RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2023

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

Backstop Purchase

On December 8, 2023, under the terms of the Standby Purchase Agreement dated as of August 8, 2023, as amended (the “Purchase Agreement”), among the Company, Mark Tkach (“Tkach”), William Coulter (“Coulter”) and Stone House Capital Management, LLC, a Delaware limited liability company d/b/a Stone House Partners (“Stone House” and, collectively with Tkach and Coulter, the “Standby Purchasers”), the Company issued and sold to the Standby Purchasers 3,443,289 shares of Class B common stock at an exercise price of $5.50 per share (the “Backstop Securities”) for an aggregate purchase price of approximately $18.9 million (the “Backstop Purchase”). The Backstop Securities represent the shares of the Company’s Class B common stock that remained unsubscribed for by the shareholders of the Company as of the expiration of the subscription period of the Company’s rights offering. Coulter and Tkach are directors and former executive officers of the Company. Subject to the terms and conditions of the Purchase Agreement, the Company agreed to provide Stone House with the right to designate one nominee to the Board of Directors of the Company not later than 60 days after the date of the Purchase Agreement. Mark Cohen, managing member of Stone House, was appointed as a director pursuant to the board nomination right granted to Stone House under the Purchase Agreement.

Pursuant to the Purchase Agreement, the Company agreed to reimburse the Standby Purchasers for the reasonable out-of-pocket costs and expenses incurred by them in connection with the negotiation, execution and delivery of the Purchase Agreement and the transactions contemplated thereby, including reasonable and documented fees and disbursements of counsel to each Standby Purchaser. The Company did not pay or give, directly or indirectly, any commission or other remuneration, including underwriting discounts and commissions, in connection with the issuance of the Backstop Securities.

Proxy Settlement Agreement and Related Transactions

    In 2023, certain disputes arose between Tkach and Coulter, on the one hand, who are holders of greater than 5% of our outstanding common stock, and the Company and the then serving members of the Company’s management, on the other hand, which led Tkach and Coulter to submit a notice of intent to make nominations and submit proposals for consideration at our 2023 annual stockholder meeting (the “2023 Annual Meeting”). On June 15, 2023, the Company reached a binding settlement agreement with Coulter and Tkach relating to the matters in dispute, which was reflected in a binding term sheet (the “Term Sheet”). Pursuant to the Term Sheet, the Company agreed to take certain corporate governance actions, including selecting Tkach as a director and naming Coulter as a Board observer until the 2023 Annual Meeting, and nominating Coulter for election as a director at the 2023 Annual Meeting, and, for a period of 90 days following execution of the Term Sheet (the “Standstill Agreement Period”), Coulter and Tkach agreed to vote as recommended by the Board at any annual meeting or special meeting of the Company’s stockholders, and to refrain from calling any special meetings of the Company’s stockholders, granting or soliciting proxies (other than to named proxies included in the Company’s proxy card for any stockholder meeting), or making any nominations or proposals at any annual or special meetings of stockholders. The Company also agreed to reimburse the reasonable, documented, out of pocket advisor fees and expenses incurred by Coulter and Tkach in connection with their proxy contest, which were estimated to be $2.5 million.

On June 30, 2023, the Company entered into a Cooperation Agreement with Coulter and Tkach, formalizing the parties’ agreements under the Term Sheet. Following Tkach’s initial term on the Board, the Cooperation Agreement provided for an appointment as a Board observer until such time as he was appointed as a director. Pursuant to the Cooperation

Agreement, Coulter and Tkach have unrestricted access to attend and participate in any meetings of the Board or any committee thereof held while an observer to the Board. Substantially all of the terms of the Term Sheet and the Cooperation Agreement have been implemented, and the Company is not aware of any actions remain to be taken that are likely to lead to a material dispute among the parties as to the performance of their respective obligations thereunder.

Leases

The Company leases 24 properties consisting of dealerships and offices from related parties. Each related party lease is with a wholly owned subsidiary of the Company as the tenant and an entity controlled by Coulter and/or Tkach, as the landlord. The initial aggregate base rent payment for all 24 leases was approximately $1.2 million per month. Each lease commenced a 20-year term on September 1, 2021 and contains an annual 2% increase on base rent. See Note 10 for the right-of-use assets and liabilities associated with the related party leases.

In 2024, an additional related-party operating lease with a 20-year term was entered into for a property in Tallahassee, Florida, with initial annual base rate payments totaling approximately $0.4 million that increase 2% per year. This lease contains a purchase option.

Employment of Immediate Family Members

Coulter had one immediate family member who was employed by the Company until August 30, 2022 who received gross pay of $0.3 million, including the income from vested RSUs under the Plan during 2022. No payments were made in 2023.

Tkach has three immediate family members that were, or continue to be, employed by the Company. One of these family members was employed by the Company until February 21, 2022 and received aggregate gross pay of $0.1 million in 2022 and nothing in 2023. The second family member received aggregate gross pay of $0.5 million in 2023 and $0.4 million in 2022, including the income from vested RSUs under the Plan. The third family member received aggregate gross pay of $0.2 million in 2023 and $0.2 million in 2022.

Payments to Coulter Management Group LLLP

The Company remitted $0.1 million in 2023 and $0.3 million in 2022 to Coulter Management Group LLLP, an entity owned by Coulter. These payments were made to cover certain proportionate costs of the Company, including health plan and IT contract expenses that were shared among Coulter Management and the RideNow entities for a period of time after the acquisition.

Bidpath Software License

On January 19, 2022, the Audit Committee approved, and the Company entered into two agreements with Bidpath Incorporated, a company owned by Adam Alexander, a former director of the Company, that provided the Company with (i) a perpetual, non-exclusive license to the then-current source code, as well as all future source code, of foundational technology for our inventory management platform, and (ii) support and maintenance services, all of which remained in development prior to Company’s termination of the contract effective August 31, 2023, pursuant to the contract’s terms.

The Company made no payments for the licenses in 2023 and paid $3.6 million in 2022. The Company paid Bidpath for support and maintenance services totaling $0.2 million in 2023 and $0.4 million in 2022. Upon termination of the contract, we recorded a $2.6 million impairment for the remaining amount of capitalized costs.

Ready Team Grow, LLC

The Company paid $0.1 million in 2023 and $0.2 million in 2022 to Ready Team Grow, LLC for employee recruiting services. This entity is owned by the domestic partner of the Company’s former CEO, Marshall Chesrown. The Company’s use of the entity ended in 2023.

Promissory Notes

In connection with the acquisition of RideNow in 2021, the Company assumed two promissory notes of $2.2 million as of the acquisition date due to entities controlled by Coulter and/or Tkach. Amounts due under these two promissory notes had been paid in full as of December 31, 2022.

Payments to RideNow Management, LLLP

On June 27, 2022, the Company repaid a loan of $0.7 million to RideNow Management LLLP, an entity owned equally by Coulter and Tkach.

RideNow Reinsurance Products

The Company sells extended service contracts, prepaid maintenance, GAP insurance, theft protection and tire and wheel products on vehicles sold to customers. Affiliate reinsurance companies previously controlled by and owned primarily by directors who were formerly executive officers of the Company participated in the profits of these products sold through the RideNow locations. The Company paid approximately $0.1 million to these affiliated companies during 2022. The related party relationship ended February 1, 2022.