18. Related-Party Transactions

Operating Facility Leases

Certain operating companies lease their operating facilities from HOV RE, LLC and HOV Services Limited, which are affiliates under common control with Ex-Sigma 2. The rental expense for these operating leases was $0.4 million, $0.7 million, and $0.7 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Consulting Agreements

The Company receives services from Oakana Holdings, Inc. The Company and Oakana Holdings, Inc. are related through a family relationship between certain shareholders and the president of Oakana Holdings, Inc. The expense recognized for these services was approximately $0.2 million, $0.2 million and $0.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The Company received consulting services from Shadow Pond, LLC. Shadow Pond, LLC is wholly-owned and controlled by Vik Negi, the Company’s Executive Vice President Treasury and Business Affairs. The consulting arrangement was established to compensate Mr. Negi for his services to the Company prior to becoming an employee. The consulting arrangement with Shadow Pond, LLC terminated and Mr. Negi continues to provide services as an employee of the Company. For the year ended December 31, 2019, the Company incurred no expenses for these services. The expense recognized for these services was approximately $0.1 million and $0.5 million for the years ended December 31, 2018 and 2017, respectively.

Relationship with HandsOn Global Management

The Company incurred management fees to HGM, SourceHOV’s former owner, of $6.0 million for the year ended December 31, 2017. The contract with HGM was terminated upon consummation of the Novitex Business Combination, and no fees were payable after July 12, 2017.

The Company incurred reimbursable travel expenses to HGM of $0.6 million, less than $0.1 million and $0.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Pursuant to a master agreement dated January 1, 2015 between Rule 14, LLC and a subsidiary of the Company, the Company incurs marketing fees to Rule 14, LLC, a portfolio company of HGM. Similarly, the Company is party to ten master agreements with entities affiliated with HGM’s managed funds, each of which were entered into during 2015 and 2016. Each master agreement provides the Company with use of certain technology and includes a reseller arrangement pursuant to which the Company is entitled to sell these services to third parties. Any revenue earned by the Company in such third-party sale is shared 75%/25% with each of HGM’s venture affiliates in favor of the Company. The brands Zuma, Athena, Peri, BancMate, Spring, Jet, Teletype, CourtQ and Rewardio are part of the HGM managed funds. The Company has the license to use and resell such brands, as described therein. The Company incurred fees relating to these agreements of $1.0 million, $0.7 million, and $0.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.

During 2017, the Company incurred contract cancellation and advising fees to HGM of $23.0 million, $10.0 million of which was paid by the issuance of 1,250,000 shares of Common Stock, relating to the Novitex Business Combination. No such fees were incurred in 2019 and 2018.

Relationship with HOV Services, Ltd.

HOV Services, Ltd. provides the Company data capture and technology services. The expense recognized for these services was approximately $1.5 million, $1.6 million, and $1.7 million for the years ended December 31, 2019, 2018, and 2017, respectively. These expenses are included in cost of revenue in the consolidated statements of operations.

Relationship with Apollo Global Management, Inc.

The Company provides services to and receives services from certain Apollo Global Management, Inc. (“Apollo”) affiliated companies. Funds managed by Apollo held the second largest position in our Common Stock following the Novitex Business Combination and had the right to designate two of the Company’s directors pursuant to a director nomination agreement. Apollo has announced that its affiliated funds ceased being shareholders on March 11, 2020.

On November 18, 2014, one of the Company's subsidiaries entered into a master services agreement with an indirect wholly owned subsidiary of Apollo. Pursuant to this master services agreement, the Company provides printer supplies and maintenance services, including toner maintenance, training, quarterly business review and printer procurement. The Company recognized revenue of $0.6 million, $0.6 million and $0.3 million under this agreement for the years ended December 31, 2019, 2018 and 2017, respectively, in our consolidated statements of operations.

On January 18, 2017, one of the Company’s subsidiaries entered into a master purchase and professional services agreement with Caesars Enterprise Services, LLC (‘‘Caesars’’). Caesars is controlled by investment funds affiliated with Apollo. Pursuant to this master purchase and professional services agreement, the Company provides managed print services to Caesars, including general equipment operation, supply management, support services and technical support. The Company recognized revenue of $4.4 million, $4.1 million and $1.2 million for years ended December 31, 2019, 2018 and 2017.

On May 5, 2017, one of the Company’s subsidiaries entered into a master services agreement with ADT LLC. ADT LLC is controlled by investment funds affiliated with Apollo. Pursuant to this master services agreement, the Company provides ADT LLC with mailroom and onsite mail delivery services at an ADT LLC office location and managed print services, including supply management, equipment maintenance and technical support services. The Company recognized revenue of $1.2 million, $0.6 million and less than $0.1 million in our consolidated statements of operations from ADT LLC under this master services agreement for the years ended December 31, 2019, 2018 and 2017.

On July 20, 2017, one of the Company’s subsidiaries entered into a master services agreement with Diamond Resorts Centralized Services Company. Diamond Resorts Centralized Services Company is controlled by investment funds affiliated with Apollo. Pursuant to this master services agreement, the Company provides commercial print and promotional product procurement services to Diamond Resorts Centralized Services Company, including sourcing, inventory management and fulfillment services. The Company recognized revenue of $5.4 million and $5.7 million for the year ended December 31, 2019 and 2018 and cost of revenue of less than $0.1 million for each of the years ended December 31, 2019 and 2018 from Diamond Resorts Centralized Services Company under this master services agreement. No revenue or cost of revenue was recognized in 2017 under this agreement.

In April 2016, one of the Company’s subsidiaries entered into a master services agreement with Presidio Networked Solutions Group, LLC ("Presidio Group"), a wholly owned subsidiary of Presidio, Inc., a portion of which is owned by affiliates of Apollo. Pursuant to this master services agreement, Presidio Group provides the Company with employees, subcontractors, and/or goods and services. For the years ended December 31, 2019, 2018 and 2017 there were related party expenses of $1.0 million, $0.7 million and $0.3 million, respectively, for this service.

In June 2002, one of the Company’s subsidiaries entered into a systems purchase and license agreement with Evertec Group LLC (“Evertec”). Evertec is controlled by investment funds affiliated with Apollo. Pursuant to the agreement, the Company provided system and ongoing maintenance services as detailed in the agreement. In August, 2016, another subsidiary of the Company entered into an equipment maintenance agreement with Evertec. Pursuant to the equipment maintenance agreement, the Company provides preventive and corrective maintenance service to selected equipment listed in the agreement. The Company recognized revenue of $0.3 million, $0.3 million and $0.1 million under these agreements for the year ended December 31, 2019, 2018 and 2017, respectively, in our consolidated statements of operations.

In June 2019, one of the Company’s subsidiaries entered into a master lease agreement with Presidio Technology Capital, LLC (“Presidio Capital”), a wholly owned subsidiary of Presidio, Inc., a portion of which is owned by affiliates of Apollo. Pursuant to this master lease agreement, Presidio Capital provides the Company certain equipment on finance lease. The Company recorded a finance lease liability of $1.0 million for this lease. As of December 31, 2019, total finance lease liability of the Company included $0.9 million pertaining to this lease.

Relationship with Ex-Sigma and Ex-Sigma 2

The Company made payments totaling $5.6 million to Ex-Sigma 2 during the fourth quarter of 2019. At the time of the payments, they were understood to be a reimbursement of fees and expenses relating to the Appraisal Shares under the terms of the Consent, Waiver and Amendment. At Ex-Sigma 2’s request such amount was remitted to pay down a portion of the Margin Loan on behalf of Ex-Sigma 2. Upon further review, it was determined that such expense reimbursement should be considered a reimbursement of the principal and interest on the Margin Loan and thus not subject to reimbursement under the Consent, Waiver and Amendment. These payments were not authorized or approved in advance by the Audit Committee.

Separately, the Company determined it was obligated to reimburse premium payments of $6.9 million made by Ex-Sigma 2 on the Margin Loan under the terms of the Consent, Waiver and Amendment. Pursuant to a written settlement agreement entered into in June 2020, Ex-Sigma, SourceHOV and the Company agreed that the $5.6 million of payments made during the fourth quarter of 2019 would be accepted to fully discharge the Company’s obligation to reimburse Ex-Sigma 2 for the $6.9 million of premium payments. The Company recorded related party expenses of $1.7 million and $5.2 million during the years ended December 31, 2019 and 2018, respectively, related to the Company’s obligation to reimburse Ex-Sigma 2 for premium payments on the Margin Loan.

The Company incurred reimbursable expenses to Ex-Sigma 2 of $2.1 million and $2.4 million for the years ended December 31, 2019 and 2018, respectively, in connection with secondary offerings of shares by Ex-Sigma 2, the proceeds of which were used to repay the Margin Loan. The reimbursement payments were made in the second half of 2019.

The Company incurred reimbursable expenses to Ex-Sigma 2 of $0.6 million and $0.4 million for the years ended December 31, 2019 and 2018, respectively, in connection with legal expenses of Ex-Sigma 2.

The premium payments, secondary offering fees and legal expenses were reimbursed pursuant to the terms of the Consent, Waiver and Amendment. These expenses are included in related party expense in the consolidated statements of operations.

In addition, in October 2019, the Company awarded $6.3 million in bonuses to certain employees who were also indirect equity holders of Ex-Sigma 2 through their holdings of Ex-Sigma that had been issued upon the vesting of RSUs granted under the 2013 Plan. Ex-Sigma 2 pledged all of its capital stock in the Company as collateral for the Margin Loan. The Company remitted the net amount of $4.6 million (after withholding payroll taxes of $1.7 million) toward the outstanding balance on the Margin Loan in order to benefit such employees.

The bonus amount remitted by the Company was originally determined by Ex-Sigma management based on such employees’ over-all equity ownership of Ex-Sigma. Following payment in full of the Margin Loan, during the first quarter of 2020, Ex-Sigma 2 distributed the shares of the Company’s capital stock held by it to its sole equity holder, Ex-Sigma, who distributed the shares to its equity holders, including the bonus recipients. These bonus payments were not processed or approved according to the Company’s internal control policies. In May 2020, each employee that received the bonus countersigned an authorization letter confirming their authorization for the Company to remit the amount of their net bonus to pay a portion of the Margin Loan.

The Company recorded the $6.3 million bonus payments as compensation expense in selling, general and administrative expenses in the accompanying statements of operations in the fourth quarter of 2019.

Payable and Receivable Balances with Affiliates

Payable and receivable balances with affiliates as of December 31, 2019 and December 31, 2018 are as follows below. As of December 31, 2018 there were no related party receivables:


					December 31,
	December 31, 2019				2018 (As Restated)
	Receivable		Payable		Payable
HOV Services, Ltd	$	601	$	—	$	405
Rule 14		—		250		127
HGM		115		—		6,998
Apollo affiliated company		—		202		205
Oakana		—		1		—
Ex-Sigma 2		—		1,287		7,628
	$	716	$	1,740	$	15,363