID-19 pandemic. We will continue to evaluate the nature and extent of the impact to our business and our results of operations and financial condition as circumstances evolve surrounding the COVID-19 pandemic.

 

Results of Operations

 

Critical Accounting Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our combined financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.

 

Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of assets and liabilities and the recognition of income and expenses. Management considers these accounting policies to be critical accounting policies. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. The significant accounting policies and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below. Refer to Note 1 — Summary of Significant Accounting Policies of the unaudited Combined Financial Statements included in this report, for more detailed information regarding our critical accounting policies.

 

Revenue Recognition

 

Revenue consists of the sales of new and used recreational vehicles, commissions from related finance and insurance products, sales of parts and services, and sale of other products. RideNow adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU, collectively referred to as Accounting Standards Codification (ASC) Topic 606, which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope. RideNow’s goods and services that fall within the scope of Topic 606 are recognized as revenue when promised goods or services are transferred to customers in amounts that reflect the consideration to which RideNow expects to be entitled in exchange for those goods or services.

 

RideNow adopted the accounting standard effective January 1, 2018, using the modified retrospective approach applied only to contracts not completed as of the date of adoption, with no restatement of comparative periods recorded an increase to retained earnings of approximately $737,000.

 

Valuation of Inventory

 

Inventories, consisting of new vehicles, are stated at the lower of cost or net realizable value on a specific identification basis. Parts and accessories inventories are stated at the weighted average cost. Used vehicles and other inventories are stated at the lower of cost or wholesale net realizable values on a specific identification basis, as determined by management.

 

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Accounting for Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (ASC Topic 842) that amends the accounting guidance on leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently issued amendments to the standard, including providing an additional and optional transition method to adopt the new standard, described below, as well as certain practical expedients related to land easements and lessor accounting. The accounting standard update originally required the use of a modified retrospective approach reflecting the application of the standard to the leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with the option to elect certain practical expedients. A subsequent amendment to the standard provides an additional and optional transition method that allows entities to initially apply the new leases standard at the

adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. RideNow adopted this accounting standard effective January 1, 2018, using the optional transition method with no restatement of comparative periods.

 

RideNow elected certain practical expedients available under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification of RideNow’s existing leases. RideNow did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to RideNow. The new standard also provides practical expedients for an entity’s ongoing accounting. RideNow elected the short- term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, RideNow will not recognize ROU assets or lease liabilities, and RideNow did not recognize ROU asset or lease liabilities for existing short-term leases of those assets in transition. RideNow also elected the practical expedient to not separate lease and non-lease components of leases for the majority of RideNow classes of underlying assets.

 

Goodwill

 

RideNow acquisitions have resulted in the recording of goodwill and other intangible assets. Goodwill is an asset representing operational synergies, franchise rights and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Other intangible assets represent non-compete agreements entered into with sellers from acquired businesses.

 

RideNow does not amortize goodwill. Goodwill is tested for impairment annually or more frequently when events or changes in circumstances indicate that impairment may have occurred. RideNow elected to perform a quantitative goodwill impairment test for its reporting units as of December 31, 2020 and 2019, and no goodwill impairment charges resulted from the testing.

 

Other intangible assets identified include non-compete agreements which are intangible assets with definite lives and are carried at the acquired fair values less accumulated amortization. The non-compete agreements are amortized over the estimate useful lives.

 

Key Operating Metrics

 

We regularly review a number of metrics, to evaluate our business, measure our progress, and make strategic decisions. Our key operating metrics reflect what we believe will be the key drivers of our business, including increasing brand awareness, maximizing the opportunity to source the purchase of low-cost pre-owned vehicles from consumers and dealers while enhancing the selection of vehicles we make available to our customers. Our key operating metrics also demonstrate our ability to translate these drivers into sales and to monetize these retail sales through a variety of product offerings.

 

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Metric Segment (Non-Harley Dealerships)

 

   For the Three Months Ended March 31,  
   2021    2020  
New Vehicles        
Vehicles sold   8,148    5,555 
Day’s sales of inventory   51    178 
Total new vehicle revenue  $121,841,537   $74,972,126 
Gross profit per unit  $2,889   $1,539 
           
Used Vehicles          
Vehicles sold   1,772    1,775 
Day’s sales of inventory   75    94 
Total used vehicle revenue  $21,515,723   $17,148,972 
Gross profit per vehicle  $2,378   $1,463 

 

Harley-Davidson Segment

 

   For the Three Months Ended March 31,  
   2021     2020  
New Vehicles        
Vehicles sold   880    691 
Day’s sales of inventory   64    139 
Total new vehicle revenue  $21,415,489   $16,774,403 
Gross profit per unit  $4,932   $4,037 
           
Used Vehicles          
Vehicles sold   1,094    1,190 
Day’s sales of inventory   57    88 
Total used vehicle revenue  $17,472,548   $21,787,762 
Gross profit per vehicle  $2,769   $1,843 

 

Vehicles Sold

 

We define vehicles sold as the number of new and used retail vehicles sold to consumers in each period. We view vehicles sold as a key measure for several reasons. First, vehicles sold is the primary driver of our revenue and, indirectly, gross profit, since vehicle sales enable multiple complementary revenue streams, including financing, vehicle service contracts, additional parts and accessories and trade-ins. Second, vehicles sold increases the base of available customers for referrals and repeat sales. Third, vehicles sold is an indicator of our ability to retain and capture market share from our competitors.

 

Days Sales of Inventory

 

We define Day’s Sales of Inventory (DSI) as the average time in days that it takes to turn our vehicle inventory. In other words, this metric represents how many days our current stock of inventory will last. We view days sales of inventory as a useful metric due to its impact on vehicle average gross profit per unit and flooring costs. It also helps with forecasting, open-to-buy procurement strategies and simply understanding if we have enough inventory to meet the demand.

 

Total Vehicle Revenue

 

Total vehicle revenue is comprised of new and used vehicle sales. We sell vehicles primarily direct to consumer onsite at our dealerships (bricks and mortar) as well as online. Factors primarily affecting total vehicle sales are availability of inventory from OEMs as well as availability of consumer finance. The effects of COVID-19 accelerated vehicle sales in 2020 and we expect that to continue through 2021 dependent upon available inventory and consumer finance.

 

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Gross Profit Per Unit

 

Gross profit is generated on new and used vehicle sales from the difference between the vehicle selling price and our cost associated with acquiring the vehicle and preparation for sale.  

 

Components of Results of Operations

 

Revenue from Contracts with Customers

 

New and Used Recreational Vehicles

 

RideNow sells new and used recreational vehicles. The transaction price for a recreational vehicle sale is determined with the customer at the time of sale. Customers often trade in their own recreational vehicle to apply toward the purchase of a retail new or used recreational vehicle. The “trade-in” recreational vehicle is a type of noncash consideration measured at fair value, based on external and internal market data for a specific recreational vehicle, and applied as payment of the contract price for the purchased recreational vehicle.

 

When RideNow sells a new or used recreational vehicle, transfer of control typically occurs at a point in time upon delivery of the vehicle to the customer, which is generally at the time of sale, as the customer is able to direct the use of and obtain substantially all benefits from the recreational vehicle at such time. RideNow does not directly finance its customer’s purchases or provide leasing. In many cases, RideNow arranges third- party financing for the retail sale or lease of recreational vehicles to customers in exchange for a fee paid to RideNow by a third-party financial institution. RideNow receives payment directly from the customer at the time of sale or from a third-party financial institution (referred to as contracts-in-transit) within a short period of time following the sale. RideNow establishes provisions, which are not significant, for estimated returns and warranties on the basis of both historical information and current trends.

 

Parts and Service

 

RideNow sells parts and vehicle services related to customer-paid repairs and maintenance, repairs and maintenance under manufacturer warranties and extended service contracts, and collision-related repairs. RideNow also sells parts through wholesale and retail counter channels.

 

Each repair and maintenance service is a single performance obligation that includes both the parts and labor associated with the vehicle service. Payment for each vehicle service work is typically due upon completion of the service, which is generally completed within a short period from contract inception. The transaction price for repair and maintenance services is based on the parts used, the number of labor hours applied, and standardized hourly labor rates. The performance obligation for repair and maintenance service are satisfied over time and create an asset with no alternative use and with an enforceable right to payment for performance completed to date. Revenue is recognized over time based on a direct measurement of labor hours, parts and accessories that are allocated to open service and repair orders at the end of each reporting period. As a practical expedient, the time value of money is not considered since repair and maintenance service contracts have a duration of one year or less. The transaction price for wholesale and retail counter parts sales is determined at the time of sale based on the quantity and price of each product purchased. Payment is typically due at time of sale, or within a short period following the sale. RideNow establishes provisions, which are not significant, for estimated parts returns based on historical information and current trends. Delivery method of wholesale and retail counter parts vary.

 

RideNow generally considers control of wholesale and retail counter parts to transfer when the products are shipped, which typically occurs the same day as or within a few days of sale. RideNow also offers customer loyalty points for parts and services for select franchises. RideNow satisfies its performance obligations and recognizes revenue when the loyalty points are redeemed. Amounts deferred related to the customer loyalty programs are insignificant.

 

Finance and Insurance

 

RideNow sells and receives commissions on the following types of finance and insurance products: extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products, among others. RideNow offers products that are sold and administered by independent third parties, including the vehicle manufacturers’ captive finance subsidiaries.

 

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Pursuant to the arrangements with these third-party providers, RideNow sells the products on a commission basis. For the majority of finance and insurance product sales, RideNow’s performance obligation is to arrange for the provision of goods and services by another party. RideNow’s performance obligation is satisfied when this arrangement is made, which is when the finance and insurance product is delivered to the end customer, generally at the time of the vehicle sale. As agent, RideNow recognizes revenue in the amount of any fee or commission to which it expects to be entitled, which is the net amount of consideration that it retains after paying the third-party provider the consideration received in exchange for the goods or services to be fulfilled by that party.

 

RideNow’s customers are concentrated in the Sunbelt region. There are no significant judgements or estimates required in determining the satisfaction of the performance obligations or the transaction priced at a point-in-time, costs to obtain the customer (i.e. commissions) do not require capitalization.

 

Cost of Sales

 

Cost of sales includes the cost to acquire, recondition, and transport recreational vehicles associated with preparing them for resale. Vehicle acquisition costs are driven by the mix of vehicles we acquire, the source of those vehicles, and supply-and-demand dynamics in the wholesale vehicle market. Reconditioning costs consist of direct costs, including parts, labor, and third-party repair expenses directly attributable to specific vehicles. Transportation costs consist of costs incurred to transport the vehicles from the point of acquisition. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.

 

Gross Profit

 

Vehicle gross profit is the vehicle sales price minus our cost of sales associated with the vehicles sold.

Used Vehicle Gross Profit.

 

Gross Profit from Sales of Service, Parts and Other Revenue represents the sales price for those products and services minus the labor and material costs associated with those sales.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses include costs and expenses for compensation and benefits, advertising and marketing, rent and other facility expenses and other corporate overhead expenses, including expenses associated with information technology, insurance, legal, accounting, finance, and business development. Selling, general and administrative expenses also include the transportation cost associated with selling vehicles but exclude the cost of reconditioning, inspecting, and similar costs which are included in cost of revenue. Subject to the impact of the COVID-19 pandemic and our efforts to preserve liquidity as described elsewhere in this MD&A, we expect selling, general and administrative expenses will continue to increase in future periods as we execute and aggressively expand our business through increased marketing spending and the addition of management and support personnel to ensure we adequately develop and maintain operational, financial and management controls as well as our reporting systems and procedures, but we anticipate selling, general and administrative expenses will decline as a percentage of revenue.

 

Interest Expense

 

Interest expense includes interest incurred on floor plan financing and notes payable.

 

Other (Income) Expense

 

Other (income) expense includes miscellaneous income for interest earned, cash discounts earned, vending income, cash-back incentives, cash over and short, gains and losses on capital asset disposals and other non-operating additions and deductions from income.

 

Seasonality

 

The volume of vehicles sold will generally fluctuate from quarter-to-quarter. This seasonality is caused by several factors including weather, the timing of vehicles available for sale from the OEM’s or selling consumers, the quality of vehicles, temperature, and weather in the state where the dealership is located. Warmer weather locations typically experience less seasonality than colder weather locations when it comes to motorcycle sales. As a result, revenue and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower sales as well as additional costs associated with the holidays and winter weather.

 

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Results of Operations

 

The following table provides the results of operations for the quarters ended March 31, 2021 and 2020, including key financial information relating to our business and operations. The financial information should be read in conjunction with our Condensed Combined Financial Statements for the three months ended March 31, 2021, which are included in this report.

 

   For the Three-Months Ended March 31,  
  

2021

   2020    Change  
Revenue:            
New vehicles  $143,257,024   $91,746,529   $51,510,495 
Used vehicles   38,988,272    38,936,734    51,538 
Service, parts and others   43,529,102    36,724,157    6,804,945 
Finance and insurance   19,407,653    14,378,808    5,028,845 
Total revenue   245,182,051    181,786,228    63,395,823 
                
Cost of Sales               
New vehicles   115,378,848    80,406,382    34,972,466 
Used vehicles   31,746,228    34,146,250    (2,400,022)
Service, parts and others   23,476,601    19,197,651    4,278,950 
Total cost of sales   170,601,677    133,750,283    36,851,394 
                
Gross profit   74,580,374    48,035,945    26,544,429 
                
Selling, general and administrative expenses   43,111,337    35,469,797    7,641,540 
                
Depreciation and amortization expenses   813,507    871,389    (57,882)
                
Operating income   30,655,530    11,694,759    18,960,771 
                
Other Income (Expense)               
Floor plan interest   (491,915)   (1,247,326)   755,411 
Interest expense-other   (215,698)   (352,464)   136,766 
Interest income   163,807    269,946    (106,139)
Total other income (expense)   568,870    378,350    190,520 
Total other (expense)   25,064    (951,494)   976,558 
                
Net Income  $30,680,594   $10,743,265   $19,937,329 

 

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Revenue and Gross Profit

 

Metric Segment

 

    For the Three-Months Ended March 31,  
   2021   2020   Change 
Vehicles sold:            
New vehicles   8,148    5,555    2,593 
Used vehicles   1,772    1,775    (3)
Total vehicles sold   9,920    7,330    2,590 
                
Revenue               
New vehicles  $121,841,537   $74,972,126   $46,869,411 
Used Vehicles   21,515,723    17,148,972    4,366,751 
Service, parts and others   30,007,741    23,455,298    6,552,443 
Finance and insurance   15,596,893    11,140,105    5,733,359 
Total revenue  $188,961,894   $126,716,501   $62,664,580 
                
Gross profit               
New vehicles  $23,537,568   $8,550,688   $14,986,880 
Used Vehicles   4,213,219    2,597,110    1,616,109 
Service, parts and others   13,907,304    11,051,226    2,856,078 
Finance and insurance   15,597,561    11063.799    4,533,762 
Total gross profit  $57,255,652   $33.262.823   $23,992,829 
                
Revenue per Vehicle               
New vehicles  $14,954   $13,496   $1,458 
Used Vehicles  $12,142   $9,661   $2,481 
Service, parts and others  $3,025   $3,200   $(175)
Finance and insurance  $1,572   $1,520   $52 
Total revenue per vehicle  $19,049   $17,287   $1,762 
                 
Gross profit per Vehicle               
New vehicles  $2,889   $1,539   $1,350 
Used Vehicles  $2,378   $1,463   $915 
Service, parts and others  $1,402   $1,508   $(106)
Finance and insurance  $1,572   $1,509   $63 
Total gross profit  $5,772   $4,538   $1,234 

 

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Harley-Davidson Segment

 

    For the Three-Months Ended March 31,  
   2021   2020    Change  
Vehicles sold:            
New vehicles   880    691    189 
Used vehicles   1,094    1,190    (96)
Total vehicles sold   1,974    1,881    93 
                
Revenue               
New vehicles  $21,415,489   $16,774,403   $4,641,086 
Used Vehicles   17,472,548    21,787,762    (4,315,214)
Service, parts and others   13,521,361    13,268,859    252,502 
Finance and insurance   3,810,759    3,817,567    (6,808)
Total revenue  $56,220,157   $55,648,591   $571,566 
                
Gross profit               
New vehicles  $4,339,941   $2,789,459   $1,550,482 
Used Vehicles   3,028,821    2,193,374    835,447 
Service, parts and others   6,145,200    5,896,416    511,474 
Finance and insurance   3,810,760    3,893,873    (83,113)
Total gross profit  $17,324,722   $14,773,122   $2,551,600 
                
Revenue per Vehicle               
New vehicles  $24,336   $24,276   $60 
Used Vehicles  $15,971   $18,309   $(2,338)
Service, parts and others  $6,850   $7,054   $(204)
Finance and insurance  $1,930   $1,945   $(15)
Total revenue per vehicle  $28,480   $

29,585

   $(1,105)
                
Gross profit per Vehicle               
New vehicles  $4,932   $4,037   $895 
Used Vehicles  $2,769   $1,843   $926 
Service, parts and others  $3,113   $3,135   $(22)
Finance and insurance  $1,930   $2,070   $(140)
Total gross profit  $8,776   $7,854   $922 

 

Revenue

 

First Quarter 2021 compared to First Quarter 2020

 

Total revenue increased $63,395,823 to $245,182,051 compared to $181,786,228 in 2020. The increase was primarily due to an increase of 51,510,495 in new vehicle sales plus and increase of $6,804,945 in sales of service, parts and other income and an increase of $5,028,845 in finance and insurance income. The increase was primarily attributable to an increase of 2,593 in the number of new vehicles that were sold to 8,148 compared to 5,555 in 2020 offset by a slight decrease of $84 total revenue per vehicle sold to $24,716 compared to $24,800 in 2020.

 

Total new vehicle sales increased $51,510,497 to $143,257,026 compared to $91,746,529 in 2020. $40,864,798 of this increase resulted from an increase of 2,782 in new vehicles sold to 9,028 compared to 6,246 for 2020. The balance of the increase of $10,645,699 was primarily attributable to an increase in the average selling price per vehicle of $878 to $20,614 compared to 19,736 for 2020. Substantially all new vehicle categories were up in the first quarter of 2021 compared to 2020. The largest increase was driven by the Utility Vehicle Market (or side-by-side) which increased 58.8% or $23,409,406 over the first quarter 2020. There continues to be strong demand for this product, particularly the sport models in Arizona, Nevada and Florida where families can have fun socially distancing on the vast amounts of public land available.

 

Total used vehicle sales increased $51,537 to $38,988,271 compared to $38,936,734 in 2020. The increase was due to an increase in average selling price per vehicle of $472 offset by a decrease in the number of vehicles sold to 2,866 compared to 2,965 in 2020. The increase in price is attributable to the increase in demand along with the lack of available product which has driven prices higher in 2021.

 

Total service, parts and other income increased $6,804,945 to $43,529,102 compared to $36,724,157 in 2020. This was primarily due to the 2,683, increase in vehicles sold in 2021. Service revenue increased $1,755,433 while parts accessories and apparel income increased $5,049,512. The average service, parts and other income per vehicle decreased $327 to $3,660 compared to $3,987 in 2020 due to the significant increase in vehicles sold in 2021 which serves as the denominator in this metric.

 

Total finance and insurance income increased $5,208,844 to $19,407,653 compared to $14,378,808 in 2020. This was primarily due to the 2,683, increase in vehicles sold in 2021. This increase resulted from an increase of sales of extended maintenance and service contracts of $1,520,542 documentation fees of $1,415,602, prepaid maintenance of $1,153,747 and finance income and other products of $938,954.

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Metric Segment (Non-Harley-Davidson) total revenue increased 62,245,393 to $188,961,894 compared to $126,716,501 in 2020. The increase was primarily attributable to the sale of 9,920 vehicles, which was 2,590 more vehicles sold than the 7,330 vehicles that were sold in 2020. In addition, the overall average revenue per vehicle sold increased $1,762 to $19,049 compared to $17,287 in 2020. This increase in revenue included $46,869,411 from the sale of new vehicles at an average sales price per vehicle of $14,954 compared to $13,496 in 2020. Revenue from used vehicle sales increased $4,366,751 at an average sales price per vehicle of $12,142 compared to $9,661 in 2020. Sales of service, parts and other income increased $6,552,443 and sale of finance and insurance products increased $4,875,975.

 

Harley-Davidson total revenue increased $571,566 to $56,220,157 compared to $55,648,591 in 2020. The increase was primarily attributable to an increase in new vehicle sales of $4,641,086 at an average sales price per vehicle of $24,336 compared to $24,276 in 2020, offset by a decrease of $4,315,214 in used vehicle sales at an average sales price of $15,971 compared to $18,309 in 2020. Sales of service, parts and other income increased $252,502 and sales of finance and insurance products decreased $6,808.

 

Gross Profit

 

Total gross profit increased $27,123,293 to $74,580,374 compared to $47,457,081 in 2020. The increase was primarily due to an increase in gross profit of $16,538,029 and $2,451,560 from new and used vehicle sales, respectively, plus an increase of $2,525,995 in sales of service, parts and other income and an increase of $5,028,844 in finance and insurance income. The increase was primarily attributable to an increase of 2,683 in the number of new and used vehicles that were sold to 11,894 compared to 9,211 in 2020 and an increase in the total gross margin to 30.0% compared to 26.0% in 2020.

 

The gross profit on new vehicle sales increased $16,538,029 to $27,878,176 compared to $11,340,147 in 2020. $8,590,816 of this increase resulted from an increase of 2,782 in vehicles sold to 9,028 compared to 6,246 for 2020. The balance of the increase of $7,947,213 was primarily attributable to the increase in the gross margin to 19.5% compared to 12.4% in 2020. This increase resulted from an increase in the average selling price per vehicle of $1,179 to $15,868 compared to 14,689 in 2020 and a change in the vehicle mix sold. Off-road vehicle sales accounted for 62.3% of new vehicle sales in 2021 compared to 57.7% in 2020 and the gross margin on these sales were 19.8% in 2021 compared to 10.5% in 2020.

 

The gross profit on used vehicle sales increased $2,451,560 to $7,242,044 compared to $4,790,484 in 2020. $2,701,729 of this increase was attributable to an increase in the gross margin on vehicles sold to 18.6% compared to 12.3% for 2020 offset by a decrease of $250,169 due a reduction in the number of used vehicles sold of 99 to 2,866 compared to 2,965 in 2020. The increase the gross margin was due to an increase in the average selling price per vehicle of $472 to $13,604 compared to $13,132 in 2020 and the change in mix of vehicles sold. Off-road vehicle sales accounted for 21.1% of used vehicle sales in 2021 compared to 29.3% in 2020 and the gross margin on these sales were 20.0% in 2021 compared to 9.2% in 2020.

 

Total gross profit on service, parts and other income increased $2,525,995 to $20,052,501 compared to $17,526,506 in 2020. This was primarily due to the 2,683, increase in vehicles sold in 2021 offset by a reduction of $154 in the average gross profit per vehicle sold to $1,686 compared to $1,840 in 2020. The average gross margin on service income was 76.8% compared to 75.6% in 2020 and the average gross margin on parts and accessories was 31.4% compared to 31.3% in 2020.

 

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Total finance and insurance gross profit increased $5,208,844 to $19,407,653 compared to $14,378,808 in 2020. This was primarily due to the 2,683, increase in vehicles sold in 2021. This increase resulted from an increase of sales of extended maintenance and service contracts of $1,520,542 documentation fees of $1,415,602, prepaid maintenance of $1,153,747 and finance income and other products of $938,954.

 

Metric Segment (Non-Harley-Davidson) total gross profit increased $23,992,829 to $57,255,652 compared to $33,262,823 in 2020. $7,491,177 of this increase was attributable to the increase of 2,590 in vehicles sold to 9,920 compared to 7,330 in 2020. $9,118,946 of the increase is due to an increase in the gross margin on new and used vehicle sales to 19.4% compared to 12.1% in 2020, an increase in the gross profit on sales of service, parts and other income of $2,856,078, and an increase in sales of finance and insurance products of $4,533,762. The overall gross margin from sales by the Metric Segment increased to 30.3% compared to 26.2% in 2020.

 

Harley-Davidson Segment total gross profit increased $2,551,600 to $17,324,722 compared to $14,773,122 in 2020. The increase was primarily attributable to an increase in the gross profit on new and used vehicle sales of $1,550,482 and $855,447, respectively, plus an increase in the gross profit from sales of service, parts and other income of $248,784 offset a decrease in the gross profit from sales of finance and insurance products of $(83,113) The overall gross margin increased to 30.8% compared to 26.5% in 2019.

 

Selling, General and Administrative Expenses

 

   For the Three-Months Ended March 31, 
   2021   2020   Change 
Compensation and related costs  $28,920,646   $22,594,089   $6,326,557 
Advertising and marketing   1,846,627    1,603,514    243,113 
Other selling expenses   1,574,919    1,302,830    272,089 
Professional fees   447,728    362,532    85,196 
Facility expenses   7,328,847    6,946,120    382,727 
General and administrative expenses   2,992,570    2,660,712    331,858 
   $43,111,337   $35,469,797   $7,641,540 

 

Selling, general and administrative expenses increased by $7,641,540 to $43,111,337 (17.6% of total revenue) compared to $35,469,797 (19.5% of total revenue) in 2020. The increase primarily resulted from an increase of $6,326,557 in compensation and related costs. The increase in compensation and related costs includes an increase in sales commissions of $3,949,026 as a result of the increased sales in 2021 compared to 2020. A small portion of the increase was also due to a reduction in workforce that occurred towards the end of March 2020 due to the COVID-19 pandemic. In the third week of March 2020, we furloughed 284 of our staff. We quickly brought everyone back that would come back which equaled 250 employees in May as we learned the COVID-19 pandemic was increasing the demand for our vehicles. The increase in advertising, marketing and other selling expenses was directly attributable to the increase in sales. During the three months ended March 31, 2021 we purchased additional online and digital marketing with increases in SEO/SEM and paid search. The increase in facilities expenses was primarily related to an increase in warehouse space in order to handle the growing UTV (side by side) market as these vehicles are the size of automobiles. The increase in general and administrative expenses is primarily due to an increase in costs related to our technology platform of $233,023.

 

Depreciation and Amortization

 

Depreciation and Amortization decreased by $67,882 to $803,507 (0.33% of total revenue) compared to $871,389 (0.48% of total revenue) in 2020

 

Interest Expense

 

Floor plan interest expense decreased $755,411 to $491,915 in 2021 compared to $1,247,326 in 2020 due to significantly lower new inventory as demand outpaced supply in the first quarter 2021 compared to 2020. New inventory value and days supply are the leading indicators for floorplan interest expense. New inventory was down $103,656,764 from $168,025,252 to $64,368,488 and Days supply (DSI) was down to 53 days versus 170 in the prior year.

 

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Liquidity and Capital Resources

 

   3/31/2021   12/31/2020 
Cash and Cash Equivalents  $4,337,169   $3,905,686)
Cash sweep account balance (1)   66,416,689    56,521,530 
Availability under short-term revolving line of credit   19,000,000    19,000,000 
Availability under floor plan notes   192,344,675    186,325,321 
   $282,098,533   $265,752,537 

 

(1) RideNow is a participant in a Cash Sweep Account arrangement with a bank and its affiliates. The Cash Sweep Account combines the cash balances of all the participating affiliates and invests excess cash on a daily basis. Interest is paid to each participant based on the average cash balance in the Cash Sweep account over the course of the year. Any participant that develops an overdraft cash balance is charged interest. For the three months ended March 31, 2021 and 2020, the Cash Sweep Account was earning interest at 1.10% and 3.11%, respectively, and for overdraft balances, the interest charged was 3.25% and 3.50%, respectively.

 

Our capital allocation strategy focuses on growing long-term value for our owners and shareholders. We invest capital in our business to maintain and upgrade existing facilities as well as other strategic and technology initiatives. We also deploy capital opportunistically to complete acquisitions and improve facilities of newly acquired dealerships. For the three months ended March 31, 2021 and 2020 the following table summarizes our capital expenditures:

 

    3/31/2021    3/31/2020 
Purchases of property and equipment  $347,927   $2,774,476 
Purchases of net assts through business combinations   -    - 
Proceeds from sale of property and equipment   (61,758)   - 
   $286,169   $218,286 

 

As of March 31, 2021, and December 31, 2020, excluding lease liabilities, the outstanding principal amount of indebtedness as $95,135,652 and $101,947,256, respectively, are summarized in the table below. See Notes to our Condensed Combined Financial Statements as of March 31, 2021 included in this report and Notes to our audited Combined Financial Statements as of December 31, 2020, which were included in RumbleOn’s Form 8-K that was filed on April 8, 2021.

 

   3/31/2021   12/31/2020 
Asset-Based Financing:        
Floor plan notes payable  $62,514,325   $68,533,679 
Total asset-based lending   

62,514,325

    

68,533,679

 
Notes payable-related parties   7,285,322    7,411,322 
Notes payable-PPP loans   19,039,229    19,039,229 
Notes payable-other   6,296,776    6,963,026 
   $95,135,652   $101,947,256 

 

The following table sets for a summary of our cash flows for the three months ended March 31, 2021, and 2020:

 

   For the Three Months Ended March 31, 
   2021   2020   Change 
Net cash (used in) provide by operating activities  $(12,864,897)  $9,211,195   $(22,076,092)
Net cash (used in) investing activities   (286,169)   (218,286)   (67,883)
Net cash (used in) financing activities   (14,374,049)   (20,917,814)   6,543,674 
Net increase (decrease) in cash  $(27,525,115)  $(11,924,814)  $(15,600,301)

  

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Operating Activities

 

Our primary sources of operating cash flows result from the sales of new and used vehicles and ancillary products and services and our floor plans. Our primary uses of cash from operating activities are purchases of inventory, personnel-related expenses, selling expenses, facility costs and other administrative expenses. For the three months ended March 31, 2021, and 2020, the net cash (used in) or provided by operating activities was $(12,864,897), and $9,211,195, respectively. In 2021 the principal reasons for the decrease in cash from operating activities was the increase in accounts receivable-related parties of $32,227,071 and reduction in the floor plan liabilities of $16,914,758. The increase in accounts receivable-related parties is a result of an increase in the sweep account balance to $66,416,689 compared to $14,903,590 on March 31, 2020.

 

Investing Activities

 

Net cash used in investing activities consists primarily of cash used in capital additions. For the three months ended March 31, 2021, cash used in investing activities increased $67,883 to $286,169 compared to $218,286 for the three months ended March 31, 2020.

 

Financing Activities

 

Cash flows from financing activities primarily relate to our short and long-term borrowing activity and contributions/distributions to or from the owners. In addition, for the three months ended March 31, 2020, there were borrowings under the Company’s revolving line of credit of $16,000,000. That line of credit was completely paid down during the year ended December 31, 2020, and there were not borrowings during the three months ended March 31, 2021.

 

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Management Discussion and Analysis of Financial Condition and Results of Operations
for the Three Years Ended December 31, 2020.

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is provided as a supplement to, and should be read in conjunction with, our audited Combined Financial Statements and notes thereto for the years ended December 31, 2020, 2019 and 2018, which were included in RumbleOn’s Form 8-K that was filed on April 8, 2021.

 

Overview

 

RideNow Group and Affiliates, a non-legal entity, (“RideNow” or “The Group” or the “Company”) is a collection of franchised dealerships operating in the powersports industry. The Group is engaged in the sale of new and used motorcycles, all-terrain vehicles, personal watercraft, other powersports vehicles, and related products and services, including repair and maintenance services, parts and accessories, riding gear, and apparel. As of December 31, 2020, RideNow owned and operated more than 45 retail dealerships in the United States, predominately in the Sunbelt region. The core brands sold by RideNow are Harley-Davidson, Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph, which are sold through franchise dealer agreements.

 

On December 31, 2020, and December 31, 2019 RideNow had two operating segments: (1) Harley-Davidson motor sports dealerships and (2) Metric motor sports dealerships (representing all Non-Harley-Davidson motor sports dealerships). RideNow’s Harley-Davidson dealership segment is comprised of retail franchises that sell new and used motorcycles and related accessories, riding gear and apparel, replacement parts, equipment repair and maintenance services, and also arrange for the delivery of finance and insurance products through third party providers. RideNow’s Metric dealerships segment is comprised of retail franchises that sell new and used motorcycles (non-Harley-Davidson) and other motor sports equipment, including all-terrain vehicles, utility terrain vehicles, boats, personal watercraft, snowmobiles and scooters from manufacturers such as Honda, Yamaha, Kawasaki, Suzuki, Bombardier, Polaris, BMW, Ducati and Triumph. Additionally, dealerships in RideNow’s Metric segment sell related products and services, including repair and maintenance services and also arrange for the delivery of finance and insurance products through third party providers. RideNow has determined that the operating segments also represent the reportable segments. The reportable segments identified above are the business activities of RideNow for which discrete financial information is available and for which operating results are regularly reviewed by the chief operating decision maker to assess operating performance and allocate resources. RideNow’s chief operating decision maker is comprised of its two owners, who are also RideNow’s (1) Chairman of the Board and (2) Chief Executive Officer.

 

For the years ended December 31, 2020, new vehicle sales accounted for 57.4% of the Company’s revenue and 33.3% of total gross profit compared to 54.0% and 23.4% of the Company’s revenue and gross profit, respectively in 2019 and 55.7% and 26.0%, respectively in 2018. Used vehicle sales accounted for 16.3% of the Company’s revenue and 9.4% of total gross profit for the year ended December 31, 2020, compared to 18.0% and 9.2%, of the Company’s revenue and gross profit, respectively, in 2019 and 16.2% and 7.4%, respectively in 2018. Service, parts and others accounted for 18.3% of the Company’s revenue and 28.8% of total gross profit for the year ended December 31, 2020, compared to 20.6% and 37.7%, respectively in 2019 and 20.9% and 37.6%, respectively in 2018. Finance and insurance, accounted for 8.0% of the Company’s revenue and 28.0% of total gross profit compared to 7.4%% and 29.7%, respectively in 2019 and 7.2% and 29.1%, respectively in 2018.

 

Acquisition by RumbleOn

 

On March 12, 2021, RumbleOn, Inc. announced a definitive agreement to combine with the RideNow Group to create the only omnichannel customer experience in powersports and the largest publicly traded powersports dealership platform (the “RideNow Transactions”). Under the terms of the definitive agreement, RumbleOn will combine with up to 46 entities operating under the RideNow brand for a total consideration of up to $575.4 million, consisting of $400.4 million of cash and approximately 5.8 million shares of RumbleOn Class B Common Stock. RumbleOn will finance the cash consideration through a combination of up to $280.0 million of debt and the remainder through the issuance of new equity. RumbleOn has entered into a commitment letter with Oaktree Capital Management, L.P. (“Oaktree”) to provide for the debt financing, subject to certain conditions (the “Oaktree Financing”). The number of shares to be issued to RideNow is subject to increase as described in the definitive agreement. The RideNow Transaction is subject to successful completion of the debt and equity financing, RumbleOn stockholder approval, manufacturer approval, other federal and state regulatory approvals, and other customary closing conditions as described in the definitive agreement. We expect to close the RideNow Transaction during the third quarter of 2021.

 

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COVID-19 Update

 

In March 2020, the World Health Organization declared the COVID-19 outbreak to be a global pandemic. The rapid spread of COVID-19 resulted in governmental authorities implementing numerous measures to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, shutdowns and vaccines. We initially took aggressive action in response to the Pandemic, furloughing nearly 45% of our workforce. However, we quickly rebounded as we found the Pandemic was actually creating great demand as people, weary of staying at home found riding an off-road vehicle in the wide-open, socially distant spaces of tracks and trails to be appealing. While the manufacturers curtailed or shut down operations for a time, and our supply of new vehicles declined, our off-road vehicle demand increased significantly. For the quarter ended June 30, 2020, our vehicles sold, revenue and gross profit were up 57.1%, 49.8% and 58.1%, respectively compared to the quarter ending March 31, 2020. This trend continued throughout the remainder of 2020, and we believe demonstrates that we have been successful in navigating the impact of COVID-19 on our business to date and that our business model makes us well-positioned to meet expected customer demand during the current COVID-19 pandemic. We will continue to evaluate the nature and extent of the impact to our business and our results of operations and financial condition as circumstances evolve surrounding the COVID-19 pandemic.

 

Results of Operations

 

Critical Accounting Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our combined financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions, impacting our reported results of operations and financial condition.

 

Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of assets and liabilities and the recognition of income and expenses. Management considers these accounting policies to be critical accounting policies. The estimates and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances. The significant accounting policies and estimates which we believe are the most critical to aid in fully understanding and evaluating our reported financial results are described below. Refer to Note 1 — Summary of Significant Accounting Policies of the audited Combined Financial Statements and notes thereto for the years ended December 31, 2020, 2019 and 2018, which were included in RumbleOn’s Form 8-K that was filed on April 8, 2021, for more detailed information regarding our critical accounting policies.

 

Revenue Recognition

 

Revenue consists of the sales of new and used recreational vehicles, commissions from related finance and insurance products, sales of parts and services, and sale of other products. RideNow adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU, collectively referred to as Accounting Standards Codification (ASC) Topic 606, which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope. RideNow’s goods and services that fall within the scope of Topic 606 are recognized as revenue when promised goods or services are transferred to customers in amounts that reflect the consideration to which RideNow expects to be entitled in exchange for those goods or services.

 

RideNow adopted the accounting standard effective January 1, 2018, using the modified retrospective approach applied only to contracts not completed as of the date of adoption, with no restatement of comparative periods recorded an increase to retained earnings of approximately $737,000.

 

Valuation of Inventory

 

Inventories, consisting of new vehicles, are stated at the lower of cost or net realizable value on a specific identification basis. Parts and accessories inventories are stated at the weighted average cost. Used vehicles and other inventories are stated at the lower of cost or wholesale net realizable values on a specific identification basis, as determined by management.

 

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Accounting for Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update (ASC Topic 842) that amends the accounting guidance on leases. The new standard establishes a right-of-use (ROU) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The FASB also subsequently issued amendments to the standard, including providing an additional and optional transition method to adopt the new standard, described below, as well as certain practical expedients related to land easements and lessor accounting. The accounting standard update originally required the use of a modified retrospective approach reflecting the application of the standard to the leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements with the option to elect certain practical expedients. A subsequent amendment to the standard provides an additional and optional transition method that allows entities to initially apply the new leases standard at the

adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. RideNow adopted this accounting standard effective January 1, 2018, using the optional transition method with no restatement of comparative periods.

 

RideNow elected certain practical expedients available under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification of RideNow’s existing leases. RideNow did not elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to RideNow. The new standard also provides practical expedients for an entity’s ongoing accounting. RideNow elected the short- term lease recognition exemption for all leases that qualify. As a result, for those leases that qualify, RideNow will not recognize ROU assets or lease liabilities, and RideNow did not recognize ROU asset or lease liabilities for existing short-term leases of those assets in transition. RideNow also elected the practical expedient to not separate lease and non-lease components of leases for the majority of RideNow classes of underlying assets.

 

Goodwill

 

RideNow acquisitions have resulted in the recording of goodwill and other intangible assets. Goodwill is an asset representing operational synergies, franchise rights and future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Other intangible assets represent non-compete agreements entered into with sellers from acquired businesses.

 

RideNow does not amortize goodwill. Goodwill is tested for impairment annually or more frequently when events or changes in circumstances indicate that impairment may have occurred. RideNow elected to perform a quantitative goodwill impairment test for its reporting units as of December 31, 2020 and 2019, and no goodwill impairment charges resulted from the testing.

 

Other intangible assets identified include non-compete agreements which are intangible assets with definite lives and are carried at the acquired fair values less accumulated amortization. The non-compete agreements are amortized over the estimate useful lives.

 

Key Operating Metrics

 

We regularly review several metrics, to evaluate our business, measure our progress, and make strategic decisions. Our key operating metrics reflect what we believe will be the key drivers of our business, including increasing brand awareness, maximizing the opportunity to source the purchase of vehicles from original equipment manufacturers (OEM’s) and consumers and while enhancing the selection of vehicles we make available to our customers. Our key operating metrics also demonstrate our ability to translate these drivers into sales and to monetize these retail sales through a variety of product offerings.

 

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Metric Segment (Non-Harley Dealerships)

 

    For the Years Ended December 31,  
    2020     2019     2018  
New Vehicles                  
Vehicles sold     31,491       25,124       24,946  
Day’s sales of inventory     97       169       150  
Total new vehicle revenue   $ 443,956,052     $ 317,978,998     $ 297,856,702  
Gross profit per vehicle sold   $ 2,311     $ 1,198     $ 1,157  
                         
Used Vehicles                        
Vehicles sold     6,353       6,838       5,976  
Day’s sales of inventory     88       95       110  
Total used vehicle revenue   $ 64,293,419     $ 63,933,304     $ 53,252,779  
Gross profit per vehicle   $ 1,882     $ 1,292     $ 1,253  

 

Harley-Davidson Segment

 

    For the Years Ended December 31,  
    2020     2019     2018  
New Vehicles                  
Vehicles sold     2,879       3,520       3,525  
Day’s sales of inventory     102       121       109  
Total new vehicle revenue   $ 71,867,922     $ 79,738,881     $ 91,490,058  
Gross profit per unit   $ 4,761     $ 3,524     $ 4,964  
                         
Used Vehicles                        
Vehicles sold     4,804       4,735       4,431  
Day’s sales of inventory     73       83       77  
Total used vehicle revenue   $ 82,031,841     $ 68,871,728     $ 60,363,476  
Gross profit per vehicle sold   $ 2,511     $ 1,661     $ 1,092  

 

Vehicles Sold

 

We define vehicles sold as the number of new and used retail vehicles sold to consumers in each period. We view vehicles sold as a key measure for several reasons. First, vehicles sold is the primary driver of our revenue and, indirectly, gross profit, since vehicle sales enable multiple complementary revenue streams, including financing, vehicle service contracts, additional parts and accessories and trade-ins. Second, vehicles sold increases the base of available customers for referrals and repeat sales. Third, vehicles sold is an indicator of our ability to retain and capture market share from our competitors.

 

Days Sales of Inventory

 

We define Day’s Sales of Inventory (DSI) as the average time in days that it takes to turn our vehicle inventory. In other words, this metric represents how many days our current stock of inventory will last. We view days sales of inventory as a useful metric due to its impact on vehicle average gross profit per unit and flooring costs. It also helps with forecasting, open-to-buy procurement strategies and simply understanding if we have enough inventory to meet the demand.

 

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Total Vehicle Revenue

 

Total vehicle revenue is comprised of new and used vehicle sales. We sell vehicles primarily direct to consumer onsite at our dealerships (bricks and mortar) as well as online. Factors primarily affecting total vehicle sales are availability of inventory from OEMs as well as availability of consumer finance. The effects of COVID-19 accelerated vehicle sales in 2020 and we expect that to continue through 2021 dependent upon available inventory and consumer finance.

 

Gross Profit Per Unit

 

Gross profit is generated on new and used vehicle sales from the difference between the vehicle selling price and our cost associated with acquiring the vehicle and preparation for sale.

 

Components of Results of Operations

 

Revenue from Contracts with Customers

 

New and Used Recreational Vehicles

 

RideNow sells new and used recreational vehicles. The transaction price for a recreational vehicle sale is determined with the customer at the time of sale. Customers often trade in their own recreational vehicle to apply toward the purchase of a retail new or used recreational vehicle. The “trade-in” recreational vehicle is a type of noncash consideration measured at fair value, based on external and internal market data for a specific recreational vehicle, and applied as payment toward the contracted price of the purchased recreational vehicle.

 

When RideNow sells a new or used recreational vehicle, transfer of control typically occurs at a point in time upon delivery of the vehicle to the customer, which is generally at the time of sale, as the customer is able to direct the use of and obtain substantially all benefits from the recreational vehicle at such time. RideNow does not directly finance its customer’s purchases or provide leasing. In many cases, RideNow arranges third- party financing for the retail sale or lease of recreational vehicles to customers in exchange for a fee paid to RideNow by a third-party financial institution. RideNow receives payment directly from the customer at the time of sale or from a third-party financial institution (referred to as contracts-in-transit) within a short period of time following the sale. RideNow establishes provisions, which are not significant, for estimated returns and warranties on the basis of both historical information and current trends.

 

Parts and Service

 

RideNow sells parts and vehicle services related to customer-paid repairs and maintenance, repairs and maintenance under manufacturer warranties and extended service contracts, and collision-related repairs. RideNow also sells parts through wholesale and retail counter channels.

 

Each repair and maintenance service is a single performance obligation that includes both the parts and labor associated with the vehicle service. Payment for each vehicle service work is typically due upon completion of the service, which is generally completed within a short period from contract inception. The transaction price for repair and maintenance services is based on the parts used, the number of labor hours applied, and standardized hourly labor rates. The performance obligation for repair and maintenance service are satisfied over time and create an asset with no alternative use and with an enforceable right to payment for performance completed to date. Revenue is recognized over time based on a direct measurement of labor hours, parts and accessories that are allocated to open service and repair orders at the end of each reporting period. As a practical expedient, the time value of money is not considered since repair and maintenance services typically have a duration of one year or less. The transaction price for wholesale and retail counter parts sales is determined at the time of sale based on the quantity and price of each product purchased. Payment is typically due at time of sale, or within a short period following the sale. RideNow establishes provisions, which are not significant, for estimated parts returns based on historical information and current trends. Delivery method of wholesale and retail counter parts vary.

 

RideNow generally considers control of wholesale and retail counter parts to transfer when the products are shipped, which typically occurs the same day as or within a few days of sale. RideNow also offers customer loyalty points for parts and services for select franchises. RideNow satisfies its performance obligations and recognizes revenue when the loyalty points are redeemed. Amounts deferred related to the customer loyalty programs are insignificant.

 

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Finance and Insurance

 

RideNow sells and receives commissions on the following types of finance and insurance products: extended service contracts, maintenance programs, guaranteed auto protection, tire and wheel protection, and theft protection products, among others. RideNow offers products that are sold and administered by independent third parties, including the vehicle manufacturers’ captive finance subsidiaries.

 

Pursuant to the arrangements with these third-party providers, RideNow sells the products on a commission basis. For the majority of finance and insurance product sales, RideNow’s performance obligation is to arrange for the provision of goods and services by another party. RideNow’s performance obligation is satisfied when this arrangement is made, which is when the finance and insurance product is delivered to the end customer, generally at the time of the vehicle sale. As agent, RideNow recognizes revenue in the amount of any fee or commission to which it expects to be entitled, which is the net amount of consideration that it retains after paying the third-party provider the consideration received in exchange for the goods or services to be fulfilled by that party.

 

RideNow’s customers are concentrated in the Sunbelt region. There are no significant judgements or estimates required in determining the satisfaction of the performance obligations or the transaction price at a point-in-time, costs to obtain the customer (i.e. commissions) do not require capitalization.

 

Cost of Sales

 

Cost of sales includes the cost to acquire, recondition, and transport recreational vehicles associated with preparing them for resale. Vehicle acquisition costs are driven by the mix of vehicles we acquire, the source of those vehicles, and supply-and-demand dynamics in the wholesale vehicle market. Reconditioning costs consist of direct costs, including parts, labor, and third-party repair expenses directly attributable to specific vehicles. Transportation costs consist of costs incurred to transport the vehicles from the point of acquisition. Cost of sales also includes any necessary adjustments to reflect vehicle inventory at the lower of cost or net realizable value.

 

Gross Profit

 

Vehicle gross profit is the vehicle sales price minus our cost of sales associated with the vehicles sold.

 

Gross Profit from Sales of Service, Parts and Other Revenue represents the sales price for those products and services minus the labor and material costs associated with those sales.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses include costs and expenses for compensation and benefits, advertising, marketing and other selling expenses, rent and other facility expenses and other corporate overhead expenses, including expenses associated with information technology, outside services, legal, accounting, finance, and business development. Selling, general and administrative expenses also include the transportation cost associated with selling vehicles but exclude the cost of reconditioning, inspecting, and similar costs which are included in cost of revenue. We expect selling, general, and administrative expenses will continue to increase in future periods as we execute and aggressively expand our business through increased marketing spending and the addition of management and support personnel to ensure we adequately develop and maintain operational, financial and management controls as well as our reporting systems and procedures, but we anticipate selling, general and administrative expenses will decline as a percentage of revenue.

 

Interest Expense

 

Interest expense includes interest incurred on floor plan financing and notes payable.

 

Other (Income) Expense

 

Other (income) expense includes miscellaneous income for interest earned, cash discounts earned, vending income, cash-back incentives, cash over and short, gains and losses on capital asset disposals and other non-operating additions and deductions from income.

 

Seasonality

 

The volume of vehicles sold will generally fluctuate from quarter-to-quarter. This seasonality is caused by several factors including weather, the timing of vehicles available for sale from the OEM’s or selling consumers, the quality of vehicles, temperature, and weather in the state where the dealership is located. Warmer weather locations typically experience less seasonality than colder weather locations when it comes to motorcycle sales. As a result, revenue and operating expenses related to volume will fluctuate accordingly on a quarterly basis. The fourth calendar quarter typically experiences lower sales as well as additional costs associated with the holidays and winter weather.

 

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Results of Operations

 

The following table provides the results of operations for the years ended December 31, 2020, 2019 and 2018, including key financial information relating to our business and operations. The financial information should be read in conjunction with our audited Combined Financial Statements for the years ended December 31, 2020, 2019 and 2018, which were included in RumbleOn’s Form 8-K filed on April 8, 2021.

 

   12/31/2020   12/31/2019   Change   12/31/2018   Change 
Revenue:                    
New vehicles  $515,823,974   $397,717,879   $118,106,095   $389,346,760   $8,371,119 
Used vehicles   146,325,260    132,805,032    13,520,228    113,616,255    19,188,777 
Service, parts and others   164,895,944    151,849,099    13,046,845    146,211,431    5,637,668 
Finance and insurance   71,845,220    53,868,710    17,976,510    50,180,259    3,688,451 
Total revenue   898,890,398    736,240,720    162,649,678    699,354,705    36,886,015 
                          
Cost of Sales                         
New vehicles   429,345,954    355,214,641    74,131,313    344,534,573    10,680,068 
Used vehicles   122,306,144    116,104,217    6,201,927    100,863,191    15,241,026 
Service, parts and others   91,017,529    83,372,418    7,645,111    81,383,081    1,989,337 
Total cost of sales   642,669,627    554,691,276    87,978,351    526,780,845    27,910,431 
                          
Gross profit   256,220,771    181,549,444    74,671,327    172,573,860    8,975,584 
                          
Selling, general and administrative expenses   154,520,040    137,201,905    17,318,135    128,929,516    8,272,389 
                          
Depreciation and amortization expenses   4,087,914    3,752,922    334,992    3,868,513    (115,591)
                          
Operating income   97,612,817    40,594,617    57,018,200    39,775,831    818,786 
                          
Other Income (Expense)                         
Floor plan interest   (3,051,930)   (5,528,416)   2,476,486    (4,147,134)   (1,381,282)
Interest expense-other   (3,904,879)   (4,551,687)   646,808    (4,416,800)   (134,887)
Interest income   840,454    986,756    (146,302)   721,953    264,803 
Management fee expense             0    (672,256)   672,256 

Total other income (expense)

   1,126,614    1,215,627    -89,013    440,687    774,940 
Total other (expense)   (4,989,741)   (7,877,720)   2,887,979    (8,073,550)   195,830 
                          
Net Income  $92,623,076   $32,716,897   $59,906,179   $31,702,281   $1,014,616 

 

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Revenue and Gross Profit

 

Metric Segment (Non-Harley-Davidson Dealerships)

 

   12/31/2020   12/31/2019   Change   12/31/2018   Change 
Vehicles sold:                    
New vehicles   31,491    25,124    6,367    24,946    178 
Used vehicles   6,353    6,838    (485)   5,976    862 
Total vehicles sold   37,844    31,962    5,882    30,922    1,040 
                          
Revenue                         
New vehicles  $443,956,052   $317,978,998   $125,977,054   $297,856,702   $20,122,296 
Used Vehicles   64,293,419    63,933,304    360,115    53,252,779    10,680,525 
Service, parts and others   107,944,239    94,333,391    13,610,848    88,976,588    5,356,803 
Finance and insurance   56,043,846    39,373,914    16,669,932    35,618,902    3,755,012 
Total revenue  $672,237,556   $515,619,607   $156,617,949   $475,704,971   $39,914,636 
                          
Gross profit                         
New vehicles  $72,769,806   $30,100,315   $42,669,491   $27,315,618   $2,784,697 
Used Vehicles   11,954,490    8,836,417    3,118,073    7,913,522    922,895 
Service, parts and others   48,243,382    42,436,242    5,807,140    39,162,684    3,273,558 
Finance and insurance   55,820,441    39,387,608    16,432,833    36,586,510    2,801,098 
Total gross profit  $188,788,119   $120,760,582   $68,027,537   $110,978,334   $9,782,248 
                          
Revenue per Vehicle                         
New vehicles  $14,098   $12,656   $1,442   $11,940   $716 
Used Vehicles  $10,120   $9,350   $770   $8,911   $439 
Service, parts and others  $2,852   $2,951   $(99)  $2,877   $74 
Finance and insurance  $1,481   $1,232   $249   $1,152   $80 
Total revenue per vehicle  $17,763   $16,132   $1,631   $15,384   $748 
                          
Gross profit per Vehicle                         
New vehicles  $2,311   $1,198   $1,113   $1,095   $103 
Used Vehicles  $1,882   $1,292   $590   $1,324   $(32)
Service, parts and others  $1,275   $1,328   $(53)  $1,266   $62 
Finance and insurance  $1,475   $1,232   $243   $1,183   $49 
Total gross profit  $4,989   $3,778   $1,211   $3,589   $189 

 

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Harley-Davidson Segment

 

   12/31/2020   12/31/2019   Change   12/31/2018   Change 
Vehicles sold:                    
New vehicles   2,879    3,520    (641)   3,525    (5)
Used vehicles   4,804    4,735    69    4,431    304 
Total vehicles sold   7,683    8,255    (572)   7,956    299 
                          
Revenue                         
New vehicles  $71,867,922   $79,738,881   $(7,870,959)  $91,490,058   $(11,751,177)
Used Vehicles   82,031,841    68,871,728    13,160,113    60,363,476    8,508,252 
Service, parts and others   56,951,705    57,515,708    (564,003)   57,234,843    280,865 
Finance and insurance   15,801,375    14,494,796    1,306,579    14,561,357    (66,561)
Total revenue  $226,652,843   $220,621,113   $6,031,730   $223,649,734   $(3,028,621)
                          
Gross profit                         
New vehicles  $13,708,214   $12,402,923   $1,305,291   $17,496,569   $(5,093,646)
Used Vehicles   12,064,626    7,864,398    4,200,228    4,839,542    3,024,856 
Service, parts and others   25,635,033    26,040,439    (405,406)   25,665,666    374,773 
Finance and insurance   16,024,780    14,481,102    1,543,678    13,593,749    (887,353)
Total gross profit  $67,432,653   $60,788,862   $6,643,791   $61,595,526   $(806,664)
                          
Revenue per Vehicle                         
New vehicles  $24,963   $22,653   $2,310   $25,955   $(3,302)
Used Vehicles  $17,076   $14,545   $2,531   $13,623   $922 
Service, parts and others  $7,413   $6,967   $446   $7,194   $(227)
Finance and insurance  $2,057   $1,756   $301   $1,830   $(74)
Total revenue per vehicle  $29,501   $26,726   $2,775   $28,111   $(1,385)
                          
Gross profit per Vehicle                         
New vehicles  $4,761   $3,524   $1,237   $4,964   $(1,440)
Used Vehicles  $2,511   $1,661   $850   $1,092   $569 
Service, parts and others  $3,337   $3,155   $182   $3,226   $(71)
Finance and insurance  $2,086   $1,754   $332   $1,709   $45 
Total gross profit  $8,777   $7,364   $1,413   $7,742   $(378)

 

Revenue

 

Year Ended December 31, 2020 Compared to December 31, 2019

 

Total revenue increased $162,649,679 to $898,890,399 compared to $736,240,720 in 2019. The increase was primarily due to an increase of $118,106,095 and $13,520,228 in new and used vehicle sales respectively plus an increase of $13,046,845 in sales of service, parts and other income and an increase of $17,976,511 in finance and insurance income, net. The increase was primarily attributable to an increase of 5,310 in the number of new and used vehicles that were sold to 45,527 compared to 40,217 in 2019 and an increase of $1,437 in the average total revenue per unit to $19,744 compared to $18,307 in 2019.

 

Total new vehicle sales increased $118,106,095 to $515,823,974 compared to $397,717,879 in 2019. $85,935,808 of this increase resulted from an increase of 5,726 in vehicles sold to 34,370 compared to 28,644 for 2019. The balance of the increase of $32,170,287 was primarily attributable to an increase in the average selling price per vehicle of $1,123 to $15,008 compared to 13,885 for 2019. Substantially all new vehicle categories were up in 2020 compared to 2019. The largest increase was driven by the Utility Vehicle Market (or side-by-side) which increased 58.8%. There was strong demand for this product, particularly the sport models in Arizona, Nevada and Florida where families can have fun socially distancing on the vast amounts of public land available.

 

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Total used vehicle sales increased $13,520,228 to $146,325,260 compared to $132,805,032 in 2019. The increase was entirely due to an increase in average selling price per vehicle as the total unit volume actually decreased by 416 down from 11,573 in 2019 to 11,157 in 2020. Overall used unit decrease was due to a switch to new units and the increase in price is attributable to more expensive Harley-Davidson motorcycles which increased 69 units from 4,734 to 4,804.

 

Total service, parts and other income increased $13,046,845 to $164,895,944 compared to $151,849,099 in 2019. This was primarily due to the increase of 5,310 vehicles sold in 2020. Service revenue increased $3,607,876 while parts accessories and apparel income increased $9,438,969. The average service, parts and other income per vehicle decreased $154 to $3,622 compared to $3,776 in 2019.

 

Total finance and insurance income increased $17,976,511 to $71,845,221 compared to $53,868,710 in 2019. This was primarily due to the increase of 5,310 vehicles sold in 2020. This increase resulted in an increase of sales of insurance products of $711,226, maintenance and service contracts of $9,401,447, documentation fees of $4,922,333 and finance and other income of $2,941,454.

 

Metric Segment (Non-Harley-Davidson) total revenue increased $156,617,949 to $672,237,556 compared to $515,619,607 in 2019. The increase was primarily attributable to the sale of 37,844 vehicles, which was 5,882 more vehicles sold than the 31,962 vehicles that were sold in 2019. In addition, the overall average revenue per vehicle sold increased $1,631 to $17,763 compared to $16,132 in 2019. This increase in revenue included $125,977,054 from the sale of new vehicles at an average sales price per vehicle of $14,098 compared to $12,656 in 2019. Revenue from used vehicle sales increased a nominal amount of $360,115 at an average sales price per vehicle of $10,120 compared to $9,350 in 2019. Sales of service, parts and other income increased $13,610,848 and sale of finance and insurance products increased $16,669,932.

 

Harley-Davidson total revenue increased $6,031,730 to $226,652,843 compared to $220,621,113 in 2019. The increase was primarily attributable to an increase in used vehicle sales of $13,160,113 at an average sales price per vehicle of $17,076 compared to $14,545 in 2019, offset by a decrease of $7,870,959 in new vehicle sales at an average sales price of $24,963 compared to $22,653 in 2019. Sales of service, parts and other income decreased $564,003 while sales of finance and insurance products increased $1,306,579.

 

Year Ended December 31, 2019 Compared to December 31, 2018

 

Total revenue increased $36,886,015 to $736,240,720 compared to $699,354,705 in 2018. The increase was primarily due to an increase of $8,371,119 and $19,188,777 in new and used vehicle sales respectively plus an increase of $5,637,668 in sales of service, parts and other income and an increase of $3,688,451 in finance and insurance income, net. The increase was primarily attributable to an increase of 1,339 in the number of new and used vehicles that were sold to 40,217 compared to 38,878 in 2018 and an increase of $319 in the average total revenue per unit to $18,307 compared to $17,988 in 2018.

 

Total new vehicle sales increased $8,371,119 to $397,717,879 compared to $389,346,760 in 2018. $2,402,105 of this increase resulted from an increase of 173 vehicles sold to 28,644 compared to 28,471 for 2018. The balance of the increase of $5,969,014 was primarily attributable to an increase in the average selling price per vehicle of $210 to $13,885 compared to 13,675 for 2018. The slight increase was attributable to the Metric segment as Harley-Davidson was flat in 2018.

 

Total used vehicle sales increased $19,188,777 to $132,805,032 compared to $113,616,255 in 2018. The increase was in part due to an increase of 1,166 in vehicles sold to 11,573 compared to 10,407 in 2018. In addition, the average selling price per vehicle sold increased $558 to $11,475 compared to $10,917 in 2018. The increase in price is attributable to more expensive Harley-Davidson motorcycles which increased 69 units from 2018 to 2019.

 

Total service, parts and other income increased $5,637,668 to $151,849,099 compared to $146,211,431 in 2018. This was primarily due to the increase of 1,339 in vehicles sold in 2019. Service revenue increased $3,088,108 while parts accessories and apparel income increased $2,549,560. The average service, parts and other income per vehicle increased $15 to $3,776 compared to $3,761 in 2018.

 

Total finance and insurance income, net increased $3,688,451 to $53,868,710 compared to $50,180,259 in 2018. This was primarily due to the increase of 1,339 in vehicles sold in 2019. This increase resulted in an increase of sales of insurance products of $501,748, maintenance and service contracts of $1,785,322, documentation fees of $1,250,534, and the $652,595 in other finance products.

 

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Metric Segment (Non-Harley-Davidson) total revenue increased $39,914,636 to $515,619,607 compared to $475,704,971 in 2018. The increase was primarily attributable to the sale of 31,962 vehicles, which was 1,040 more vehicles sold than the 30,922 vehicles that were sold in 2018. In addition, the overall average revenue per vehicle sold increased $748 to $16,132 compared to $15,384 in 2018. This increase in revenue included $20,122,296 from the sale of new vehicles at an average sales price per vehicle of $12,656 compared to $11,940 in 2018. Revenue from used vehicle sales increased $7,110,697 at an average sales price per vehicle of $9,350 compared to $8,911 in 2018. Sales of service, parts and other income increased $5,356,803 and sale of finance and insurance products increased $3,755,012.

 

Harley-Davidson total revenue decreased $3,028,621 to $220,621,113 compared to $223,649,734 in 2018. The decrease was primarily attributable to a decrease in new vehicle sales of $11,751,177 at an average sales price of $22,653 per vehicle sold compared to $25,955 in 2018. This decrease was offset by an increase in used vehicle sales of $8,508,252 to $68,871,728 compared to $60,363,476 in 2018 at an average sales price per vehicle of $14,545 compared to $13,623 in 2018. Sales of service, parts and other income increased $280,865 while sales of finance and insurance products decreased $66,561.

 

Gross Profit

 

Year Ended December 31, 2020 Compared to December 31, 2019

 

Total gross profit increased $74,671,328 to $256,220,772 compared to $181,549,444 in 2019. The increase was primarily due to an increase in gross profit of $43,974,782 and $7,318,301 from new and used vehicle sales, respectively, plus an increase of $5,401,734 in sales of service, parts and other income and an increase of $17,976,511 in finance and insurance income, net. The increase was primarily attributable to an increase of 5,310 in the number of new and used vehicles that were sold to 45,527 compared to 40,217 in 2019 and an increase in the gross margin to 28.5% compared to 24.7% in 2019.

 

The gross profit on new vehicle sales increased $43,974,782 to $86,478,020 compared to $42,503,238 in 2019. $14,406,616 of this increase resulted from an increase of 5,726 in vehicles sold to 34,370 compared to 28,644 for 2019. The balance of the increase of $29,568,166 was primarily attributable to the increase in the gross margin to 16.8% compared to 10.7% in 2019. This increase resulted from an increase in the average selling price per vehicle of $1,123 to $15,008 compared to of $13,885 in 2019 and the change mix of vehicles sold. Off-road vehicle sales accounted for 64.2% of new vehicle sales in 2020 compared to 54.6% in 2019 and the gross margin on these sales were 16.1% in 2020 compared to 10.7% in 2019.

 

The gross profit on used vehicle sales increased $7,318,301 to $24,019,116 compared to $16,700,815 in 2019. $8,213,949 of this increase was attributable to an increase in the gross margin on vehicles sold to 16.4% compared to 12.6% for 2019 offset by a decrease of $895,648 due to a reduction in the number of used vehicles sold of 416 to 11,157 compared to 11,573 in 2019. The increase in the gross margin was due to an increase in the average selling price per vehicle of $1,640 to $13,115 compared to $11,475 in 2019 and the change in mix of vehicles sold. Off-road vehicle sales accounted for 20.2% of used vehicle sales in 2020 compared to 12.9% in 2019 and the gross margin on these sales were 19.9% in 2020 compared to 18.1% in 2019.

 

Total gross profit on service, parts and other income increased $5,401,734 to $73,878,415 compared to $68,476,681 in 2019. This was primarily due to the increase of 5,310 in vehicles sold in 2020 offset by a reduction of $80 in the average gross profit per vehicle sold to $1,623 compared to $1,703 in 2019. The average gross margin on service income was 77.0% compared to 75.7% in 2019 and the average gross margin on parts and other income was 31.5% compared to 31.9% in 2019.

 

Total gross profit on finance and insurance income increased $17,976,511 to $71,845,221 compared to $53,868,710 in 2019. This was primarily due to the increase of 5,310 in vehicles sold in 2020. This increase resulted in an increase of sales of insurance products of $711,226, maintenance and service contracts of $9,401,447, documentation fees of $4,922,333 and finance and other income of $2,941,454.

 

Metric Segment (Non-Harley-Davidson) total gross profit increased $68,027,537 to $188,788,119 compared to $120,760,582 in 2019. $14,714,137 of this increase was attributable to the increase of 5,882 in vehicles sold to 37,844 compared to 31,962 in 2019. The remaining $27,955,354 increase in gross profit on sales of vehicles was due to the increase in the gross profit margin to 28.1% compared to 23.4% in 2019. The increase of $5,807,140 for sales of service, parts and other income of $5,807,140 and $16,432,833 for sales of finance and insurance products was due to the increase in sales of 2020 compared to 2019.

 

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Harley-Davidson Segment total gross profit increased $6,643,791 to $67,432,653 compared to $60,788,862 in 2019. The increase was primarily attributable to an increase in the gross profit on vehicle sales of $5,505,519 plus an increase in finance and insurance offset by a reduction in the margin on service, parts and other income of $405,406. The overall gross margin increased to 29.8% compared to 27.5% in 2019.

 

Year Ended December 31, 2019 Compared to December 31, 2018

 

Total gross profit increased $8,975,584 to $181,549,444 compared to $172,573,860 in 2019. The increase was primarily due to an increase in gross profit of $3,648,331 for service, parts and other income and $3,688,451 from sales of finance and insurance products. The gross profit on sales of new vehicles declined $2,308,949 due primarily to the decrease in the gross margin to 10.7% compared to 11.5% in 2018. The gross profit on sales of used vehicles increased $3,947,751 due in part to the increase in the gross margin to 12.6% compared to 11.2% in 2019, and in part due to the increase of 1,339 in the number of vehicles sold to 40,217 compared to 38,878 in 2018.

 

The gross profit on new vehicle sales decreased $2,308,949 to $42,503,238 compared to $44,812,187 in 2018. $2,565,681 of this decrease was due to a decrease in the gross margin to 10.7% compared to 11.5% in 2019, which was offset by a slight increase in gross profit due to an increase of 173 of vehicles sold in 2019 and an increase of $210 in the average sales price per vehicle sold. Off-road vehicle sales accounted for 54.6% of new vehicle sales in 2019 compared to 54.0% in 2018 and the gross margin on these sales were 10.7% in 2019 compared to 10.3% in 2018.

 

The gross profit on used vehicle sales increased $3,947,751 to $16,700,815 compared to $12,753,064 in 2019. $2,265,213 of this increase was attributable to an increase in the gross margin on vehicles sold to 12.6% compared to 11.2% for 2019. In addition, the gross profit on used vehicle sales increased $1,682,538 due to the increase of 1,166 in used vehicles sales to 11,573 compared to 10,407 in 2018. Off-road vehicle sales accounted for 12.9% of used vehicle sales in 2019 compared to 11.2% in 2018 and the gross margin on these sales were 18.1% in 2019 compared to 21.7% in 2018.

 

Total gross profit on service, parts and other income increased $3,688,451 to $53,868,710 compared to $50,180,259 in 2018. This was primarily due to the 1,339, increase in vehicles sold in 2019 plus an increase of $36 in the average gross profit per vehicle sold to $1,703 compared to $1,667 in 2018. The average gross margin on service income was 75.7% compared to 76.6% in 2018 and the average gross margin on parts and other income was 31.9% compared to 31.2% in 2018.

 

Total gross profit on finance and insurance income increased $3,688,451 to $53,868,710 compared to $50,180,259 in 2018. This was primarily due to the 1,339, increase in vehicles sold in 2019. This increase resulted in an increase of sales of insurance products of $501,748, maintenance and service contracts of $1,785,322, documentation fees of $1,250,534, and the $652,595 in other finance products.

 

Metric Segment (Non-Harley-Davidson) total gross profit increased $9,782,248 to $120,760,582 compared to $110,978,334 in 2018. $2,571,453 of this increase was attributable to the increase in the gross margin to 23.4% compared to 23.3% in 2018, The remaining $213,244 increase in gross profit from sales of vehicles was due to the increase of 1,040 in vehicles sold to 31,962 compared to 30,922 in 2018. The increase of $3,273,558 for sales of service, parts and other income and $2,801,098 for sales of finance and insurance products was due to the increase in sales of 2020 compared to 2019.

 

Harley-Davidson Segment total gross profit decreased $806,664 to $60,788,862 compared to $61,595,526 in 2018. The decrease was primarily attributable to a decrease in the gross profit on new vehicle sales of $5,093,646 offset by an increase in gross profit on used vehicle sales of $3,024,856. The gross margin on new vehicle sales decreased to 15.6% compared to 19.1% in 2018, while the gross margin on used vehicle sales increased to 11.4% compared to 8.0% in 2018.

 

Selling, General and Administrative Expenses

 

   12/31/2020   12/31/2019   Change   12/31/2018   Change 
Compensation and related costs  $104,155,686    89,208,574    14,947,112    83,050,940    6,157,634 
Advertising and marketing   6,235,122    6,614,120    (378,998)   4,814,451    1,799,669 
Other selling expenses   6,295,203    4,018,394    2,276,809    3,412,819    605,575 
Professional fees   1,950,638    951,367    999,271    1,466,475    (515,108)
Facility expenses   25,330,533    25,067,345    263,188    23,910,624    1,156,721 
General and administrative expenses   10,552,861    11,342,105    (789,244)   12,274,207    (932,102)
   $154,520,043   $137,201,905   $17,318,138   $128,929,516   $8,272,389 

 

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Year Ended December 31, 2020 Compared to December 31, 2019

 

Selling, general and administrative expenses increased by $17,318,138 to $154,520,043 (17.2% of total revenue) compared to $137,201,905 (18.5% of total revenue) in 2019. Compensation and related costs expense increased $14,947,112 to $104,155,686 compared to $89,208,574 in 2019. This large increase in compensation was due to selling commissions which are variable pay plans that increase or decrease as sales go up and down. Overall advertising, marketing and other selling expenses for 2020 were comparable to 2019. However, the Company committed less funds to direct advertising expenditure due to COVID-19. The increase in facilities expense was primarily due to annual CPI increases built into the leases and additional warehouse rent due to the increase in UTV (side by side) vehicles which are the size of an automobile. The overall reduction in general and administrative expenses were due curtailment of costs due primarily to the COVID-19 pandemic.

 

Year Ended December 31, 2019 Compared to December 31, 2018

 

Selling, general and administrative expenses increased by $8,272,389 to $137,201,905 (18.5% of total revenue) compared to $128,929,516 (18.5% of total revenue) in 2018. Compensation and related costs expense increased $6,157,634 to $89,208,574 compared to $83,050,940 in 2018. This large increase in compensation was due to selling commissions which are variable pay plans that increase or decrease as sales go up and down. Overall advertising, marketing and other selling expenses for 2019 increased $1,799,669 and $605,575, respectively. These increases are in line with the 2019 at 0.7% of revenue. The company ramped up its digital marketing spend and moved away from the more traditional forms of advertising which seems to be working.   The increase in facilities expense was primarily due to additional new locations from acquisitions in Florida, Texas and Arizona as well as general CPI annual rent increases.  The overall reduction in general and administrative expenses were due in 2019 were related to shop supply credits which reduced our supplies and tools expense account.  We did a better job of charging shop supply fees to our customers on repair orders in 2019 versus 2018 which led to a large reduction in general and administrative expenses. 

 

Depreciation and Amortization

 

Year Ended December 31, 2020 Compared to December 31, 2019

 

Depreciation and Amortization increased by $334,992 to $4,087,914 (0.5% of total revenue) compared to $3,752,922 (0.5% of total revenue) in 2019.

 

Year Ended December 31, 2019 Compared to December 31, 2018

Depreciation and Amortization decreased by $115,591 to $3,752,922 (0.5% of total revenue) compared to $3,868,513 (0.6% of total revenue) in 2018.

 

Interest Expense

 

Year Ended December 31, 2020 Compared to December 31, 2019

 

Floor plan interest expense decreased $2,476,486 to $3,051,930 in 2020 compared to $5,528,416 in 2019. The large decrease is attributable to significantly lower new inventory due to increased demand and supply shortage from the OEM’s. As of December 31, 2020, the outstanding balances on our floor plan notes payable was $68,533,679 compared to $162,975,930 as of December 31, 2019. Other interest expense decreased $646,808 to $3,904,879 compared to $4,551,687 in 2019. The decrease was due to lowering principal balances on long-term notes payable.

 

Year Ended December 31, 2019 Compared to December 31, 2018

 

Floor plan interest expense increased $1,381,282 to $5,528,416 in 2019 compared to $4,147,134 in 2018. As of December 31, 2019, the outstanding balances on our floor plan notes payable was $162,975,930 compared to $149,859,103 as of December 31, 2018. Other interest expense increased $134,887 to $4,551,687 compared to $4,416,800 in 2018.

 

Other Income (Expense), Net

 

Year Ended December 31, 2020 Compared to December 31, 2019

 

Other income (expense) includes miscellaneous income for interest earned, cash discounts earned, vending income, cash-back incentives, cash over and short, gains and losses on capital asset disposals and other non-operating additions and deductions from income. Other income (expense) declined by $89,012 to $1,126,614 compared to $1,215,627 for 2019.

 

Year Ended December 31, 2019 Compared to December 31, 2018

 

Other income (expense) increased by $774,940 to $1,215,627 compared to $440,687 for 2018.

 

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Liquidity and Capital Resources

 

We had the following sources of liquidity available for the years ended December 31, 2020, 2019 and 2018:

 

   12/31/2020   12/31/2019   12/31/2018 
Cash and Cash Equivalents  $3,905,686   $4,980,718   $6,706,049 
Cash sweep account balance (1)   56,521,530    14,468,120    2,569,630 
Availability under short-term revolving line of credit   19,000,000    0    19,000,000 
Availability under floor plan notes   186,325,321    74,906,198    88,023,025 
   $265,752,537   $94,355,036   $116,298,704 

 

(1)RideNow is a participant in a Cash Sweep Account arrangement with a bank and its affiliates. The Cash Sweep Account combines the cash balances of all the participating affiliates and invests excess cash on a daily basis. Interest is paid to each participant based on the average cash balance in the Cash Sweep account over the course of the year. Any participant that develops an overdraft cash balance is charged interest. For the years ended December 31, 2020,2019 and 2018, the Cash Sweep Account was earning interest at 1.10%,3.11% and 2.89%, respectively, and for overdraft balances, the interest charged was 3.25%,3.50% and 3.75%, respectively.

 

Our capital allocation strategy focuses on growing long-term value for our owners and shareholders. We invest capital in our business to maintain and upgrade existing facilities as well as other strategic and technology initiatives. We also deploy capital opportunistically to complete acquisitions and improve facilities of newly acquired dealerships. For the years ended December 31, 2020, 2019 and 2018 the following table summarizes our capital expenditures:

 

    12/31/2020    12/31/2019   12/31/2018 
Purchases of property and equipment  $2,101,473   $2,774,476   $1,972,391 
Purchases of net assts through business combinations   1,748,842    4,638,218    5,366,161 
Proceeds from sale of property and equipment   (106,289)   (239,189)   (72.175)
   $3,744,026   $7,173,505   $7,266,377 

 

As of December 31, 2020, 2019 and 2018, excluding lease liabilities, the outstanding principal amount of indebtedness was $101,947,256, $204,397,360 and $179,392,480, respectively, summarized in the table below. See Notes to our audited Combined Financial Statements for the years ended December 31, 2020, 2029 and 2018, which were included in RumbleOn’s Form 8_K that was filed on April 8, 2021.

 

    12/31/2020     12/31/2019     12/31/2018  
Asset-Based Financing:                  
Floor plan notes payable   $ 68,533,679     $ 162,975,930     $ 149,859,103  
Revolving line of credit     -       18,000,000       -  
Total asset-based lending     68,533,679       180,975,930       149,859,103  
Notes payable-related parties     7,411,322       14,069,533       17,744,476  
Notes payable-PPP loans     19,039,229       -       -  
Notes payable-other     6,963,026       9,351,897       11,788,901  
    $ 101,947,256     $ 204,397,360     $ 179,392,480  

 

The following table sets forth a summary of our cash flows for the years ending December 31, 2020, 2019 and 2018:

 

    12/31/2020     12/31/2019     12/31/2018  
Net cash provided by operating activities   $ 69,739,318     $ 1,697,260     $ (20,171,041 )
Net cash used in investing activities     (3,744,026 )     (7,173,505 )     (7,266,377 )
Net cash provided by (used in) financing activities     (67,070,324 )     3,750,914       26,761,533  
Net increase (decrease) in cash   $ (1,075,032 )   $ (1,725,331 )   $ (675,885 )

 

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Operating Activities

 

Our primary sources of operating cash flows result from the sales of new and used vehicles and ancillary products and services and our floor plans. Our primary uses of cash from operating activities are purchases of inventory, personnel-related expenses, selling expenses, facility costs and other administrative expenses. For the year ended December 31, 2020 and 2019, the net cash provided by operating activities was $69,739,318, and $1,697,260, respectively. In 2020 the principal reasons for the increase in cash from operating activities was due to the large increase in profitability of the business which contributed $92,623,076 in net income.

 

Investing Activities

 

Net cash used in investing activities consists primarily of cash used in capital additions and activity from business acquisitions. For the years ended December 31, 2020, 2019 and 2018 cash used in investing activities was $3,744,026, $7,173,505, and $7,266,377, respectively.

 

Financing Activities

 

Cash flows from financing activities primarily relate to our short and long-term borrowing activity and contributions/distributions to or from the owners. For the years ended December 31, 2020, 2019 and 2018 cash (used in) provided by financing activities was ($67,070,324), $3,750,914, and $26,761,533, respectively.

 

The Transaction

 

Structure of the Transaction

 

Subject to the terms and conditions of the Transaction Agreement, RumbleOn will either acquire through the Merger Subs or will purchase the equity interests in the Target Companies.

 

Upon completion of the Transaction, the Target Companies will be wholly-owned subsidiaries of RumbleOn, Inc. RumbleOn’s Class B common stock will continue to trade on Nasdaq under the symbol “RMBL.”

 

Consideration

 

RumbleOn Stockholders. No consideration is being paid to RumbleOn stockholders in the Transaction. RumbleOn stockholders will continue to own their existing shares of RumbleOn Class A or Class B common stock after the Transactions.

 

Holders of Interests in the Target Companies. If the Transaction is completed, Sellers will receive (i) cash in the aggregate amount of $400,400,000 less any adjustments for net working capital and closing indebtedness and (ii) 5,833,333 shares of RumbleOn’s Class B common stock having an aggregate value of $175,000,000 based on an agreed to value at signing of $30.00 per share. The number of Closing Shares issued in the Transaction may be increased if either: (A) the VWAP of the Company’s Class B common stock for the twenty (20) trading days immediately before the Closing Date or (B) the value on a per share basis paid for the Class B common stock by any person who purchases Class B common stock from the Company from the date of the Transaction Agreement until the Closing Date, is less than $30.00. Ten percent (10%) of the Closing Shares will be considered escrow shares and will be released pursuant to the terms of the Transaction Agreement.

 

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Financing

 

The cash portion of the transaction consideration is expected to be financed through a combination of approximately $280,000,000 of debt provided by Oaktree and the remainder through the issuance of new equity.

 

RumbleOn entered into a Commitment Letter with Oaktree on March 12, 2021 and expects to enter into definitive agreement regarding the financing at the closing of the Transaction. The Commitment Letter provides that, subject to the conditions set forth therein, Oaktree commits to provide the Credit Facility in an aggregate principal amount of up to $400,000,000, comprised of (i) an initial advance of $280,000,000 primarily to fund part of the cash consideration in the Transaction and (ii) a delayed draw term facility of up to $120,000,000 to fund permitted acquisitions and similar investments and related fees and expenses of such transactions. Completion of the Transaction is subject to Oaktree providing this Funding in accordance with the terms of the Commitment Letter. Definitive documents relating to the Credit Facility are expected to be signed at Closing.

  

In connection with the Commitment Letter, in lieu of a cash commitment fee, the Company has agreed to issue Oaktree a Warrant to purchase the Warrant Shares at an exercise price per share to be determined at Closing. If issued at Closing, the Warrant will be for that number of shares equal to $40,000,000 divided by the lowest price per share at which equity is issued in connection with financing the Transaction, which price shall also be the exercise price. If the Commitment Letter is terminated before Closing, the Warrant will be issued to purchase that number of shares equal to five percent (5%) of the Company’s fully diluted market capitalization at the close of business on the day after a termination of the Commitment Letter is publicly announced divided by the weighted average price of the Company’s Class B common stock for the five days immediately before such date, which price shall also be the exercise price. The Warrant is immediately exercisable after closing the Transaction or five days after the termination of the Commitment Letter and will expire eighteen (18) months after the Closing or termination of the Commitment Letter.

 

In addition, as a condition to Closing, RumbleOn has committed to raise at least $135.0 million to fund in part the cash consideration in the Transaction and provide RumbleOn with sufficient funds to pay expenses of the Transaction and provide working capital for the Company post-closing.

 

Background of the Transaction

 

Highlighted below is a chronology of events leading up to the Transaction between RumbleOn and RideNow.

 

RumbleOn first considered making an offer for RideNow in mid-August 2020, although no specific pricing or other terms were considered.

 

Later in August, RumbleOn and RideNow principals first discussed a potential transaction though again no specific terms were discussed. During the next week and into early September, a special purpose acquisition company (“SPAC”) joined the conversation with a proposal to acquire both RideNow and RumbleOn. Pricing discussion among SPAC, RideNow, and RumbleOn occurred during early to mid-September 2020, however the negotiations between SPAC and the two target companies were conducted separately.

 

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RumbleOn entered into a Non-Disclosure and Confidentiality Agreement with SPAC on October 2, 2020.

 

RumbleOn, RideNow, and SPAC entered into a Tri-Party Non-Disclosure and Confidentiality Agreement on November 2, 2020 to provide primarily for diligence by the parties of each other.

 

The discussions between SPAC and the two acquisition targets continued until the respective exclusivity periods for the parties with SPAC expired on November 30, 2020. On December 4, 2020, RumbleOn tendered a termination letter to SPAC. Subsequently, on December 8, 2020, RideNow tendered a termination letter to SPAC

 

Approximately one week after termination of the SPAC transaction the principals of RideNow and RumbleOn discussed a potential business combination between themselves and the parties entered into a Non-Disclosure and Confidentiality Agreement on December 16, 2020.

 

Also on December 16, 2020, RideNow and RumbleOn entered into an Exclusivity Agreement. In connection with their Exclusivity Agreement, the parties agreed work toward a transaction in which RumbleOn would purchase RideNow on substantially the same terms SPAC had previously negotiated with RideNow, providing for aggregate consideration of $575.0 million, consisting of $400.0 million cash and $175.0 of RumbleOn Class B common stock.

 

On December 17, 2020, RumbleOn formally engaged B. Riley Securities as RumbleOn’s financial advisor for the transaction and underwriter/placement agent for the Transaction Equity Raise.

 

On January 5, 2021, Akerman provided Gallagher & Kennedy (“G&K”), counsel to RideNow, an initial draft of the Transaction Agreement. The draft was substantially on the terms of the previous RideNow/SPAC transaction agreement, however certain structural changes were reviewed by the parties and the agreement was revised to reflect the organizational status of the entities being acquired.

 

The parties began legal and business due diligence on January 6, 2021, which process continued over the following weeks while the parties negotiated the Transaction Agreement.

 

On January 11, 2021, G&K provided Akerman a revised draft of the Transaction Agreement to negotiate the representations and warranties as well as the parties’ respective responsibilities for certain transaction fees.

 

On January 16, 2021, Akerman provided G&K a revised draft Transaction Agreement to include an environmental review period.

 

On January 25, 2021, G&K provided Akerman a revised draft of the Transaction Agreement to increase the consideration by $400,000 to reflect agreement of RumbleOn to pay one half the audit costs expected to be incurred by RideNow for the transaction, to introduce the concept of a minimum $30.00 share price in respect of the RMBL stock to be received as part of the acquisition consideration, as well as to propose an elimination of the required cash component of working capital.

 

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On February 6, 2021, Akerman provided G&K a revised draft of the Transaction Agreement to propose an increase to the minimum $30.00 share price, restore the cash requirement component of working capital, and require a minimum percentage of required consents as a condition to closing.

 

On February 11, 2021 the Company entered into a letter of intent with Oaktree providing for a Commitment Letter between the parties to provide financing to fund part of the cash portion of the consideration to be paid in the Transaction. The letter of intent anticipated a credit facility providing $280.0 million to be drawn at Closing to fund in part the cash consideration in the transaction and an additional $120.0 million available in a delayed draw term loan for acquisitions and for working capital and general corporate purposes.

 

On February 12, 2021, G&K provided Akerman a revised draft Transaction Agreement with further revisions to the representations and warranties, and restoration of the $30.00 minimum share price, and working capital without a specific cash requirement.

 

Akerman participated in an initial call with Akin Gump, Strauss Hauer & Feld LLP (“Akin”), Oaktree’s legal counsel, to discuss commitment letter on February 16, 2021.

 

On February 19, 2021, Akerman provided G&K a revised draft Transaction Agreement to eliminate the pre-closing purchase price adjustment and provide only for a post-closing adjustment.

 

Akerman received an initial draft commitment letter from Akin on February 22, 2021, which draft substantially reflected the terms and intent of the letter of intent signed by the parties as described above.

 

On February 26, 2021, G&K provided Akerman a revised draft Transaction Agreement to provide for potential acquisitions to be made by the RideNow owners between signing and closing and to definitively establish the $30.00 minimum share price and working capital components of the Transaction Agreement.

 

On February 28, 2021, Akerman provided G&K a revised draft of the Transaction Agreement to add the merged companies as parties to the agreement.

 

On March 1, 2021, Akerman provided Akin comments to the draft commitment letter primarily reflecting drafting preferences to the agreed upon substantive terms.

 

On March 3, 2021, G&K provided Akerman a revised draft Transaction Agreement to insert a closing condition requiring a minimum RMBL share price of $24, below which either party could terminate the Transaction.

 

On March 4, 2021, Akerman provided G&K a revised draft Transaction Agreement to incorporate standard language required by Oaktree.

 

On March 5, 2021, Akin provided a revised draft commitment letter primarily addressing preferred drafting comments to certain affirmative and negative covenants.

 

On March 7, 2021, Akerman provided an update to its March 4, 2021 draft of the Transaction Agreement to change the structure of purchase of one of the entities, CMG PowerSports, Inc., from a merger to an equity purchase.

 

On March 7, 2021, G&K provided Akerman a revised draft Transaction Agreement, to reflect revisions to the representations and warranties required as a result of review of the disclosure schedules, and to update the escrow provisions to indicate the potential for settlement in stock or cash.

 

On March 7, 2021, Akerman sent Akin a revised commitment letter addressing clean up comments in anticipation of the parties signing the commitment letter.

 

On March 9, 2021, Akerman provided G&K a revised draft Transaction Agreement, to incorporate final drafting edits and conform definitions and the like.

 

Also on March 9, 2021, G&K provided its final edits to the draft Transaction Agreement, and Akerman and G&K agreed to the final form of the Transaction Agreement.

 

Also on March 9, 2021, Akin provided a revised draft commitment letter providing additional drafters edits.

 

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On March 9, 2021, at 5:00 P.M. Eastern time, the Board met to review proposed transaction and transaction agreement. Representatives of B. Riley provided the Board a presentation regarding its review and analysis of the consideration to be paid in connection with the proposed transaction and reviewed with the Board the fairness opinion provided earlier that day. After completing their presentation and following question and comments from the Board, the representatives of B. Riley excused themselves from the remainder of the meeting. Mr. Berrard reviewed with the Board the expected execution of the merger agreement and public announcement of the transaction. At Mr. Berrard’s request, representatives of Akerman reviewed the terms of the Transaction Agreement and outstanding items to be finalized, including the commitment letter with Oaktree. Mr. Berrard noted that the Transaction Agreement would be signed the evening of March 9, 2021, subject to approval by Board, with signatures to be held in escrow to provide the RideNow principals the opportunity to discuss the transaction with their minority partners in the Target Companies. The parties agreed to release the escrowed signatures on Friday March 12, 2021 subject to each parties’ approval and completion of the commitment letter. The parties would then issue a joint release announcing the transaction on Monday, March 15, 2021, before the US markets opened.

 

On March 9, 2021, upon motion duly made and seconded, the Board unanimously approved the Transaction and the Transaction Agreement and unanimously recommended that the stockholders of the Company vote to approve the matters requiring stockholder approval necessary to complete the Transaction, including the Stock Issuance Proposal, the Authorized Stock Proposal, and the Incentive Plan Proposal.

 

On March 10, 2021, Akin provided a revised commitment letter, which included an initial draft of fee letter.

 

On March 11, 2021, Akin provided a further revision to the commitment letter and the exhibits thereto, including the fee letter based on drafting comments received from Akerman telephonically and including clean up changes to the document.

 

On March 12, 2021, RumbleOn and Oaktree executed the Commitment Letter.

 

Also on March 12, 2021, RumbleOn and RideNow released from escrow their signatures to the Transaction Agreement.

 

On March 15, 2021, RumbleOn and RideNow issued a joint press release announcing the Transaction and RumbleOn filed a Current Report on Form 8-K attaching the Transaction Agreement and the press release issued earlier that day.

 

Beginning the week of March 15, 2021, the parties worked cooperatively on preparing and submitting notifications and applications to original equipment manufacturers (“OEMs”) representing approximately 200 dealerships comprising the RideNow retail group. The parties continue responding to queries from the OEMs and anticipate obtaining approvals sufficient to meet the conditions to close the transaction, though no assurances can be made regarding the OEM approval process.

 

On April 8, 2021, the Company filed on Form 8-K combined audited financial statements for the RideNow Group as of and for the years ended December 31, 2018, 2019, and 2020.

 

Also on April 8, 2021, the Company announced the launch of a confidentially marketed public offering. Later that evening, the Company announced it had priced the public offering resulting in gross proceeds to the Company of approximately $40 million. The public offering closed on April 13, 2021.

 

On June 17, 2021, RumbleOn and RideNow entered into an amendment to the Transaction Agreement, providing for a change from an equity purchase to a merger as to how one of the Target Companies would be acquired.

 

On June 21, 2021, RumbleOn filed its preliminary proxy statement on Schedule 14A regarding the Transaction.

 

On July 1, 2021, RumbleOn filed its definative proxy statement on Schedule 14A regarding the Transaction and commenced mailing of the proxy materials to its stockholders.

 

Rationale for the Transaction

 

Both RideNow and RumbleOn believe that the Transaction will provide stockholders with an interest in a combined company that will be one of the strongest in the industry. The combined company will have greater financial strength, operational efficiencies, earning power and growth potential than RideNow or RumbleOn would have on its own. The parties have identified a number of potential benefits of the Transaction, which they believe will contribute to the success of the combined company and thus inure to the benefit of the combined company’s stockholders, including the following:

 

Strategic Benefits. Powersports vehicle demand continues to experience significant growth, accelerated by consumer lifestyle changes and advanced vehicle innovation, while access to affordable pre-owned vehicles attracts new riders. The Transaction creates the only omnichannel solution in the powersports industry by combining RumbleOn’s robust technology in online acquisition and distribution of powersports vehicles with RideNow, the largest traditional brick and mortar retailer in powersports.

 

Strong Financial and Operational Foundation. RideNow is the nation’s largest powersports retailer, with more than 40 full-service retail locations in 11 states across the country. In 2020, RideNow sold 45,527 powersport units, including ATVs, UTVs, motorcycles, snowmobiles, and personal watercraft, generating approximately $898.9 million in total revenue, $92.6 million in net income and approximately $101.7 million in adjusted EBITDA. The combined company sold more than 63,000 vehicles in 2020, generating revenue of approximately $1.3 billion, net income of approximately $67.6 million and adjusted EBITDA of approximately $95.9 million. Management expects the business combination will propel revenue growth and drive meaningful cost synergies.

 

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Synergies Combined Company. RideNow and RumbleOn believe the Transaction will result in a number of important synergies, primarily from achieving greater operating efficiencies, capturing inherent economies of scale, and leveraging corporate resources. The combined company will offer the fastest, easiest and most transparent transaction process available to consumers nationwide, which, combined with proprietary pre-owned sourcing, disrupts the customer search and purchase experience for powersports enthusiasts, both online and in-store. In addition to driving organic growth by combining and scaling the legacy RumbleOn and RideNow models, the combined company will be positioned to further consolidate the highly fragmented powersports industry.

 

Strengthened Management. RideNow’s co-principal owners and co-founders Mark Tkach and Bill Coulter will bring more than 70 additional years of combined experience in the vehicle retail industry, joining RumbleOn’s executive team, Marshall Chesrown and Peter Levy, who have a combined 80+ years of experience. Both Mr. Tkach and Mr. Coulter will also join the Board at Closing. In addition, RideNow and RumbleOn believe that by combining best practices and creating standardized policies, procedures and measurement tools, the combined company will be better able to meet and exceed its customers’ needs.

 

New Growth Opportunities. The combined company will be better positioned to grow organically and pursue acquisition opportunities by being able to draw upon the resources, experience, and development efforts of both RideNow and RumbleOn.

 

Reasons for the Transaction

 

In reaching its decision to approve the Transaction Agreement and unanimously recommend that its stockholders approve the proposals required as conditions to closing the Transaction, the Board consulted with its management and its financial and legal advisors and considered a number of factors, including the following material factors, which the RumbleOn Board viewed as supporting its determination:

 

all the reasons described above under “— Rationale for the Transaction,” including the strategic benefits and growth opportunities expected to be available to the combined company and the ability to create the only omnichannel solution in the powersports industry;

 

the fact that the RumbleOn stockholders will continue to hold approximately 27.4% of the voting power of a significantly larger combined company following the Transaction and will therefore participate meaningfully in the significant opportunities for long-term growth of the combined company;

 

the opinion of B. Riley Securities, Inc. (“B. Riley”), dated as of March 9, 2021, to the RumbleOn Board as to the fairness, from a financial point of view, of the consideration to be paid by the Company in the Transaction (see “— Opinion of Financial Advisor”);

 

information concerning RideNow’s businesses, prospects, financial condition and results of operations, management and competitive position, including the results of business, legal, and financial due diligence investigations of RideNow conducted by RumbleOn and its advisors;

 

the proposed governance and management of the combined company, including that the Chief Executive Officer would be Mr. Chesrown, the President would be Mr. Levy, the Chief Financial Officer would be Mr. Berrard, and the combined company’s board of directors initially would include a majority of continuing members of the current RumbleOn Board. After Mr. Berrard’s passing on June 7, 2021, the Board reassessed the foregoing factors and continues to unanimously recommend that stockholders approve the Transaction.

 

In addition to the factors described above, the Board identified and considered a variety of risks and potentially negative factors concerning the Transaction, including:

 

the possibility that the Transaction may not be completed as a result of the failure to satisfy one or more conditions to the Transaction described under “The Transaction Agreement — Conditions to Closing;”

 

the possibility that completion of the Transaction might be delayed or the Transaction may be terminated as a result of failure to achieve the requisite OEM approvals;

 

the effect of the public announcement of the Transaction on RumbleOn’s revenues, operating results, stock price, customers, suppliers, management, employees, and other constituencies;

 

the risk that the operations of the companies might not be successfully integrated or integrated in a timely manner, and the possibility of not achieving the anticipated synergies and other benefits sought to be obtained in the Transaction;

 

the substantial costs to be incurred in connection with the Transaction, including costs of integrating the businesses and expenses arising from the Transaction, which may exceed management’s estimates;

 

because the agreed upon price per share of RumbleOn stock may decline below the $30.00 price at signing, the possibility that RumbleOn may need to issue additional shares at closing if any Closing Share Increase Metric is triggered before the Closing Date;

 

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the limitations imposed in the Transaction Agreement on the solicitation or consideration by RumbleOn of alternative business combinations before the Closing Date and the limitations on RumbleOn’s conduct of business before the Closing Date;

 

the risk that RideNow has material liabilities which were not identified during RumbleOn’s due diligence;

 

the interests that certain RumbleOn executive officers and directors may have with respect to the Transaction in addition to their interests as RumbleOn stockholders; and

 

various other risks associated with the Transaction and the combined company set forth under the “Risk Factors” section.

 

The foregoing discussion of the material factors considered by the RumbleOn Board is not intended to be exhaustive, but does set forth the principal factors the Board considered.

 

In light of the number and wide variety of factors considered in connection with its evaluation of the Transaction, the Board did not consider it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weights to the specific factors it considered in reaching its determination. Rather, the Board made its recommendation based on the totality of information presented to, and the investigations conducted by or at its direction. In addition, individual directors may have given different weight to different factors. This explanation of RumbleOn’s reasons for the Transaction and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Risk Factors.”

 

The Transaction Agreement

 

The disclosure under this section provides a brief summary of the Transaction Agreement but may not include all the information important to you. You should read the entire Transaction Agreement, which is included as Annex A to this proxy statement. In this section, we have used defined terms from the Transaction Agreement for consistency between this summary and the complete agreement. Capitalized terms used in this section but not defined should be used as defined in the Transaction Agreement.

 

On March 12, 2021, RumbleOn entered into that certain Plan of Merger and Equity Purchase Agreement, by and among RumbleOn, Merger Sub I, Merger Sub II, Merger Sub III, Merger Sub IV, C&W Motors, Metro Motorcycle, Tucson Motorcycles, Tucson Motorsports (and together with C&W Motors, Metro Motorcycle, and Tucson Motorcycles, the “Merged Entities”), the Principal Owners, and each other person who executes a Seller Joinder to the Transaction Agreement, and Seller’s Representative.

 

On June 17, 2021, RumbleOn entered into a Joinder and First Amendment to Plan of Merger and Equity Purchase Agreement (the “Amendment”) which joins CMG Powersports, Inc. and RO Merger Sub V, Inc. (“Merger Sub V”) as parties to the Transaction Agreement as if they were original signatories thereto. The Amendment further provides the mechanics whereby Merger Sub V will be merged with and into CMG Powersports, under the laws of the State of Delaware, with CMG Powersports surviving the merger as a wholly owned direct subsidiary of RumbleOn, and establishes the manner in which shareholders of CMG Powersports will receive consideration as a result of such merger.

 

If the Transaction is completed, Sellers will receive (i) cash in the aggregate amount of $400,400,000 less any adjustments for net working capital and closing indebtedness and (ii) 5,833,333 shares of RumbleOn’s Class B common stock having an aggregate value of $175,000,000 based on an agreed to value at signing of $30.00 per share. The number of Closing Shares issued in the Transaction may be increased if either (A) the VWAP of the Company’s Class B common stock for the twenty (20) trading days immediately before the Closing Date or (B) the value on a per share basis paid for the Class B common stock by any person who purchases Class B common stock from the Company from the date of the Transaction Agreement until the Closing Date is less than $30.00. Ten percent (10%) of the Closing Shares will be considered escrow shares and will be released pursuant to the terms of the Transaction Agreement.

 

The representations and warranties described below and included in the Transaction Agreement were made by the Merged Entities (including CMG Powersports, Inc. following execution of the Amendment) and the Sellers as of specific dates. The assertions embodied in these representations and warranties may be subject to important qualifications and limitations mutually agreed to by the Merged Entities, the Merger Subs (including Merger Sub V following execution of the Amendment), the Principal Owners and the Sellers’ Representative, in connection with negotiating the Transaction Agreement. The representations and warranties may also be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders, and may have been used for the purpose of allocating risk among the Merged Entities, the Merger Subs, the Principal Owners and the Sellers’ Representative, rather than establishing matters as facts.

 

Basic Deal Terms

 

The Transaction was structured as a multi-step transaction in which (i) RumbleOn will acquire all (subject to the participation by certain minority owners) of the equity interests (the “Equity Purchases” and such equity, the “Purchased Equity”) in the Transferred Entities (as defined in the Transaction Agreement), (ii) Merger Sub I will merge with and into C&W Motors, Inc., with C&W Motors, Inc. continuing as a surviving corporation, (iii) Merger Sub II will merge with and into Metro Motorcycle, Inc., with Metro Motorcycle, Inc. continuing as a surviving corporation, (iv) Merger Sub III will merge with and into Tucson Motorcycles, Inc., with Tucson Motorcycles, Inc. continuing as a surviving corporation, and (v) Merger Sub IV will merge with and into Tucson Motorsports, Inc., with Tucson Motorsports, Inc. continuing as a surviving corporation, in each case under the laws of the State of Arizona, and each as a wholly-owned subsidiary of RumbleOn, and (v) Merger Sub V will merge with and into CMG Powersports, Inc., with CMG Powersports, Inc. continuing as a surviving corporation under the laws of the State of Delaware and as a wholly-owned subsidiary of RumbleOn (collectively, the “Mergers” and together with the Equity Purchases, the “Transaction”); and

  

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The Company will pay, in the aggregate, in exchange for the Purchased Equity and for all of the shares of the Merged Entities:

 

othe Cash Consideration, plus or minus any adjustments for net working capital and closing indebtedness; and
othe Closing Payment Shares, of which ten percent (10%) of such shares will be held back in connection with the Sellers’ indemnification obligations under the Transaction Agreement.

 

The Purchase Price payable to the Sellers at the Closing will be automatically reduced by an amount allocated in a schedule to the Transaction Agreement payable to such person who has not executed a Seller Joinder and the equity interest held by such person would be deemed excluded from the Purchased Equity.

 

RumbleOn and the Acquired Companies have agreed to implement a mutually agreeable amendment to the Company’s 2017 Equity Incentive Plan (the “Equity Incentive Plan”) to be effective upon to the Closing and to allocate options or restricted stock units to certain employees of the Acquired Companies, subject to (i) the receipt from a grantee thereof of a restrictive covenant agreement, and (ii) approval by RumbleOn’s stockholders (the “Approval”).

 

Representations and Warranties

 

In the Transaction Agreement, the Sellers make, as of the signing of the Transaction Agreement and as of the Closing, certain representations and warranties (subject to certain exceptions and qualifications) about the Acquired Companies relating to, among other things, the following:

 

capital structure and capitalization;
authorization, execution, delivery and enforceability of the Transaction Agreement and other transaction documents;
proper corporate organization and related corporate matters;
absence of conflicts with the organizational documents, material contracts and material permits of the Acquired Companies;
required consents and approvals;
financial information and absence of undisclosed liabilities;
absence of certain changes or events;
absence of material litigation;
licenses and permits;
title to properties and assets;
ownership of intellectual property and data security matters;
taxes;
employment and employee benefit matters;
transactions with affiliates and employees;
insurance coverage;
material contracts;
compliance with laws and absence of certain business practices;
brokers and finders;
environmental matters;
real property; and
business continuity.

 

In the Transaction Agreement, RumbleOn and the Merger Subs make, as of the signing of the Transaction Agreement and as of the Closing, certain representations and warranties (subject to certain exceptions and qualifications) relating to, among other things:

 

capital structure and capitalization;
proper corporate organization and similar corporate matters;
authorization, execution, delivery and enforceability of the Transaction Agreement and other transaction documents, the issuance of securities contemplated thereby;
absence of conflicts with the organizational documents, material contracts and material permits;
required consents and approvals;
SEC filings;
internal accounting controls;
compliance with laws; and
brokers and finders.

 

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Covenants

 

The Transaction Agreement contains covenants of the parties, including, among other things, the following covenants regarding:

 

the Acquired Companies to conduct their business in the ordinary course consistent with past practices and to refrain from taking certain actions without the prior written consent of RumbleOn;
RumbleOn to refrain from taking certain actions relating to its organizational documents, tax elections, declaring distributions, incurring indebtedness, and issuing common stock or preferred stock without the prior written consent of the Acquired Companies;
the delivery by the Acquired Companies of annual combined audited financial statements for the twelve (12) month periods ended December 31, 2020, 2019 and 2018;
the execution and delivery by the Principal Owners of employment agreements with the Acquired Companies;
allocation of the Acquired Companies’ taxes after closing;
non-competition and non-solicitation restrictions of the Sellers in favor of RumbleOn;
use of commercially reasonable efforts to satisfy conditions to closing;
transaction-related SEC filings; and
use of commercially reasonable efforts by RumbleOn to establish a record date for, call, give notice of and hold a meeting of the holders of shares of RumbleOn’s Common Stock to consider and vote on the approval of (i) the Transaction Agreement, the Equity Purchases and the Mergers, (ii) adoption of the Equity Incentive Plan, (iii) an amendment to the Articles of Incorporation of RumbleOn to increase the number of shares authorized Class B common stock to 100,000,000 Shares, and (iv) any and all other approvals necessary or advisable to effect the consummation of the Transaction.

 

Conditions to Closing

 

General Conditions

 

Consummation of the Equity Purchases and the Mergers is subject to conditions, including, among others:

 

The making of all filings and other notifications required to be made under any Antitrust Law (as defined in the Transaction Agreement) for the consummation of the Transaction, the expiration or termination of all waiting periods relating thereto, and the receipt of all clearances, authorizations, actions, non-actions, or other consents required from a governmental authority under any Antitrust Law for the consummation of the Transaction;
The Closing Payment Shares being approved for listing on Nasdaq;
No order issued by any governmental body prohibiting or preventing the Equity Purchases and the Mergers;
 RumbleOn’s ability to obtain the financing set forth in the Commitment Letter;
The receipt of consent to the Transaction from powersports manufacturers representing at least 95% of new vehicle sales of the Target Companies for the twelve months ended December 31, 2020;
Absence of material adverse effect on either party;
RumbleOn obtaining the RumbleOn Stockholder Approval; and
Delivery by each party of the closing documents specified in the Transaction Agreement.

 

Indemnification

 

Survival of Representations and Warranties

 

The representations and warranties of the Sellers, RumbleOn, and the Merger Subs contained in the Transaction Agreement will survive for a period of twelve (12) months following the Closing; provided, however, that (a) those representations and warranties of, the Sellers, RumbleOn, and the Merger Subs with respect to (i) capital structure and capitalization, (ii) authorization, execution authorization, execution, delivery and enforceability of the Transaction Agreement and other transaction documents, (iii) required consents and approvals, and (iv) brokers and finders will survive indefinitely, and (b) those representations and warranties of the Sellers with respect to (i) employee benefits and compensation, (ii) tax, and (iii) environmental matters will survive until sixty (60) days after the expiration of the statute of limitations with respect to the subject matter discussed therein. Any claim for indemnification based upon a misrepresentation or breach of warranty pursuant to the Transaction Agreement must be asserted in writing before the expiration of such survival period for indemnification to be available therefor.

 

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Indemnification Rights

 

From and after the Closing of the Transaction, RumbleOn and the Acquired Companies, jointly and severally, have agreed to indemnify each Seller from any damages arising from: (a) any misrepresentation or breach of warranty by RumbleOn or the Merger Subs contained in the Transaction Agreement or any other transaction document; or (b) any failure to perform any covenant or agreement made by RumbleOn or the Merger Subs in the Transaction Agreement.

 

From and after the Closing of the Transaction, RumbleOn, and its respective stockholders, officers and directors are indemnified from and against any and all damages arising from:

 

a breach of representations or warranties by the Sellers contained in the Transaction Agreement or other transaction documents;
a breach of any covenant of Sellers or the Acquired Companies contained in the Transaction Agreement to be performed prior to or at the Closing;
certain indemnified taxes;
claims made by Sellers with respect to the computation or allocation of the Purchase Price among Sellers;
dissenters’, appraisal or similar rights asserted by any equity holder of the Acquired Companies under any law; and
any unpaid transaction expense or change of control payments.

 

Limitations on Indemnity

 

The Principal Owners or RumbleOn’s indemnification obligations with respect to their respective representations and warranties are subject to a cap of $75,000,000. The Sellers (other than the Principal Owners), indemnification obligations with respect to their respective representations and warranties are subject to a cap of thirteen percent (13%) of the Purchase Price received by the particular Seller for which indemnification is sought.

 

Regulatory and Other Approvals

 

The business combination and the transactions contemplated by the Transaction Agreement are not subject to any additional foreign, federal or state regulatory requirements or approvals, except for (i) filings and other notifications required to be made under Antitrust Laws, (ii) filings with the appropriate jurisdictions to effectuate the transactions contemplated by the Mergers, (iii) compliance with applicable securities laws and rules and regulations of the SEC and Nasdaq, including approval of the matters set forth in this proxy statement, and (iv) approval by RumbleOn’s stockholders regarding the RumbleOn Stockholder Approval.

 

Termination

 

The Transaction Agreement may be terminated: (a) by the mutual written consent of RumbleOn and Sellers’ Representative, (b) by either RumbleOn or Sellers’ Representative upon written notice to the other party if (i) the Closing does not occur on or before June 30, 2021, subject to certain rights of the parties to extend the termination date to July 31, 2021, (ii) the Transaction is enjoined pursuant to a final, non-appealable ruling, (c) upon substantial breach by the other party that remains uncured after thirty (30) days, or (d) by Sellers’ Representative or by RumbleOn if the RumbleOn Stockholder Approval is not obtained.

 

Opinion of Financial Advisor

 

RumbleOn retained B. Riley to act as exclusive financial advisor with respect to the Company’s acquisition of RideNow. RumbleOn selected B. Riley to act as its financial advisor because B. Riley is a nationally recognized investment banking firm, given B. Riley’s experience in transactions similar to the Transaction, its reputation in the investment community and its institutional knowledge of RumbleOn’s business and the powersports sector.

 

At the March 9, 2021 meeting at which RumbleOn’s Board considered the Transaction and the Transaction Agreement, B. Riley rendered to the Board its oral opinion, which was subsequently confirmed in writing on March 9, 2021, to the effect that, as of such date and based on and subject to the qualifications, limitations and assumptions stated in its opinion, the consideration being paid by RumbleOn in the Transaction was fair, from a financial point of view, to RumbleOn stockholders.

 

The full text of B. Riley’s opinion is included as Annex C to this proxy statement. The opinion outlines, among other things, the assumptions made, procedures followed, factors considered and limitations and qualifications on the review undertaken in connection with rendering the opinion. Holders of shares of RumbleOn common stock are encouraged to and should read the opinion carefully and in its entirety to understand the limitations and qualifications of the opinion. B. Riley’s opinion was directed to RumbleOn’s Board in connection with its consideration of the Transaction and the Transaction Agreement. The opinion does not address any other aspect of the Transaction and does not constitute a recommendation to any holder of RumbleOn common stock or any other person as to how to act or vote at any meeting of stockholders called to consider and vote upon the approval of the Transaction and the Transaction Agreement or any other matter. The description of the opinion of B. Riley set forth below is qualified in its entirety by reference to the full text of the opinion.

 

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B. Riley’s opinion was directed only to the fairness, from a financial point of view, of the Consideration being paid by RumbleOn in the Transaction, and its opinion does not in any manner address the fairness of the amount or the nature of any compensation to any officers, directors or employees of any parties to the Transaction, or any class of such persons, relative to the Consideration to be paid by RumbleOn in the Transaction. B. Riley was not requested to opine as to, and its opinion does not in any manner address, RumbleOn’s underlying business decision to proceed with or effect the Transaction or the likelihood of the consummation of the Transaction. In addition, B. Riley’s opinion does not address the relative merits of the Transaction as compared to any other Transaction or business strategy in which RumbleOn could have engaged or may engage. No limitations were imposed by the Board upon B. Riley with respect to the investigations made or procedures followed by it in rendering its opinion.

 

In connection with rendering the opinion, B. Riley reviewed and considered, among other things:

 

a draft of the Transaction Agreement dated March 7, 2021;

 

historical and projected financial data as well as certain operating and financial information (including both audited and internally prepared information) relating to RumbleOn and RideNow’s businesses, all as prepared and provided by management of RumbleOn and RideNow, from which B. Riley developed discounted cash flow (“DCF”) analyses for both RumbleOn and RideNow on a stand-alone basis;

 

information set forth in the virtual data rooms established by the management teams of RumbleOn and RideNow that B. Riley determined relevant to its evaluation;

 

the current and historical market prices and trading volume for the common stock of the Company, and the historical market prices of the publicly traded securities of certain other companies that B. Riley deemed to be relevant;

 

the publicly available financial terms of certain transactions that B. Riley deemed to be relevant; and

 

such other financial studies, analyses and investigations, and considered such other matters, as B. Riley deemed necessary or appropriate at B. Riley’s sole discretion for purposes of rendering the opinion.

 

B. Riley also discussed with certain members of the senior management of RumbleOn the business, financial condition, results of operations and prospects of RumbleOn and held similar discussions with certain members of the management of RideNow and its representatives regarding the business, financial condition, results of operations and prospects of RideNow.

 

In performing its review and for the purposes of rendering its opinion, B. Riley relied upon, and assumed the accuracy and completeness of, all of the financial and other information that was provided to, discussed with or reviewed by B. Riley, without any independent verification or investigation. B. Riley further relied upon and assumed the correctness of, without independent investigation, the assurances of management of RumbleOn that they were not aware of any facts or circumstances that would make such information inaccurate, incomplete or misleading in any material respect. In addition, B. Riley did not conduct a physical inspection of the properties and facilities of either RumbleOn or RideNow and has not made an independent evaluation or appraisal of the assets or liabilities (including any contingent, derivative or off-balance sheet assets and liabilities) of either RumbleOn or RideNow (or any of their respective subsidiaries or affiliates) or concerning the collectability or fair value thereof or of the solvency of either RumbleOn or RideNow or any of their respective subsidiaries or affiliates, nor has B. Riley been furnished with any such evaluations or appraisals.

 

In performing its review, B. Riley also relied upon and assumed, without independent verification or investigation, that: (i) all forecasts, projections, estimates and budgets of RumbleOn and RideNow, including any data contained therein that were provided by any third party, have been reasonably prepared consistent with industry practices and on bases reflecting the best currently available estimates and good faith judgments of RumbleOn’s management or the other party that provided such information (as applicable) as to the matters covered thereby; (ii) all forecasts, projections, estimates and budgets will be realized in the amounts and time periods contemplated thereby; (iii) the estimates of current and future reserve additions reflect the best professional estimates and judgments of management of RumbleOn and RideNow; (iv) the representations and warranties of all parties to the Transaction Agreement and all other related documents and instruments that are referred to in the Transaction Agreement are true and correct; (v) each party to the Transaction Agreement and such other related documents and instruments will fully and timely perform all of the covenants and agreements required to be performed by such party; (vi) all conditions to the consummation of the Transaction will be satisfied without waiver thereof; (vii) the Transaction will be consummated in a timely manner in accordance with the terms described in the Transaction Agreement and such other related documents and instruments, without any amendments or modifications thereto; (viii) there have been no material changes in the financial condition, assets, liabilities, business, operations or prospectus of RumbleOn or RideNow since the dates of the financial and other information obtained by B. Riley from public sources or provided to B. Riley; (ix) there are no plans or proposals that could reasonably be expected to have a material effect on the financial conditions, assets, liabilities, prospects or affairs of RumbleOn or RideNow; (x) there are no actions, suits, proceedings or inquiries pending or threatened which may in any way materially adversely affect RumbleOn or RideNow; (xi) there are no independent appraisals or valuations or material non-independent appraisals or valuations relating to RumbleOn or RideNow (or their respective subsidiaries), received or commissioned in the last two years; (xii) all governmental, regulatory or other consents or approvals necessary for the consummation of the Transaction will be obtained without any adverse effect on RumbleOn or its stockholders; and (xiii) the final forms of any draft documents identified above will not differ in any material respect from the drafts of said documents reviewed by B. Riley. Finally, with the Company’s consent, B. Riley relied upon the advice that RumbleOn received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the Transaction and the other matters contemplated by the Transaction Agreement. B. Riley expressed no opinion as to any such matters.

 

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B. Riley’s opinion was necessarily based on general business, financial, economic, market, industry and other conditions as in effect on, and the information made available to B. Riley as of, the date thereof. Events occurring after the date thereof could materially affect B. Riley’s opinion. B. Riley has not undertaken, and is under no obligation, to update, revise, reaffirm or withdraw the opinion, or otherwise comment on or consider events occurring or coming to its attention after the date thereof. B. Riley did not express any opinion as to what the value of the common stock of RumbleOn actually will be when issued pursuant to the Transaction or the price or range of prices at which the common stock of the RumbleOn may be purchased or sold, or otherwise be transferable, at any time.

 

The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. B. Riley believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. No company, transaction or business used in B. Riley’s analyses for comparative purposes is identical to RumbleOn, RideNow or the proposed Transaction and an evaluation of the results of those analyses is not entirely mathematical. As a result, mathematical derivations (such as the median, mean, high and low) of financial data may not by themselves be meaningful and the ranges of multiples to be applied were considered in conjunction with experience and the exercise of judgment. The estimates contained in the financial forecasts prepared by the management of RumbleOn and RideNow and the implied reference range values indicated by B. Riley’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of RumbleOn. Much of the information used in, and accordingly the results of, B. Riley’s analyses are inherently subject to substantial uncertainty.

 

In rendering its opinion, B. Riley performed a variety of financial analyses.  The summary below is not a complete description of all of the analyses underlying B. Riley’s opinion or the presentation to RumbleOn’s Board, but is a summary of the material analyses performed and presented by B. Riley. The order of the analyses described and the results of these analyses do not represent relative importance or weight given to these analyses by B. Riley. In arriving at its opinion, B. Riley did not attribute any particular weight to any analysis or factor that it considered. Rather, B. Riley made qualitative judgments as to the significance and relevance of each analysis and factor. B. Riley did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion; rather, B. Riley made its determination as to the fairness of the Transaction to RumbleOn on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole.

 

The following summary of financial analyses includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the full text of each summary and are alone not a complete description of B. Riley’s financial analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of B. Riley’s analyses.

 

For purposes of its analyses, B. Riley reviewed a number of financial and operating metrics of RumbleOn, RideNow and select publicly traded comparables, including:

 

Enterprise Value: the value as of a specified date of the relevant company’s outstanding equity (taking into account outstanding options and other securities convertible, exercisable or exchangeable into or for equity securities of the company) plus the amount of its net debt (the amount of its outstanding indebtedness, non-convertible preferred stock, capital lease obligations and non-controlling interests less the amount of cash and cash equivalents on its balance sheet). For purposes of this analysis, B. Riley excluded any floor plan financing from the calculation of Enterprise Value.

 

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EBITDA: the amount of the relevant company’s earnings before interest, taxes, depreciation and amortization for a specified reporting period. For purposes of this analysis, B. Riley deducted any floor plan financing costs (interest) from the calculation of EBITDA.

 

Adjusted EBITDA: the amount of the relevant company’s earnings before interest, taxes, depreciation and amortization, adjusted for what were considered to be certain one-time, non-recurring items for specified reporting periods. For purposes of this analysis, B. Riley deducted any floor plan financing costs (interest) from the calculation of Adjusted EBITDA.

 

Selected Public Company Trading Comparables Analysis

 

B. Riley reviewed publicly available information for selected companies that B. Riley deemed relevant in the following industries: (i) Automotive E-Commerce and Lead Generation; (ii) Retail Automotive Dealers; and (iii) Powersports and Outdoor Vehicles, as set forth below:

 

Automotive E-Commerce and Lead Generation

 

Vroom, Inc.

 

Shift Technologies, Inc.

 

Carvana Co.

 

TrueCar, Inc.

 

Cars.com Inc.

 

Auto Trader Group plc

 

CarGurus, Inc.

 

Retailer Automotive Dealers

 

Lithia Motors, Inc.

 

Penske Automotive Group, Inc.

 

Sonic Automotive, Inc.

 

Group 1 Automotive, Inc.

 

AutoNation, Inc.

 

Asbury Automotive Group, Inc.

 

Powersports and Outdoor Vehicles

 

Harley-Davidson, Inc.

 

Brunswick Corporation

 

Winnebago Industries, Inc.

 

MarineMax, Inc.

 

OneWater Marine Inc.

 

Lazydays Holdings, Inc.

 

Camping World Holdings, Inc.

 

For each selected company, using actual publicly reported results for the most recently reported trailing twelve-month (“TTM”) period and comparable company projections per Wall Street research consensus estimates, company-specific investor presentations and market data from Capital IQ for the years ending December 31, 2021 and 2022, B. Riley calculated Enterprise Value as a multiple of Revenue (“EV/Revenue”), Gross Profit (“EV/Gross Profit”), and Adjusted EBITDA (“EV/Adj. EBITDA”). All of these calculations for RumbleOn and RideNow were applied, and based on, the financial metrics provided by RumbleOn and RideNow.

 

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B. Riley selected the comparable companies listed above because of similarities in one or more business or operating characteristics with RumbleOn and/or RideNow. However, because no selected comparable company is exactly the same as RumbleOn or RideNow, B. Riley believed that it was inappropriate to, and therefore did not, rely solely on the quantitative results of the selected comparable company analysis. Rather, B. Riley also made qualitative judgments concerning differences between the business, financial and operating characteristics and prospects of RumbleOn and RideNow and the selected comparable companies in order to provide a context in which to consider the results of the quantitative analysis. These qualitative judgments related primarily to the differing sizes, growth prospects, profitability levels and degree of operational risk between RumbleOn and RideNow and the companies included or excluded in the selected company analysis. Based upon these judgments, B. Riley applied a reference range of multiples for the comparable companies.

 

The following table summarizes the reference ranges used in this analysis for RideNow:

 

Reference Multiple   Low End of
Reference Range
  High End of
Reference Range
TTM EV/Revenue   0.6x   0.7x
2021E EV/Revenue   0.5x   0.6x
2022E EV/Revenue   0.6x   0.7x
TTM EV/Gross Profit   2.7x   3.3x
2021E EV/Gross Profit   2.9x   3.5x
2022E EV/Gross Profit   3.5x   4.3x
TTM EV/Adj. EBITDA   9.7x   11.8x
2021E EV/Adj. EBITDA   8.3x   10.2x
2022E EV/Adj. EBITDA   7.8x   9.6x

 

Taking into account the results of the selected companies analysis, B. Riley applied selected multiple ranges of 9.7x to 11.8x TTM Adjusted EBITDA, 8.3x to 10.2x 2021E Adjusted EBITDA, and 7.8x to 9.6x 2022E Adjusted EBITDA, to corresponding financial data for RideNow. The selected companies analysis indicated implied equity value reference ranges for RideNow of $856 million to $1,043 million based on the selected range of multiples of TTM Adjusted EBITDA, $652 million to $793 million based on the selected range of multiples of 2021E Adjusted EBITDA, and $742 million to $904 million, based on the selected range of multiples of 2022E Adjusted EBITDA.

 

Selected Precedent Transaction Analysis

 

B. Riley considered certain disclosed financial terms of the following transactions involving target companies in the Powersports, Recreational Vehicles and Boating, and Outdoor Activities Retailer industries that B. Riley deemed relevant:

 

Date Announced   Target   Acquiror
12/21/2020   Sportsman’s Warehouse Holdings, Inc.   Great Outdoors Group, LLC
8/22/2018   Pursuit Boats   Malibu Boats, LLC
5/30/2018   Boat Holdings, LLC   Polaris Sales Inc.
6/29/2017   West Marine, Inc.   Monomoy Capital Partners
10/12/2016   TAP Automotive Holdings, LLC   Polaris Industries Inc.
10/3/2016   Cabela’s Incorporated   Bass Pro Group, LLC

 

For each selected transaction, B. Riley calculated an implied Enterprise Value of the target company based on the public information available at the time of announcement, as a multiple of TTM Revenue and TTM Adjusted EBITDA.

 

B. Riley noted a lack of disclosed financial and valuation metrics for transactions involving the most directly comparable target companies to RideNow. As a result, B. Riley also reviewed multiple business broker listing sites that featured powersports dealerships for sale located in North America. Most dealerships listed included an asking price in addition to annualized cash flow metrics which enabled B. Riley to estimate an implied EV/EBITDA multiple based on the listing. These transactions have not been completed but provided B. Riley additional data points to review considering the lack of disclosed financial terms for more directly comparable transactions.

 

B. Riley chose the selected transactions for purposes of this analysis based on its professional judgment and experience. No transaction reviewed was directly comparable to the Transaction. Accordingly, this analysis involved complex considerations and judgments concerning differences in financial and operating characteristics of RideNow relative to the targets in the selected transactions and other factors that would affect the acquisition values in the selected precedent transactions. B. Riley excluded certain comparable transactions due to lack of available information. Based upon these judgments, B. Riley selected a reference range of multiples for the precedent transactions.

 

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The following table summarizes the reference ranges used in this analysis:

 

Reference Multiple   Low End of
Reference Range
  High End of
Reference Range
TTM EV/Revenue   0.8x   1.5x
TTM EV/Adj. EBITDA   6.5x   11.0x

 

Taking into account the results of the selected transactions analysis, B. Riley applied selected multiple ranges of 6.5x to 11.0x TTM Adjusted EBITDA for RideNow. The selected transactions analysis indicated an implied total equity value reference range for RideNow of approximately $602 million to $1,008 million.

 

DCF Analysis

 

B. Riley performed a DCF analysis to produce a range of implied Enterprise Values for RideNow. A DCF analysis is a traditional valuation methodology used to derive a valuation of an asset by calculating the “present value” of estimated future unlevered free cash flows generated by the asset. “Present value” refers to the current value of future cash flows or amounts and is obtained by discounting those future cash flows or amounts by a discount rate that takes into account macroeconomic assumptions and estimates of risk, the opportunity cost of capital, expected returns and other appropriate factors; in many cases, the discount rate is the asset’s estimated weighted average cost of capital. The “unlevered free cash flows” refer to a calculation of the future cash flows generated by an asset without including in such calculation any debt servicing costs. Specifically, unlevered free cash flow for this purpose represents Adjusted EBITDA, adjusted for depreciation and amortization, tax, capital expenditures and changes in net working capital. “Terminal value” refers to the value of all future cash flows generated by the asset for periods beyond the projections period.

 

B. Riley estimated the range for the implied Enterprise Value of RideNow by calculating the estimated present value of the projected unlevered free cash flows of RideNow based on projections provided by RideNow using the following assumptions, which B. Riley selected based on its professional judgment: (i) a range of terminal multiples applied to projected 2025 Adjusted EBITDA of 8.0x to 10.0x; and (ii) a range of discount rates of 23.0% to 30.0%, taking into account RideNow’s cost of debt, the capital asset pricing model and other specific risk factors.

 

The discounted cash flow analysis indicated an implied total equity value reference range for RideNow of $635 million to $725 million.

 

Comparison of Equity Value Reference Ranges

 

B. Riley adjusted the implied ranges of Enterprise Value of RideNow described above to implied ranges of Equity Value of RideNow by subtracting net debt. B. Riley then compared the implied ranges of RideNow’s Equity Value to:

 

the implied value of the Consideration based upon the closing price per share of RumbleOn common stock of $30.92 per share on March 9, 2021;

 

the implied value of the Consideration based upon the weighted average trading price of RumbleOn common stock for the 30 trading days ending on March 9, 2021;

 

the implied value of the Consideration based upon the weighted average trading price of RumbleOn common stock for the 45 trading days ending on March 9, 2021;

 

the implied value of the Consideration based upon the weighted average trading price of RumbleOn common stock for the 60 trading days ending on March 9, 2021; and

 

the implied value of the Consideration based upon the weighted average trading price of RumbleOn common stock for the 90 trading days ending on March 9, 2021.

 

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The results of this analysis are set forth in the following tables:

 

    Selected Public Company Trading
Comparables Analysis
  Selected Transaction Analysis    
RideNow Equity Value Range   TTM Adj.
EBITDA
  2021E Adj.
EBITDA
  2022E Adj.
EBITDA
  TTM Adj.
EBITDA
  Discounted
Cash Flow
Analysis
Low   $ 856 million   $ 652 million   $ 742 million   $ 602 million   $ 635 million
High   $ 1,043 million   $ 793 million   $ 904 million   $ 1,008 million   $ 725 million

 

Implied Consideration Based On RMBL:  RMBL
Price per
Share
Applied
   Implied
Value of
Consideration
Closing Price March 9, 2021  $30.92   $ 581 million
30-Day VWAP  $37.71   $ 620 million
45-Day VWAP  $36.77   $ 615 million
60-Day VWAP  $35.63   $ 608 million
90-Day VWAP  $36.05   $ 611 million

 

In each case above, the implied Consideration was calculated based on the assumption of the issuance of 5,833,333 Closing Payment Shares and $400.4 million in Cash Consideration paid to RideNow stockholders. B. Riley did not express any opinion as to what the value of the common stock of RumbleOn actually will be when issued pursuant to the Transaction or the price or range of prices at which the common stock of the RumbleOn may be purchased or sold, or otherwise be transferable, at any time, and nothing in the above analysis should be construed otherwise.

 

B. Riley’s Relationship

 

B. Riley is acting as RumbleOn’s financial advisor in connection with the Transaction and will receive an M&A fee for such services in an amount equal to $1,000,000, which fee is contingent upon the closing of the Transaction. In addition, B. Riley acted as sole debt placement agent in connection with the Transaction and will receive a placement fee of 2% of the funded debt. The associated fees are expected to be $5,600,000 on the initial $280,000,000 needed to consummate the Transaction and additional placement agent fees will be earned as the Company further draws down on the debt facility. B. Riley also received a $150,000 fee from RumbleOn upon rendering its opinion. Further, B. Riley acted as sole bookrunning manager to RumbleOn in its underwritten public offering of 1,048,998 shares of its Class B common stock on April 8, 2021 and received fees of $2,764,172. B. Riley is expected to participate in the Transaction Equity Raise and will receive fees related thereto. RumbleOn has also agreed to indemnify B. Riley against certain claims and liabilities arising out of B. Riley’s engagement and to reimburse B. Riley for certain of its out-of-pocket expenses incurred in connection with B. Riley’s engagement.

 

Certain Projected Financial Information

 

RideNow and the Company do not as a practice make public projections as to future revenues, earnings or other results. However, in connection with the Board’s consideration of the Transaction and B. Riley’s financial analysis of RideNow described under “– Opinion of Financial Advisor,” RideNow management provided to the Company its non-public, five-year internal financial forecast regarding RideNow’s anticipated future operations for the years ending December 31, 2021 through December 31, 2025, which the Company subsequently provided to B. Riley with certain adjustments made by Company management, which were based on the Company’s due diligence of RideNow. The Company has included from such financial forecasts the summary information set forth below to give its stockholders access to certain previously non-public information because such information was considered by the Company’s Board for purposes of evaluating the Transaction and by our financial advisor, B. Riley, for purposes of rendering its fairness opinion.

 

The unaudited prospective financial information was not prepared with a view toward public disclosure, nor was it prepared with a view toward complying with the published guidelines of the SEC and the guidelines established by the American Institute of Certified Public Accountants with respect to the preparation and presentation of prospective financial information, but, in the view of the Company’s management, was prepared on a reasonable basis, and presents, as of the date prepared, a reasonable expectation of RideNow’s estimated future financial performance for the periods indicated. Furthermore, the unaudited prospective financial information does not take into account any circumstances or events occurring after the date it was prepared. The prospective financial information was prepared treating RideNow on a stand-alone basis, without giving effect to the Transaction or any other potential acquisitions. However, this information is not fact and should not be relied upon as being necessarily indicative of future results, and readers of this proxy statement are cautioned not to place undue reliance on the prospective financial information.

 

The accompanying prospective financial information includes financial measures that were not calculated in accordance with GAAP, namely EBITDA and Adjusted EBITDA (as defined above). EBITDA is a non-GAAP financial measure and should not be considered as an alternative to operating income or net income as measures of operating performance or cash flows or as measures of liquidity. Non-GAAP measures are not necessarily calculated the same way by different companies and should not be considered a substitute for or superior to GAAP results.

 

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The assumptions and estimates underlying the prospective financial information are inherently uncertain and are subject to a wide variety of significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the prospective financial information, including, among others, risks and uncertainties set forth under “Risk Factors” and “Forward-Looking Statements” contained elsewhere in this proxy statement. Accordingly, there can be no assurance that the prospective results are indicative of the future performance of RideNow, or that actual results will not differ materially from those presented in the prospective financial information. Inclusion of the prospective financial information in this proxy statement should not be regarded as a representation by any person that the results contained in the prospective financial information will be achieved.

 

The Company and RideNow have not updated, and do not intend to update or otherwise revise, the prospective financial information to reflect circumstances existing since its preparation, including any changes in general economic or industry conditions, or to reflect the occurrence of subsequent events. None of the Company, RideNow or any of their respective representatives or advisers makes any representation to any person with regard to the ultimate performance of the Company or RideNow.

 

(dollars in millions)  2021E   2022E   2023E   2024E   2025E 
Revenue  $946   $1,036   $1,156   $1,289   $1,449 
Adjusted EBITDA   87    101    119    141    168 
Net Income   89    77    91    107    127 

 

Interests of RumbleOn Executive Officers and Directors in the Transaction

 

In considering the recommendation of the Board with respect to the Transaction, stockholders should be aware that executive officers of RumbleOn and members of the RumbleOn Board may have interests in the Transaction that may be different from, or in addition to, the interests of RumbleOn stockholders generally. The Board was aware of these interests and considered them, among other matters, in approving the Transaction Agreement and in making its recommendations regarding the proposals to be presented at the special meeting. These interests are summarized below.

 

Employment Agreements

 

Before or at the closing of the Transaction, Messrs. Chesrown and Levy are expected to enter into Executive Employment Agreements (the “Current Executive Agreements”) with RumbleOn. Below is a summary of the key terms of such agreements.

 

Marshall Chesrown and Peter Levy (the “Current Executives”)

 

The Current Executive Agreements have an initial term ending on the third anniversary of the closing of the Transaction Agreement and the transactions contemplated thereby. However, each Current Executive Agreement will automatically renew for successive one-month terms on the last day of every month following the closing of the Transaction Agreement such that it has a continuous “rolling” three-year period, unless either party provides the other party written notice of termination at least fifteen (15) days prior to the applicable one-month term or unless terminated earlier pursuant to the terms of the Current Executive Agreements.

 

In connection with the Current Executive Agreements, each of the Current Executives will receive an annual salary of $500,000. For each of the Current Executives, the salary increase to $500,000 took effect on March 1, 2021. For 2021, each of the Current Executives received a grant of 38,521 restricted stock units (“RSUs”) on March 12, 2021, in connection with the Company’s regular annual grant of RSUs to employees, which grant is subject to stockholder approval of the Incentive Plan Proposal at the special meeting. Also, under the Current Executive Agreements, an aggregate of 133,334 RSUs awarded to the Current Executives on July 25, 2020 will vest and be delivered in consideration of each executive entering into the Current Executive Agreements and accepting the negative covenants included therein. Under the Current Executive Agreement, at Closing the Current Executives will receive a grant of 30,000 RSUs as a success grant. After Closing, the Current Executives will participate in the Company’s Executive Incentive Program pursuant to which the Current Executives are eligible to receive additional RSUs in accordance with the terms and conditions set forth in the Company’s Short-Term Stock Incentive Plan (“STIP”) and will further be entitled to participate in the Company’s Long-Term Annual Stock Incentive Plan (“LTIP”). Under the Executive Incentive Program, the Current Executives are also eligible to receive an annual cash bonus upon achievement of performance metrics adopted by the Board or the Compensation Committee based upon criteria recommended by the Company’s Chief Executive Officer. A copy of the Executive Incentive Program is attached as Annex D to this proxy statement. In addition to the compensation and benefits provided for above, the Company agrees to pay or to reimburse the Current Executives during their respective employment terms for all reasonable, ordinary and necessary, properly documented, business expenses incurred in the performance of their services in accordance with Company policy in effect from time to time. Additionally, the Current Executives are eligible to participate in the Company’s existing and future benefit plans, policies or arrangements maintained by the Company and made available generally to the Company’s senior executive level employees.

 

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The Company may terminate the Current Executive Agreements and each of the Current Executives’ employment at any time during the term for any of the following reasons: (i) the applicable employee is convicted of fraud, theft or embezzlement against the Company or any subsidiary or affiliate thereof; (ii) the applicable employee is convicted of a felony or a crime involving moral turpitude; (iii) the applicable employee substantially breaches any material term of his respective Current Executive Agreement and fails to cure such breach within 30 days after the receipt of written notice; or (iv) the applicable employee engages in gross negligence or willful misconduct that causes harm to the business and operations of the Company or a subsidiary or affiliate thereof (collectively, “Cause”). Also, the Company may terminate the Current Executive Agreements and each of the Current Executives’ employment without Cause.

 

Each of the Current Executives may terminate his employment and the respective Current Executive Agreement for “Good Reason,” which shall include (A) a material reduction or diminution of the applicable employee’s authorities, duties, responsibilities or “Base Salary,” as such term is defined in each Current Executive Agreement; (B) relocation of the applicable employee’s worksite to a location more than fifty (50) miles from his then-current location; or (C) a material breach by the Company of the applicable Current Executive Agreement, provided such employee has provided the Company thirty (30) days’ written notice and given the Company thirty (30) days’ opportunity to cure; and further provided such employee terminates his employment within ninety (90) days following the Company’s failure to cure.

 

Each of the Current Executives may also terminate his employment and the respective Current Executive Agreement for any reason or for no reason at all; provided, however, that such employee provides the Company with at least thirty (30) days’ prior written notice.

 

Each of the Current Executives’ employment and the respective Current Executive Agreement will automatically terminate upon the Current Executives’ death, as applicable. If a Current Executive, as applicable, becomes physically or mentally disabled so as to become unable for a period of more than five (5) consecutive months or for shorter periods aggregating at least five (5) months during any twelve (12) month period to perform such employee’s duties on a substantially full-time basis, such employee’s employment will terminate as of the end of such five-month or twelve-month period, respectively. Each of the Current Executives may terminate his employment and the respective Current Executive Agreement within ninety (90) days of the effective date of a “Change in Control,” as such term is defined in each Current Executive Agreement, upon thirty (30) days’ written notice.

 

Upon termination of the applicable Current Executive Agreement due to the Current Executives’ death or disability, the applicable employee or his estate shall receive: (i) a severance payment equivalent to three times (3x) the sum of such employee’s Base Salary and the greater of (a) the highest annual bonus such employee received during the three calendar years prior to the termination date and (b) such employee’s target annual bonus in effect for the year in which termination occurs, (ii) such employee’s monthly payment under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) for such employee and any of his dependents that were participating in such plan immediately prior to such employee’s termination, (iii) automatic and immediate vesting of any and all equity benefits, (iv) payment of Base Salary through the termination date, (v) payment of any annual bonus for the prior calendar year, if not already paid; (vi) payment for any accrued but unused “PTO,” as such term is defined in each Current Executive Agreement, and (vii) any right to continued benefits required by law (the foregoing (iv) through (vii) shall be referred to collectively as the “Accrued Obligations”).

 

In the event a Current Executive’s employment is terminated by the Company for Cause, the applicable employee will not be entitled to and shall not receive any compensation or benefits of any type following the effective date of termination, other than the Accrued Obligations.

 

In the event the Company terminates the Current Executive Agreements without Cause, or if any of the Current Executives terminate his respective Current Executive Agreement and employment with the Company for Good Reason, the Company shall pay to the Current Executive, as applicable, in addition to the Accrued Obligations, the following: (i) a severance payment equivalent to three times (3x) the sum of such employee’s Base Salary, and the greater of (a) the highest annual bonus such employee received during the three calendar years prior to the termination date and (b) such employee’s target annual bonus in effect for the year in which termination occurs, (ii) such employee’s monthly COBRA payment for the applicable employee and any of his dependents that were participating in such plan immediately prior to such employee’s termination, and (iii) automatic and immediate vesting of any and all equity benefits.

 

In the event any of the Current Executives terminates his respective Current Executive Agreement and employment with the Company for any reason (other than Good Reason) during the term of the applicable Current Executive Agreement, the Company shall pay to the Current Executive, as applicable, all Accrued Obligations owed.

 

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Pursuant to the Current Executive Agreements, all equity awards granted to the Current Executives shall vest immediately upon a Change in Control. Further, upon a Change in Control, each of the Current Executives shall be entitled to the same compensation as if he was terminated without Cause.

 

Bill Coulter and Mark Tkach (the “New Executives”)

 

Before or at the closing of the Transaction, Messrs. Coulter and Tkach are expected to enter into Executive Employment Agreements (the “New Executive Agreements”) with RumbleOn. Below is a summary of the key terms of such agreements, such agreements remain subject to Compensation Committee review and approval.

 

The New Executive Agreements have an initial term ending on the third anniversary of the Closing Date. Thereafter, each New Executive Agreement will automatically renew for successive one-month terms on the last day of every month commencing on the day the initial term expires such that it has a continuous “rolling” three-year period thereafter, unless either party provides the other party written notice of termination at least fifteen (15) days before the applicable one-month term or unless terminated earlier pursuant to the terms of the New Executive Agreements.

 

In connection with the New Executive Agreements, each of the New Executives will receive an annual salary of $500,000. For 2021, each of the New Executives will receive a grant of RSUs in connection with the closing of the Transaction. After Closing, the New Executives will participate in the Company’s Executive Incentive Program, pursuant to which the New Executives are eligible to receive additional RSUs in accordance with the terms and conditions set forth in the Company’s STIP and will further be entitled to participate in the Company’s LTIP. Under the Executive Incentive Program, the New Executives are also eligible to receive an annual cash bonus upon achievement of the performance metrics adopted by the Board or the Compensation Committee, in their sole discretion, based upon criteria recommended by the Company’s Chief Executive Officer. A copy of the Executive Incentive Program is attached as Annex D to this proxy statement. In addition to the compensation and benefits provided for above, the Company agrees to pay or to reimburse the New Executives during their respective employment terms for all reasonable, ordinary and necessary, properly documented, business expenses incurred in the performance of their services in accordance with Company policy in effect from time to time. Additionally, the New Executives are eligible to participate in the Company’s existing and future benefit plans, policies or arrangements maintained by the Company and made available generally to the Company’s senior executive level employees.

 

The Company may terminate the New Executive Agreements and each of the New Executives’ employment at any time during the term for Cause. Also, the Company may terminate the New Executive Agreements and each of the New Executives’ employment without Cause.

 

Each of the New Executives may terminate his employment and the respective New Executive Agreement for “Good Reason,” which shall include (A) a material reduction or diminution of the applicable employee’s authorities, duties, responsibilities or “Base Salary,” as such term is defined in each New Executive Agreement, subject to provisions in the New Executive Agreements regarding Base Salary; (B) relocation of the applicable employee’s worksite to a location more than fifty (50) miles from his then-current location; or (C) a material breach by the Company of the applicable New Executive Agreement, provided such employee has provided the Company thirty (30) days’ written notice and given the Company thirty (30) days’ opportunity to cure; and further provided such employee terminates his employment within ninety (90) days following the Company’s failure to cure.

 

Each of the New Executives may also terminate his employment and the respective New Executive Agreement for any reason or for no reason at all; provided, however, that such employee provides the Company with at least thirty (30) days’ prior written notice.

 

Each of the New Executives’ employment and the respective New Executive Agreement will automatically terminate upon the New Executives’ death, as applicable. The Company may terminate the New Executive Agreements and each of the New Executives’ employment with the Company upon a determination of “disability,” as such term is defined in each New Executive Agreement, as applicable, within 30 days of receipt by the New Executives of written notice. Each of the New Executives may terminate his employment and the respective New Executive Agreement within ninety (90) days of the effective date of a “Change in Control,” as such term is defined in each New Executive Agreement, upon thirty (30) days’ written notice.

 

Upon termination of the applicable New Executive Agreement due to the New Executives’ death or disability, the applicable employee or his estate shall receive: (i) a severance payment equivalent to three times (3x) the sum of such employee’s Base Salary and the greater of (a) the highest annual bonus such employee received during the three calendar years prior to the termination date and (b) such employee’s target annual bonus in effect for the year in which termination occurs, (ii) such employee’s monthly COBRA payment for such employee and any of his dependents that were participating in such plan immediately prior to such employee’s termination, (iii) automatic and immediate vesting of any and all equity benefits, (iv) payment of Base Salary through the termination date, (v) payment of any annual bonus for the prior calendar year, if not already paid; (vi) payment for any accrued but unused “PTO,” as such term is defined in each New Executive Agreement, and (vii) any right to continued benefits required by law.

 

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In the event the New Executives’ employment is terminated by the Company for Cause, the applicable employee will not be entitled to and shall not receive any compensation or benefits of any type following the effective date of termination, other than the Accrued Obligations.

 

In the event the Company terminates the New Executive Agreements without Cause, or if the New Executives terminates his respective the New Executive Agreement and employment with the Company for Good Reason, the Company shall pay to the New Executives, as applicable, in addition to the Accrued Obligations, the following: (i) a severance payment equivalent to three times (3x) the sum of such employee’s Base Salary, and the greater of (a) the highest annual bonus such employee received during the three calendar years prior to the termination date and (b) such employee’s target annual bonus in effect for the year in which termination occurs, (ii) such employee’s monthly COBRA payment for the applicable employee and any of his dependents that were participating in such plan immediately prior to such employee’s termination, and (iii) automatic and immediate vesting of any and all equity benefits.

 

In the event the New Executives terminates his respective New Executive Agreement and employment with the Company for any reason (other than Good Reason) during the term of the applicable New Executive Agreement, the Company shall pay to the New Executives, as applicable, all Accrued Obligations owed.

 

Pursuant to the New Executive Agreements, all equity awards granted to Mr. Coulter and Mr. Tkach shall vest immediately upon a Change in Control. Further, upon a Change in Control, each of Mr. Coulter and Mr. Tkach shall be entitled to the same compensation as if he was terminated without Cause.

 

Outstanding Restricted Stock Units

 

In accordance with the terms of the Equity Incentive Plan and the award agreements provided to all RSU award recipients, at closing, an aggregate of 687,701 currently outstanding RSUs will vest, including 306,090 shares subject to approval of the Incentive Plan Proposal. Of these vesting RSUs, Mr. Chesrown holds 105,189 RSUs and Mr. Levy holds 105,187 RSUs.

 

Directors and Officers Indemnification and Insurance

 

Directors and officers of RumbleOn also have rights to indemnification and directors’ and officers’ liability insurance that will survive completion of the Transaction. See “The Transaction Agreement — Indemnification.”

 

Accounting Treatment

 

RumbleOn will account for the Transaction as an acquisition of the Target Companies by using the acquisition method of accounting in accordance with United States generally accepted accounting principles. RumbleOn expects that, upon completion of the Transaction, holders of interests in the Target Companies will receive approximately 43.2% of the outstanding Class B common stock and 41.6% of the voting power of the combined company and RumbleOn stockholders will retain 24.7% of the outstanding Class B common stock and 27.4% of the voting power of the combined company, with the balance to be held by purchasers in the Transaction Equity Raise and new stockholders resulting from the issuance of shares underlying RSUs that will vest at closing. In addition to considering these relative voting powers, RumbleOn also considered the proposed composition of the combined company’s board of directors and the board committees, and the proposed members of the executive management team of the combined company, in determining the acquirer for accounting purposes. Based on the weighting of these factors, RumbleOn has concluded that it is the accounting acquirer.

 

Under the acquisition method of accounting, the assets, including identifiable intangible assets, and liabilities of the Target Companies as of the effective time of the Transaction will be recorded at their respective fair values and added to those of RumbleOn. Any excess of the purchase price for the Transaction over the net fair value of the Target Entities’ assets and liabilities will be recorded as goodwill. The results of operations of the Target Companies will be combined with the results of operations of RumbleOn beginning at the closing of the Transaction. The consolidated financial statements of RumbleOn after closing will not be restated retroactively to reflect the historical financial position or results of operations of the Target Companies. Following the Transaction, and subject to the finalization of the purchase price allocation, the earnings of RumbleOn will reflect the effect of any purchase accounting adjustments, including any increased depreciation and amortization associated with fair value adjustments to the assets acquired and liabilities assumed.

 

The allocation of the purchase price used in the unaudited pro forma financial statements is based upon a preliminary valuation by management. The final estimate of the fair values of the assets and liabilities will be determined with the assistance of a third-party valuation firm. RumbleOn’s preliminary estimates and assumptions are subject to materially change upon the finalization of internal studies and third-party valuations of assets, including investments, property and equipment, intangible assets including goodwill, and certain liabilities.

 

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Ownership of RumbleOn after the Transaction

 

As of June 21, 2021, RumbleOn has 50,000 shares of Class A common stock outstanding and 3,343,062 shares of Class B common stock outstanding. The number of shares of Class B common stock outstanding excludes:

 

982,107 shares of Class B common stock underlying the 2025 Convertible Notes;

 

382,611 shares of Class B common stock underlying outstanding restricted stock units and 2,636 options granted under the Incentive Plan;

 

154,476 shares of Class B common stock reserved for issuance under the Incentive Plan, such amount does not include 306,090 shares of Class B common stock underlying restricted stock units subject to stockholder approval of the Incentive Plan Proposal;

 

16,052 shares of Class B common stock underlying currently outstanding warrants; and

 

  1,052,632 shares of Class B common stock underlying the Oaktree Warrant (based on the closing price of RumbleOn Class B common stock as reported on Nasdaq on the Record Date), assuming the Warrant will be issued at Closing.

 

Under the terms of the Transaction Agreement, at closing, RumbleOn will issue to the Sellers an aggregate of 5,833,333 shares of Class B common stock (assuming neither Closing Share Increase Metric is triggered). In addition, assuming the Transaction Equity Raise is completed at a per share price of $38.00 based on the closing price of RumbleOn Class B common stock as reported on Nasdaq on the Record Date, the Company will issue an additional 3,552,632 shares in connection with the Transaction.

 

Based on the foregoing, immediately after Closing the Transaction, 13,509,788 shares of Class B common stock will be issued and outstanding and (1) the shares issued to Sellers in the Transaction will represent approximately 43.2% of the outstanding Class B common stock and approximately 41.6% of the aggregate voting power of the Company, taking account of the ten votes per share provided to the Class A common stock and (2) the shares of Class B common stock held by RumbleOn stockholders before Closing and the Transaction Equity Raise will represent approximately 24.7% of the outstanding Class B common stock and approximately 27.4% of the aggregate voting power of the Company, taking account of the ten votes per share provided to the Class A common stock. The foregoing are estimates of post-Transaction shares of Class B common stock and are subject to the number of shares actually issued in the Transaction Equity Raise and to whether either of the Closing Share Increase Metrics are triggered.

 

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Security Ownership of Certain Beneficial Owners and Management Before the Transaction

 

As of June 21, 2021, the Record Date for the special meeting, 50,000 shares of Class A common stock and 3,343,062 shares of Class B common stock were issued and outstanding. The following table sets forth information with respect to the beneficial ownership of our Class A and Class B common stock as of the Record Date, by (i) each of our directors and executive officers, (ii) all of our directors and executive officers as a group, and (iii) each stockholder known by us to be the beneficial owner of more than 5% of our Class A or Class B common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes sole or shared voting or investment power with respect to securities. In accordance with the SEC rules, shares of our common stock that may be acquired upon exercise or vesting of equity awards within 60 days of the date of the table below are deemed beneficially owned by the holders of such awards and are deemed outstanding for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage of ownership of any other person.

 

Unless otherwise noted below, the address of each person listed on the table is c/o RumbleOn, Inc., 901 W. Walnut Hill Lane, Irving, Texas 75038.

 

Beneficial Owner, Executive Officers, and Directors  Class A
Common
Stock
Beneficially
Owned
   Percentage of
Class A
Common
Stock
Beneficially
Owned (%)(1)
   Class B
Common
Stock
Beneficially
Owned
   Percentage of
Class B
Common
Stock
Beneficially
Owned (%)(2)
 
Marshall Chesrown(3)   43,750    87.5%   99,658(7)   2.98%
Berrard Holdings LP(4)   6,250    12.5%    128,044(7)   3.81%
Denmar Dixon(5)   -    -%   99,874(8)   2.98%
Kevin Westfall   -    -%   24,539(9)   *%
Adam Alexander   -    -%   11,013(10)   *%
Peter Levy   -    -%   13,512(7)(11)   *%
Richard Gray   -    -%   25,269(12)   *%
Michael Marchlik   -    -%   13,140(13)   *%
Beverley Rath   -    -%   6,139(14)   *%
All executive officers and directors as a group (8 persons)(6)   -    -%   293,144(15)   8.72%

 

 

*Represents beneficial ownership of less than 1%.
(1)Based on 50,000 shares of Class A common stock issued and outstanding as of the Record Date. The Class A common stock has ten votes for each share.
(2)Based on 3,343,062 shares of Class B common stock issued and outstanding as of the Record Date. The Class B common stock has one vote for each share.
(3)Includes 3,908 restricted stock units that will vest within 60 days. As of the Record Date, Mr. Chesrown has voting power representing approximately 13.9% of our outstanding common stock.
(4)Shares are owned directly through Berrard Holdings LP (“BHLP”), a limited partnership. Subsequent to Mr. Berrard’s death on June 7, 2021, Thomas Hawkins serves as trustee of Mr. Berrard’s estate, and in such capacity has the sole power to vote and the sole power to dispose of the shares of RumbleOn Class A and Class B common stock which BHLP may be deemed to beneficially own. Includes 19,544 restricted stock units that have vested and are pending delivery. As of the Record Date, BHLP has voting power representing approximately 4.5% of our outstanding common stock.
(5)62,642 shares are owned directly through Blue Flame Capital, LLC, an entity controlled by Mr. Dixon, 638 shares are held by Mr. Dixon’s spouse, 75 shares are held by Mr. Dixon’s son and 33,162 shares are directly held by Mr. Dixon (including 2,641 shares held in a joint account with Mr. Dixon’s spouse). Mr. Dixon has the sole voting and investment power of each of the shares of common stock which he may be deemed to beneficially own. As of the Record Date, Mr. Dixon has voting power representing 2.5% of our outstanding common stock.
(6)As of the Record Date, all directors and executive officers as a group have voting power representing approximately 18.5% of our outstanding common stock.
(7)Does not include the following performance based restricted stock units granted to Messrs. Chesrown and Levy: Mr. Chesrown – 66,668 restricted stock units and Mr. Levy – 66,666 restricted stock units. In accordance with the terms of the Current Executive Agreements, these restricted stock units will vest at Closing.
(8)Includes 1,770 restricted stock units that have vested and are pending delivery and 1,587 restricted stock units that will vest within 60 days.
(9)Includes 729 restricted stock units that have vested and are pending delivery and 1,378 restricted stock units that will vest within 60 days.
(10)Includes 1,232 restricted stock units that will vest within 60 days.
(11)Includes 1,229 restricted stock units that have vested and are pending delivery and 3,778 restricted stock units that will vest within 60 days.
(12)Includes 729 restricted stock units that have vested and are pending delivery and 1,378 restricted stock units that will vest within 60 days.
(13)Includes 1,232 restricted stock units that will vest within 60 days.
(14)Includes 473 restricted stock units that have vested and are pending delivery and 1,154 restricted stock units that will vest within 60 days.
(15)Includes 4,930 restricted stock units that have vested and are pending delivery and 15,647 restricted stock units that will vest within 60 days.

 

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Security Ownership of Certain Beneficial Owners and Management After the Transaction

 

The following table sets forth information with respect to the beneficial ownership of our Class A and Class B common stock after closing the Transaction by each person expected to serve as an executive officer or director of the combined company, all such executive officers and directors as a group, and each person expected to own more than 5% of our Class A or Class B common stock. For this table, we assume (i) 5,833,333 shares of Class B common stock (assuming neither Closing Share Increase Metric is triggered) will be issued in the Transaction, (ii) 3,552,632 shares of Class B common stock will be issued in the Transaction Equity Raise (based on a per share price of $38.00 based on the closing price of the Class B common stock as reported on Nasdaq on the Record Date), and (iii) 688,701 shares of Class B common stock are issued in connection with the vesting of outstanding restricted stock units at Closing.

 

Beneficial Owner, Executive Officers, and Directors  Class A
Common
Stock
Beneficially
Owned
   Percentage of
Class A
Common
Stock
Beneficially
Owned (%)(1)
   Class B
Common
Stock
Beneficially
Owned
   Percentage of
Class B
Common
Stock
Beneficially
Owned (%)(2)
 
Bill Coulter   -    -    2,833,685(3)   21.12%
Mark Tkach   -    -    2,480,244(3)   18.48%
Marshall Chesrown   43,750    87.5%   220,483(4)   1.64%
Berrard Holdings LP   6,250    12.5%   233,231(5)   1.74%
Denmar Dixon   -    -%   108,588(6)   *%
Kevin Westfall   -    -%   27,003(7)   *%
Adam Alexander   -    -%   14,977(8)   *%
Peter Levy   -    -%   132,667(9)   *%
Richard Gray   -    -%   27,733(10)   *%
Michael Marchlik   -    -%   18,104(11)   *%
Beverely Rath   -    -%   17,264(12)   *%
All executive officers and directors as a group (10 persons)(13)   -    -%   5,880,748(14)   43.83%

 

 

*Represents beneficial ownership of less than 1%.
(1)Based on 50,000 shares of Class A common stock issued and outstanding as of Closing. The Class A common stock has ten votes for each share.
(2)Based on 13,417,728 shares of Class B common stock issued and outstanding as of Closing. The Class B common stock has one vote for each share.
(3)The Class B common stock beneficially owned and percentage of Class B common stock beneficially owned by Messrs. Coulter and Tkach are preliminary and subject to adjustment after Closing based on allocations to RideNow parties.
(4)Includes 124,733 restricted stock units that will vest at Closing. As of Closing, Mr. Chesrown will have voting power representing approximately 4.7% of our outstanding common stock.
(5)Includes 105,187 restricted stock units that vested at Closing. Shares are owned directly through BHLP. Subsequent to Mr. Berrard's death on June 7, 2021, Thomas Hawkins serves as trustee of Mr. Berrard's estate, and in such capacity has the sole power to vote and the sole power to dispose of the shares of Class A and Class B common stock which may be deemed to beneficially owned by BHLP. As of Closing, BHLP will have voting power representing approximately 2.1% of our outstanding common stock.
(6)62,642 shares are owned directly through Blue Flame Capital, LLC, an entity controlled by Mr. Dixon, 638 shares are held by Mr. Dixon’s spouse, 75 shares are held by Mr. Dixon’s son and 39,412 shares are directly held by Mr. Dixon (including 2,641 shares held in a joint account with Mr. Dixon’s spouse). Mr. Dixon has the sole voting and investment power to dispose of each of the shares of common stock which he may be deemed to beneficially own.
(7)Includes 4,571 restricted stock units that will vest at Closing.
(8)Includes 3,696 restricted stock units that will vest at Closing.
(9)Includes 124,162 restricted stock units that will vest at Closing.
(10)Includes 4,571 restricted stock units that will vest at Closing.
(11)Includes 3,696 restricted stock units that will vest at Closing.
(12)Includes 12,752 restricted stock units that will vest at Closing.
(13)As of Closing, all directors and executive officers as a group will have voting power representing approximately 45.8% of our outstanding common stock.
(14)Includes 264,458 restricted stock units that will vest at Closing.

 

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Board of Directors After the Transaction

 

In connection with the Closing, the RumbleOn Board will be increased to nine members, with Mark Tkach and Bill Coulter added as members. The Board’s Nominating and Corporate Governance Committee will review its current independent membership in advance of closing and, if appropriate, make recommendations regarding Board membership for consideration of the full Board. Upon completion of the Transaction, the following persons will serve as directors of the Company:

 

Director

  Age 
Marshall Chesrown   63 
Bill Coulter   65 
Mark Tkach   64 
Peter Levy   51 
Adam Alexander   49 
Denmar Dixon   59 
Richard A Gray, Jr.   73 
Michael Marchlik   48 
Kevin Westfall   65 

 

Executive Officers After the Transaction

 

RumbleOn and the Target Companies have agreed that upon completion of the Transaction, the following persons will serve as executive officers of the Company and hold the offices set forth next to their names:

 

Name

  Title
Marshall Chesrown   Chief Executive Officer and Chairman of the Board
Bill Coulter   Executive Vice Chairman and Director
Mark Tkach   Chief Operating Officer and Director
Peter Levy   President and Director
Beverley Rath Interim Chief Financial Officer

 

Federal Securities Laws Consequences; Stock Transfer Restriction Agreements

 

All shares of RumbleOn Class B common stock that holders of interests in the Target Companies receive in the Transaction will be issued pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended, and the rules and regulations thereunder (collectively, the “Securities Act”) and as such will be deemed restricted securities as that term is understood under the Securities Act. Moreover, certain RideNow equity holders will be subject to a 180-day contractual lock-up to be entered into in connection with closing the Transaction. RumbleOn has agreed to file a Registration Statement on Form S-3 providing for the resale of shares issued in the transaction, which registration statement is required to be effective within 90 days after the Closing Date, subject to SEC comment.

 

Dissenters’ Rights for RumbleOn Stockholders

 

RumbleOn stockholders have no dissenters’ rights in the Transaction.

 

MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION

 

There will be no U.S. federal income tax consequences to holders of RumbleOn common stock as a result of the Transaction.

 

REGULATORY MATTERS

 

The Transaction is subject to review by federal and state antitrust authorities pursuant to applicable federal and state antitrust laws. Under the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR Act”), and the rules and regulations thereunder, the Transaction cannot be completed until the companies have made the required notifications and the occurrence of the first of the following: (1) the early termination of the waiting period; (2) the expiration of the required waiting period; or (3) the resolution of any applicable federal or state litigation. RumbleOn filed the required notification and report forms with the United States Department of Justice, Antitrust Division and the Federal Trade Commission on June 28, 2021.

 

Vote Required

 

The affirmative vote of a majority in voting power of the Company’s common stock in person or represented by proxy at the special meeting is required to approve the Stock Issuance Proposal.

 

THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE STOCK ISSUANCE PROPOSAL

 

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PROPOSAL 2: THE AUTHORIZED STOCK PROPOSAL

 

Our Board has adopted a resolution (i) approving an amendment to Article VI of our Articles of Incorporation that would increase the number of authorized shares of Class B common stock, par value $0.001 per share, from 4,950,000 shares to 100,000,000 shares (the “Authorized Share Amendment”) and (ii) directing that the Authorized Share Amendment be submitted to the stockholders for approval at the special meeting.

 

The Authorized Share Amendment

 

If the Authorized Share Amendment is approved by our stockholders and subsequently filed with the Nevada Secretary of State, Article VI – Capital Stock of the Articles of Incorporation would be amended and restated in its entirety to read:

 

“Section 1. Authorized Shares. The total number of shares which this corporation is authorized to issue is 100,050,000 shares of Common Stock, of which 50,000 shares shall be Class A Common Stock, par value $0.001 per share, and 100,000,000 shares shall be Class B Common Stock, par value $0.001 per share, and 10,000,000 shares of Preferred Stock, par value $0.001 per share.

 

Section 2. Voting Rights of Stockholders. Each holder of the Class A Common Stock shall be entitled to ten votes for each share of Class A Common Stock standing in his name on the books of the corporation. Each holder of the Class B Common Stock shall be entitled to one vote for each share of Class B Common Stock standing in his name on the books of the corporation.

 

Section 3. Consideration for Shares. The Common Stock shall be issued for such consideration, as shall be fixed from time to time by the Board of Directors. In the absence of fraud, the judgment of the Directors as to the value of any property or services received in full or partial payment for shares shall be conclusive. When shares are issued upon payment of the consideration fixed by the Board of Directors, such shares shall be taken to be fully paid stock and shall be non-assessable. The Articles shall not be amended in this particular.

 

Section 4. Stock Rights and Options. The corporation shall have the power to create and issue rights, warrants, or options entitling the holders thereof to purchase from the corporation any shares of its capital stock of any class or classes, upon such terms and conditions and at such times and prices as the Board of Directors may provide, which terms and conditions shall be incorporated in an instrument or instruments evidencing such rights. In the absence of fraud, the judgment of the Directors as to the adequacy of consideration for the issuance of such rights or options and the sufficiency thereof shall be conclusive.

 

Section 5. Restrictive Covenants. So long as any shares of the Class A Common Stock are outstanding, the corporation shall not take any of the following actions without first obtaining the affirmative written consent of Class A Common Stock holding at least a majority of outstanding shares of the Class A Common Stock:

 

(a)  authorize or issue additional shares of the Class A Common Stock; or

 

(b) amend, alter or repeal any provisions of the Articles of Incorporation or the Bylaws of the corporation in a manner that adversely affects the powers, preferences or rights of the Class A Common Stock.

 

Section 6. Blank-Check Preferred Stock. The Board of Directors is authorized to divide the 10,000,000 shares of Preferred Stock, from time to time, into one or more series, and to determine or change by resolution for each such series its designation, the number of shares of such series, the powers, preferences and rights and the qualifications, limitations, or restrictions for the shares of such series. The resolution or resolutions of the Board of Directors providing for the division of such Preferred Stock into series may include, but is not limited to, the following provisions; preferences with respect to dividends, special or super voting powers, conversion rights into common stock, and preferences with respect to dissolutions and liquidations.”

 

Only the number of shares of Class B common stock the Company is authorized to issue is affected by the Authorized Share Amendment. The Authorized Share Amendment would not affect any other provision of the Articles of Incorporation. If approved by a majority of holders of our outstanding shares of common stock entitled to vote as of the Record Date, we will file the Authorized Share Amendment, in substantially the form attached to this proxy statement as Annex E, with the Nevada Secretary of State.

 

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Reasons for the Authorized Share Amendment

 

Our Board believes that an increase in the number of authorized shares of Class B common stock is in the best interests of our stockholders. Increasing the number of authorized shares of Class B common stock will provide us sufficient shares to complete the Transaction and the proposed equity issuance to fund part of the cash consideration of the Transaction. In addition, additional authorized shares will allow us to engage in future strategic transactions or acquisitions involving the issuance of equity securities and other capital raising transactions should such opportunities come available. We have limited capital and in order for us to execute our business plan, we must have the flexibility to engage in such transactions until we are able to generate sufficient revenue and cash flow to provide for these opportunities. You should be aware that potential strategic or capital raising transactions involving the issuance of additional shares of Class B common stock may have a dilutive effect on our existing stockholders, as further described in the section titled “Effects of Increase.”

 

If the Authorized Share Amendment is not approved, we may not be able to complete the Transaction and we may be limited in our efforts to engage in other strategic or capital raising transactions. In such event, our operations and financial condition may be materially and adversely affected.

 

This proposal is neither an offer to sell nor a solicitation of an offer to buy any securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful. Further, from time to time, we engage in preliminary discussions and negotiations with various businesses in order to explore the possibility of an acquisition or investment. However, as of the date of this proxy statement, except for the Transaction, we have not entered into any agreements or arrangements which would make an acquisition or investment probable under Rule 3-05(a) of Regulation S-X.

 

Number of Shares of Common Stock Currently Outstanding

 

As of the Record Date, RumbleOn has 50,000 shares of Class A common stock outstanding and 3,343,062 shares of Class B common stock outstanding. The number of shares of Class B common stock outstanding excludes:

 

982,107 shares of Class B common stock underlying the 2025 Convertible Notes;

 

382,611 shares of Class B common stock underlying outstanding restricted stock units and 2,636 options granted under the Incentive Plan;

 

154,476 shares of Class B common stock reserved for issuance under the Incentive Plan, such amount does not include 306,090 shares of Class B common stock underlying restricted stock units subject to stockholder approval of the Incentive Plan Proposal;

 

16,052 shares of Class B common stock underlying currently outstanding warrants; and

 

  1,052, 632 shares of Class B common stock underlying the Oaktree Warrant (based on the closing price of RumbleOn Class B common stock as reported on Nasdaq on the Record Date), which warrant will be issued at closing.

 

Effects of Increase

 

The additional authorized but unissued shares of Class B common stock may generally be issued from time to time for such proper corporate purposes as may be determined by our Board or, as required by law or the rules of Nasdaq Stock Market, with the approval and authorization of our stockholders. Our Board does not intend to solicit further stockholder approval prior to the issuance of additional shares of Class B common stock, except as may be required by applicable law or by the rules of Nasdaq Stock Market.

 

The possible future issuance of shares of Class B common stock or securities convertible or exercisable into Class B common stock could affect our current stockholders in a number of ways. The issuance of new shares of Class B common stock will cause immediate dilution of the ownership interests and the voting power of our existing stockholders. New issuances of Class B common stock may also affect the number of dividends, if any, paid to such stockholders and may reduce the share of the proceeds that they would receive upon the future liquidation, if any, of the Company.

 

In addition, the future issuance of shares of Class B common stock or securities convertible or exercisable into shares of Class B common stock could:

 

dilute and affect the market value of our trading securities;

 

dilute the earnings per share, if any, and book value per share of the outstanding shares of our equity securities; and

 

make the payment of dividends on Class B common stock, if any, potentially more expensive.

 

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Anti-Takeover Effects

 

Although the Authorized Share Amendment is not motivated by anti-takeover concerns and is not considered by our Board to be an anti-takeover measure, the availability of additional authorized shares of Class B common stock could enable the Board to issue shares defensively in response to a takeover attempt or to make an attempt to gain control of the Company more difficult or time-consuming. For example, shares of Class B common stock could be issued to purchasers who might side with management in opposing a takeover bid that the Board determines is not in the best interests of our stockholders, thus diluting the ownership and voting rights of the person seeking to obtain control of the Company. In certain circumstances, the issuance of Class B common stock without further action by the stockholders may have the effect of delaying or preventing a change in control of the Company, may discourage bids for Class B common stock at a premium over the prevailing market price and may adversely affect the market price of Class B common stock. As a result, increasing the authorized number of shares of Class B common stock could render more difficult and less likely a hostile takeover of the Company by a third-party, or a tender offer or proxy contest, assumption of control by a holder of a large block of our stock, and the possible removal of our incumbent management. We are not aware of any proposed attempt to take over the Company or of any present attempt to acquire a large block of Class B common stock.

 

Vote Required

 

The affirmative vote of a majority in voting power of the issued and outstanding Company common stock as of the Record Date is required to approve the Authorized Stock Proposal.

 

THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE AUTHORIZED STOCK PROPOSAL

 

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PROPOSAL 3: INCENTIVE PLAN PROPOSAL

 

Overview

 

Upon the recommendation of the Compensation Committee, the Board has approved, subject to stockholder approval, an amendment to the Incentive Plan to (1) increase the number of shares of Class B common stock authorized for issuance under the Incentive Plan from 700,000 shares of Class B common stock to 2,700,000 shares of Class B common stock (the “Incentive Plan Increase”), and (2) extend the Incentive Plan for an additional ten years from the date of stockholder approval. Currently, 700,000 shares of Class B common stock are authorized for issuance under the Incentive Plan, of which 385,247 shares are subject to outstanding awards under the Incentive Plan and 154,476 shares remain available for future issuance. These share amounts do not include 306,090 shares underlying RSUs granted pursuant to the Incentive Plan, subject to stockholder approval at the special meeting. Approval of this proposal will result in an additional 2,000,000 shares of Class B common stock available for issuance under the Incentive Plan and less awards previously granted subject to approval of the Incentive Plan Increase. The Board unanimously recommends that the stockholders approve the Incentive Plan Proposal.

 

The primary purpose of the Incentive Plan is to attract, retain, reward and motivate certain individuals by providing them with an opportunity to acquire or increase a proprietary interest in the Company and to incentivize them to expend maximum effort for the growth and success of the Company, so as to strengthen the mutuality of the interests between such individuals and the stockholders of the Company.

 

The following discussion summarizes the material terms of the Incentive Plan. This discussion is not intended to be complete and is qualified in its entirety by (i) reference to the full text of the Incentive Plan, which is available as Annex A to the Company’s 2017 Proxy Statement for the 2017 Annual Meeting of Stockholders, (ii) reference to the full text of the first amendment to the Incentive Plan, previously approved by the Stockholders at the Company’s 2018 Annual Meeting of Stockholders, which is available as Annex A to the Company’s 2018 Proxy Statement for the 2018 Annual Meeting of Stockholders, (iii) reference to the full text of the second amendment to the Incentive Plan, previously approved by the Stockholders at the Company’s 2019 Annual Meeting of Stockholders, which is available as Annex A to the Company’s 2019 Proxy Statement for the 2019 Annual Meeting of Stockholders, and (iv) the proposed amendment to the Incentive Plan included as Annex F to this proxy statement, each of which is incorporated herein by reference.

 

Administration

 

The Incentive Plan is administered by the Compensation Committee of the Board (for purpose of this description of the Incentive Plan, the “Committee”). If no Committee exists, the independent Board members will exercise the functions of the Committee.

 

All grants under the Incentive Plan will be evidenced by a grant agreement (an “Award Agreement”) that will incorporate the terms and conditions as the Committee deems necessary or appropriate.

 

Coverage Eligibility and Grant Limits

 

The Incentive Plan provides for the issuance of awards (each, an “Award”) consisting of stock options (“Options”), stock appreciation rights (“SARs”), restricted stock (“Restricted Stock”), restricted stock units (“RSUs”), performance shares (“Performance Shares”) and performance units (“Performance Units”). Incentive stock options (“ISOs”) may be granted under the Incentive Plan only to our employees. Our employees, consultants, directors, independent contractors and certain prospective employees who have committed to become an employee are eligible to receive all other types of awards under the Incentive Plan (each an “Eligible Individual”).

 

The granting of Awards under the Incentive Plan shall be subject to the following limitation, after giving effect to the Incentive Plan Increase: a maximum of 2,700,000 shares of Class B common stock may be subject to grants of ISOs.

 

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Shares Reserved for Issuance Under the Incentive Plan

 

Subject to adjustment as described below and under the section titled “Change in Control” and after giving effect to the Incentive Plan Increase, a total of 2,700,000 shares of Class B common stock may be issued pursuant to Awards granted under the Incentive Plan. Notwithstanding the foregoing, if any Award is cancelled, forfeited or terminated for any reason prior to exercise, delivery or becoming vested in full, the shares of Class B common stock that were subject to such Award shall, to the extent cancelled, forfeited or terminated, immediately become available for future Awards granted under this Incentive Plan; provided, however, that any shares of Class B common stock subject to an Award which is cancelled, forfeited or terminated in order to pay the exercise price of a stock option, purchase price or any taxes or tax withholdings on an award shall not be available for future Awards granted under this Incentive Plan.

 

If the outstanding shares of common stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities by reason of any recapitalization, reclassification, reorganization, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock of the Company or other increase or decrease in such shares effected without receipt of consideration by the Company, an appropriate and proportionate adjustment shall be made by the Committee to: (i) the aggregate number and kind of shares of common stock available under the Incentive Plan, (ii) the calculation of the reduction of shares of common stock available under the Incentive Plan, (iii) the number and kind of shares of common stock issuable pursuant to outstanding Awards granted under the Incentive Plan and/or (iv) the exercise price of outstanding Options or SARs granted under the Incentive Plan. No fractional shares of common stock or units of other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share or unit. Any adjustments made to any ISO shall be made in accordance with Section 424 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

Stock Options

 

The Committee acting in its absolute discretion has the right to grant Options to Eligible Individuals to purchase shares of common stock. Each grant shall be evidenced by an option certificate setting forth whether the Option is an ISO, which is intended to qualify for special tax treatment under Section 422 of the Code, or a non-qualified incentive stock option (“Non-ISO”). Each Option granted under the Incentive Plan entitles the holder thereof to purchase the number of shares of common stock specified in the grant at the exercise price specified in the related option certificate. At the discretion of the Committee, the option certificate can provide for payment of the exercise price either in cash, by check, bank draft, money order, in common stock and by any other method which the Committee, in its sole and absolute discretion and to the extent permitted by applicable law, may permit.

 

The terms and conditions of each Option granted under the Incentive Plan will be determined by the Committee, but no Option will be granted at an exercise price which is less than the fair market value of the common stock on the grant date (generally, the closing price for the common stock on the principal securities exchange on which the common stock is traded or listed on the date the Option is granted or, if there was no closing price on that date, on the last preceding date on which a closing price was reported). In addition, if the Option is an ISO that is granted to a 10% stockholder of the Company, the Option exercise price will be no less than 110% of the fair market value of the shares of common stock on the grant date. Except for adjustments as described under “Shares Reserved for Issuance Under the Incentive Plan” above and “Change in Control” below, without the approval of the Company’s stockholders, the option price shall not be reduced after the Option is granted, an Option may not be cancelled in exchange for cash or another Award, and no other action may be made with respect to an Option that would be treated as a repricing under the rules and regulations of the principal securities exchange on which the common stock is traded.

 

No Options may be exercised prior to the satisfaction of the conditions and vesting schedule provided for in the Incentive Plan and in the Award Agreement relating thereto. No Option may be exercisable more than 10 years from the grant date, or, if the Option is an ISO granted to a 10% stockholder of the Company, it may not be exercisable more than 10 years from the grant date. Moreover, no Option will be treated as an ISO to the extent that the aggregate fair market value of the common stock subject to the Option (determined as of the date the ISO was granted) which would first become exercisable in any calendar year exceeds $100,000. The Committee may not, as part of an Option grant, provide for an Option reload feature whereby an additional Option is automatically granted to pay all or a part of the Option exercise price or a part of any related tax withholding requirement.

 

Restricted Stock and Restricted Stock Units

 

The Committee may grant to such Eligible Individuals as the Committee may determine, Restricted Stock and RSUs, in such amounts and on such terms and conditions as the Committee shall determine in its sole and absolute discretion. The Committee shall impose such restrictions on any Restricted Stock and RSUs granted pursuant to the Incentive Plan as it may deem advisable including, without limitation, time-based vesting restrictions or the attainment of performance goals (“Performance Goals”). With respect to a grant of Restricted Stock, the Company may issue a certificate evidencing such Restricted Stock to the Eligible Individual or issue and hold such shares of Restricted Stock for the benefit of the Eligible Individual until the applicable restrictions expire. The Company may legend the certificate representing Restricted Stock to give appropriate notice of such restrictions. Unless otherwise provided in an Award Agreement, until the expiration of all applicable restrictions, (i) the Restricted Stock shall be treated as outstanding, (ii) the Eligible Individual holding shares of Restricted Stock may exercise full voting rights with respect to such shares, and (iii) the Eligible Individual holding shares of Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such shares while they are so held. If any such dividends or distributions are paid in shares of common stock, such shares shall be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid. Notwithstanding anything to the contrary, at the discretion of the Committee, all such dividends and distributions may be held in escrow by the Company (subject to the same restrictions on forfeitability) until all restrictions on the respective Restricted Stock have lapsed. Holders of the RSUs shall not have any of the rights of a stockholder, including the right to vote or receive dividends and other distributions, until common stock shall have been issued in the Eligible Individual’s name pursuant to the RSUs; provided, however the Committee, in its sole and absolute discretion, may provide for dividend equivalents on vested RSUs.

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Unless otherwise provided in the Incentive Plan or Award Agreement, common stock will be issued with respect to RSUs no later than March 15 of the year immediately following the year in which the RSUs are first no longer subject to a substantial risk of forfeiture as such term is defined in Section 409A of the Code and the regulations issued thereunder (“RSU Payment Date”). In the event that the Eligible Individual has elected to defer the receipt of common stock pursuant to an Award Agreement beyond the RSU Payment Date, then the common stock will be issued at the time specified in the Award Agreement or related deferral election form. In addition, unless otherwise provided in the Award Agreement, if the receipt of common stock is deferred past the RSU Payment Date, dividend equivalents on the common stock covered by the RSUs shall be deferred until the RSU Payment Date.

 

Stock Appreciation Rights

 

The Committee has the right to grant SARs to Eligible Individuals in such amounts and on such terms and conditions as the Committee shall determine in its sole and absolute discretion. Unless otherwise provided in an Award Agreement, the terms and conditions (including, without limitation, the limitations on the exercise price, exercise period, repricing and termination) of the SAR shall be substantially identical to the terms and conditions that would have been applicable were the grant of the SAR a grant of an Option. Unless otherwise provided in an Award Agreement, upon exercise of a SAR the Eligible Individual shall be entitled to receive payment, in cash, in shares of common stock, or in a combination thereof, as determined by the Committee in its sole and absolute discretion. The amount of such payment shall be determined by multiplying the excess, if any, of the fair market value of a share of common stock on the date of exercise over the fair market value of a share of common stock on the grant date, by the number of shares of common stock with respect to which the SAR are then being exercised. Notwithstanding the foregoing, the Committee may limit in any manner the amount payable with respect to a SAR by including such limitation in the Award Agreement.

 

Performance Shares and Performance Units

 

Performance Shares and Performance Units may be granted to Eligible Individuals under the Incentive Plan. The applicable Award Agreement shall set forth (i) the number of Performance Shares or the dollar value of Performance Units granted to the participant; (ii) the performance period and Performance Goals with respect to each such Award; (iii) the threshold, target and maximum shares of common stock or dollar values of each Performance Share or Performance Unit and corresponding Performance Goals; and (iv) any other terms and conditions as the Committee determines in its sole and absolute discretion. Unless otherwise provided in an Award Agreement, the Committee shall determine in its sole and absolute discretion whether payment with respect to the Performance Share or Performance Unit shall be made in cash, in shares of common stock, or in a combination thereof.

 

Performance Goals

 

Performance Goals will be based on one or more of the following criteria: (i) the Company’s enterprise value or value creation targets; (ii) the Company’s after-tax or pre-tax profits including, without limitation, that attributable to Company’s continuing and/or other operations; (iii) the Company’s operational cash flow or working capital, or a component thereof; (iv) the Company’s operational costs, or a component thereof; (v) limiting the level of increase in all or a portion of bank debt or other of the Company’s long-term or short-term public or private debt or other similar financial obligations of the Company, which may be calculated net of cash balances and/or other offsets and adjustments as may be established by the Committee; (vi) earnings per share or earnings per share from the Company’s continuing operations; (vii) the Company’s net sales, revenues, net income or earnings before income tax or other exclusions; (viii) the Company’s return on capital employed or return on invested capital; (ix) the Company’s after-tax or pre-tax return on stockholder equity; (x) the attainment of certain target levels in the fair market value of the Company’s common stock; (xi) the growth in the value of an investment in the common stock assuming the reinvestment of dividends; and/or (xii) EBITDA (earnings before income tax, depreciation and amortization). In addition, Performance Goals may be based upon the attainment by a subsidiary, division or other operational unit of the Company of specified levels of performance under one or more of the measures described above. Further, the Performance Goals may be based upon the attainment by the Company (or a subsidiary, division, facility or other operational unit) of specified levels of performance under one or more of the foregoing measures relative to the performance of other corporations. The Committee may, in its sole and absolute discretion: (i) designate additional business criteria upon which the Performance Goals may be based; (ii) modify, amend or adjust the business criteria described herein; or (iii) incorporate in the Performance Goals provisions regarding changes in accounting methods, corporate transactions (including, without limitation, dispositions or acquisitions) and similar events or circumstances. Performance Goals may include a threshold level of performance below which no Award will be earned, levels of performance at which an Award will become partially earned and a level at which an Award will be fully earned.

 

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Other Awards

 

Awards of shares of Class B common stock, phantom stock and other Awards that are valued in whole or in part by reference to, or otherwise based on, Class B common stock, may also be made, from time to time, to Eligible Individuals as may be selected by the Committee. Each such Award shall be evidenced by an Award Agreement between the Eligible Individual and the Company which shall specify the number of shares of Class B common stock subject to the Award, any consideration therefore, any vesting or performance requirements, and such other terms and conditions as the Committee shall determine in its sole and absolute discretion.

 

Non-Transferability

 

No Award will be transferable by an Eligible Individual other than by will or the laws of descent and distribution, and any Option or SAR will (absent the Committee’s consent) be exercisable during an Eligible Individual’s lifetime only by the Eligible Individual, except that the Committee may provide in an Award Agreement that an Eligible Individual’s may transfer an award to a “family member”, as such term is defined in the Form S-8 Registration Statement under the Securities Act of 1933, as amended, under such terms and conditions as specified by the Committee.

 

Amendments to the Incentive Plan

 

The Incentive Plan may be amended by the Board to the extent that it deems necessary or appropriate provided, however, that the approval of the stockholders shall be required for any amendment: (i) that changes the class of individuals eligible to receive Awards under the Incentive Plan; (ii) that increases the maximum number of shares of common stock in the aggregate that may be subject to Awards that are granted under the Incentive Plan (except as otherwise permitted under the Incentive Plan); (iii) the approval of which is necessary to comply with federal or state law or with the rules of any stock exchange or automated quotation system on which the common stock may be listed or traded; or (iv) that proposed to eliminate a requirement provided herein that the stockholders of the Company must approve an action to be undertaken under the Incentive Plan. Except as expressly provided in the Incentive Plan, no amendment, suspension or termination of the Incentive Plan shall, without the consent of the holder of an Award, alter or impair rights or obligations under any Award theretofore granted under the Incentive Plan. Awards granted prior to the termination of the Incentive Plan may extend beyond the date the Incentive Plan is terminated and shall continue subject to the terms of the Incentive Plan as in effect on the date the Incentive Plan is terminated.

 

Change in Control

 

Upon the occurrence of a Change in Control (as defined in the Incentive Plan), the Committee may, in its sole and absolute discretion, provide on a case by case basis that (i) all Awards shall terminate, provided that participants shall have the right, immediately prior to the occurrence of such Change in Control and during such reasonable period as the Committee in its sole discretion shall determine and designate, to exercise any Award, (ii) all Awards shall terminate, provided that participants shall be entitled to a cash payment equal to the price per share of common stock paid in the Change in Control transaction, with respect to shares subject to the vested portion of the Award, net of the exercise price thereof, if applicable, (iii) in connection with a liquidation or dissolution of the Company, the Awards, to the extent vested, shall convert into the right to receive liquidation proceeds net of the exercise price (if applicable), (iv) accelerate the vesting of Awards and (v) any combination of the foregoing. In the event that the Committee does not terminate or convert an Award upon a Change in Control of the Company, then the Award shall be assumed, or substantially equivalent Awards shall be substituted, by the acquiring, or succeeding corporation (or an affiliate thereof).

 

Federal Income Tax Consequences

 

The rules concerning the federal income tax consequences of Awards under the Incentive Plan are technical, and reasonable persons may differ on their proper interpretation. Moreover, the applicable statutory and regulatory provisions are subject to change, as are their interpretations and applications, which may vary in individual circumstances. Therefore, the following discussion is designed to provide only a brief, general summary description of the federal income tax consequences associated with such grants, based on a good faith interpretation of the current federal income tax laws, regulations (including certain proposed regulations) and judicial and administrative interpretations. The following discussion does not set forth (1) any federal tax consequences other than income tax consequences or (2) any state, local or foreign tax consequences that may apply.

 

ISOs. In general, an employee will not recognize taxable income upon the grant or the exercise of an ISO. For purposes of the alternative minimum tax, however, the employee will be required to treat an amount equal to the difference between the fair market value of the common stock on the date of exercise over the option exercise price as an item of adjustment in computing the employee’s alternative minimum taxable income. If the employee does not dispose of the common stock received pursuant to the exercise of the ISO within either (1) two years after the date of the grant of the ISO or (2) one year after the date of the exercise of the ISO, a subsequent disposition of the common stock generally will result in long-term capital gain or loss to such individual with respect to the difference between the amount realized on the disposition and exercise price. The Company will not be entitled to any federal income tax deduction as a result of such disposition. In addition, the Company normally will not be entitled to take a federal income tax deduction on either the grant date or upon the exercise of an ISO.

 

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If the employee disposes of the common stock acquired upon exercise of the ISO within either of the above-mentioned time periods, then in the year of such disposition, the employee generally will recognize ordinary income, and the Company will be entitled to a federal income tax deduction (provided the Company satisfies applicable federal income tax reporting requirements), in an amount equal to the lesser of (1) the excess of the fair market value of the common stock on the date of exercise over the option exercise price or (2) the amount realized upon disposition of the common stock over the exercise price. Any gain in excess of such amount recognized by the employee as ordinary income would be taxed to such individual as short-term or long-term capital gain (depending on the applicable holding period).

 

Non-ISOs. An Eligible Individual will not recognize any taxable income upon the grant of a Non-ISO, and the Company will not be entitled to take an income tax deduction at the time of such grant. Upon the exercise of a Non-ISO, the Eligible Individual generally will recognize ordinary income and the Company will be entitled to a federal income tax deduction (provided the Company satisfies applicable federal income tax reporting requirements) in an amount equal to the excess of the fair market value of the common stock on the date of exercise over the option exercise price. Upon a subsequent sale of the common stock by the Eligible Individual, such individual will recognize short-term or long-term capital gain or loss (depending on the applicable holding period).

 

SARs. An Eligible Individual will not recognize any taxable income upon the grant of a SAR, and the Company will not be entitled to take an income tax deduction at the time of such grant. An Eligible Individual will recognize ordinary income for federal income tax purposes upon the exercise of a SAR under the Incentive Plan for cash, common stock or a combination of cash and common stock, and the amount of income that the Eligible Individual will recognize will depend on the amount of cash, if any, and the fair market value of the common stock, if any, that the Eligible Individual receives as a result of such exercise. The Company generally will be entitled to a federal income tax deduction in an amount equal to the ordinary income recognized by the Eligible Individual in the same taxable year in which the Eligible Individual recognizes such income, if the Company satisfies applicable federal income tax reporting requirements.

 

Restricted Stock. The Eligible Individual who receives Restricted Stock generally will not be subject to tax until the shares are no longer subject to forfeiture or restrictions on transfer for purposes of Section 83 of the Code (the “Restrictions”). At such time the Eligible Individual will be subject to tax at ordinary income rates on the fair market value of the Restricted Stock (reduced by any amount paid by the participant for such Restricted Stock). However, an Eligible Individual who makes an election under Section 83(b) of the Code within 30 days of the date of transfer of the shares will have taxable ordinary income on the date of transfer of the shares equal to the excess of the fair market value of such shares (determined without regard to the Restrictions) over the purchase price, if any, of such restricted shares. Any appreciation (or depreciation) realized upon a later disposition of such shares will be treated as long-term or short-term capital gain (or loss) depending upon how long the shares have been held. If a Section 83(b) election has not been made, any dividends received with respect to restricted shares that are subject to the Restrictions generally will be treated as compensation that is taxable as ordinary income to the participant and not eligible for the reduced tax rate applicable to dividends. The Company generally will be entitled to a federal income tax deduction in an amount equal to the ordinary income recognized by the Eligible Individual in the same taxable year in which the Eligible Individual recognizes such income, if the Company satisfies applicable federal income tax reporting requirements.

 

Restricted Stock Units. Generally, no income will be recognized upon the award of RSUs. An Eligible Individual who receives RSUs generally will be subject to tax at ordinary income rates on any cash received and the fair market value of any shares of common stock or other property on the date that such amounts are transferred to the Eligible Individual under the award (reduced by any amount paid by the Eligible Individual for such RSU). The Company generally will be entitled to a federal income tax deduction in an amount equal to the ordinary income recognized by the Eligible Individual in the same taxable year in which the Eligible Individual recognizes such income.

 

Performance Units and Performance Shares. No income generally will be recognized upon the grant of a Performance Unit or Performance Share. Upon payment in respect of a Performance Unit or Performance Share, the Eligible Individual generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the amount of cash received and the fair market value of any nonrestricted shares of common stock or other property received. The Company generally will be entitled to a federal income tax deduction in an amount equal to the ordinary income recognized by the Eligible Individual in the same taxable year in which the Eligible Individual recognizes such income.

 

Code Section 162(m). In general, Section 162(m) of the Code currently provides that if, in any year, the compensation that is paid to any “covered employee” (as defined under Section 162(m)) exceeds $1,000,000 per person, any amounts that exceed the $1,000,000 threshold will not be deductible by us for federal income tax purposes.