10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM                      TO                     

Commission File Number 001-38789

KLDiscovery Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware	61-1898603
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
8201 Greensboro Drive Suite 300 McLean, VA	22102
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (703) 288-3380

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  YES ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ NO ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES ☐ NO ☒

As of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based on the closing sales price of $8.05 on the OTC Pink Sheet Market, was approximately $342 million.

As of March 18, 2021, there were 42,533,482 of the registrant’s common stock, par value $0.0001 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement relating to its annual meeting of stockholders to be held in 2021 (the “2021 Annual Meeting”), to be filed with the Securities and Exchange Commission (the “SEC”) within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates, are incorporated herein by reference where indicated. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, such proxy statement is not deemed to be filed as part hereof.

Table of Contents

		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	30
Item 2.	Properties	30
Item 3.	Legal Proceedings	31
Item 4.	Mine Safety Disclosures	31
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	32
Item 6.	Selected Financial Data	34
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 8.	Financial Statements and Supplementary Data	47
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	48
Item 9A.	Controls and Procedures	48
Item 9B.	Other Information	48
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	49
Item 11.	Executive Compensation	58
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	64
Item 13.	Certain Relationships and Related Transactions, and Director Independence	66
Item 14.	Principal Accounting Fees and Services	69
PART IV
Item 15.	Exhibits, Financial Statement Schedules	70
Item 16.	Form 10-K Summary	73

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We believe that this Annual Report on Form 10-K, or some of the information incorporated herein by reference, contains statements that are forward-looking and as such are not historical facts. This includes, without limitation, statements regarding the financial position, business strategy and the plans and objectives of management for future operations. These statements constitute projections, forecasts and forward-looking statements, and are not guarantees of performance. Such statements can be identified by the fact that they do not relate strictly to historical or current facts. When used in this Report, or in the information incorporated herein by reference, words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “strive,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. When we discuss our strategies or plans, we are making projections, forecasts or forward-looking statements. Such statements are based on the beliefs of, as well as assumptions made by and information currently available to, our management.

Forward-looking statements in this Annual Report on Form 10-K and in any documents incorporated by reference herein may include, for example, statements about:

• the ability to obtain and maintain the listing of our securities on an over-the-counter market;

• the potential liquidity and trading of our public securities;

• the inability to recognize the anticipated benefits of the Business Combination (as defined below);

• potential failure to comply with privacy and information security regulations governing the client datasets we process and store;

• the outbreak of disease or similar public health threat, such as COVID-19;

• the ability to operate in highly competitive markets, and potential adverse effects of this competition;

• risk of decreased revenues if we do not adapt our pricing models;

• the ability to attract, motivate and retain qualified employees, including members of our senior management team;

• the ability to maintain a high level of client service and expand operations;

• potential issues with our product offerings that could cause legal exposure, reputational damage and an inability to deliver services;

• the ability to develop new products, improve existing products and adapt our business model to keep pace with industry trends;

• risk that our products and services fail to interoperate with third-party systems;

• potential unavailability of third-party technology that we use in our products and services;

• potential disruption of our products, offerings, website and networks;

• difficulties resulting from our implementation of new consolidated business systems;

• the ability to deliver products and services following a disaster or business continuity event;

• potential unauthorized use of our products and technology by third parties;

• potential intellectual property infringement claims;

• the ability to comply with various trade restrictions, such as sanctions and export controls, resulting from its international operations;

• consequences of our substantial levels of indebtedness;

• potential impairment charges related to goodwill, identified intangible assets and fixed assets;

1

• impacts of tax regulations and laws on our business;

• a potential litigation involving us;

• costs related to the Business Combination;

• expectations regarding the time during which we will be an “emerging growth company” under the Jumpstart of Business Startups Act of 2012, as amended (the “JOBS Act”); and

• other risks and uncertainties indicated in the section titled “Risk Factors” in Item 1A of this Annual Report on Form 10-K.

The forward-looking statements contained in this Annual Report on Form 10-K and in any document incorporated by reference are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section titled “Risk Factors” in Item 1A of this Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

PART I

Item 1. Business.

In this Annual Report on Form 10-K, we refer to the special purpose acquisition company, Pivotal Acquisition Corp. (“Pivotal”), prior to the Closing Date (as defined below) as the “Company.” Following consummation of the Business Combination, the “Company,” and references to “we,” “us,” or similar such references should be understood to be references to the combined company, KLDiscovery Inc. When this Annual Report on Form 10-K references “LD Topco” and describes the business of KLDiscovery, it refers to the business of LD Topco, Inc. and its subsidiaries prior to the consummation of the Business Combination. Following the date of the Business Consummation, references to “KLDiscovery” should be understood to reference KLDiscovery Inc. This Annual Report on Form 10-K also refers to our websites, but information contained on those sites is not part of this Annual Report on Form 10-K.

Our Company

The Company was incorporated under the name “Pivotal Acquisition Corp.” as a blank check company on August 2, 2018 under the laws of the State of Delaware for the purpose of entering into a merger, capital stock exchange, stock purchase, reorganization or similar business combination with one or more businesses or entities. Our efforts to identify a prospective target business were not limited to any particular industry or geographic location but focused on companies in North America in industries ripe for disruption from continuously evolving digital technology and the resulting shift in distribution patterns and consumer purchase behavior.

In August 2018, Pivotal Acquisition Holdings LLC (the “Founder”) purchased 5,750,000 shares of Class B common stock (“founder shares”) for an aggregate purchase price of $25,000 in connection with the Company’s organization. The Founder transferred 50,000 founder shares to each of our independent directors in December 2018 and transferred 100,000 founder shares to our chief financial officer in December 2018, in each case at the same per-share purchase price paid by the Founder. These shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).

On February 4, 2019, we consummated our initial public offering (“IPO”) of 23,000,000 units, including 3,000,000 units subject to the underwriters’ over-allotment option. Each unit consisted of one share of Class A common stock and one redeemable public warrant (“Public Warrants”), with each Public Warrant entitling the holder to purchase

2

one share of Class A common stock at a price of $11.50 per share commencing 30 daysafter the consummation of an initial business combination. The units were sold at an offering price of $10.00per unit, generating gross proceeds of $230 million. Cantor Fitzgerald & Co. acted as the sole book-runningmanager and BTIG, LLC acted as lead manager of the offering. The securities sold in the IPO wereregistered under the Securities Act on a registration statement on Form S-1 (No. 333-229027), which becameeffective under Section 8(a) of the Securities Act on January 31, 2019.

Simultaneous with the consummation of the IPO, we consummated the private placement of an aggregate of 6,350,000 private warrants (“Private Warrants” and, together with the Public Warrants, the “Warrants”) to the Founder at a price of $1.00 per Private Warrant, generating total proceeds of $6.35 million. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. The Private Warrants are identical to the Public Warrants included in the units sold in the IPO, except that the Private Warrants are non-redeemable and may be exercised on a cashless basis, in each case so long as they continue to be held by the initial purchaser or its permitted transferees. In connection with the Business Combination, the Founder forfeited 1,764,719 Private Warrants.

Following the IPO, a total of $230 million was placed in the trust account and the remaining proceeds, net of underwriting discounts and commissions and other costs and expenses, became available to be used as working capital to provide for business, legal and accounting due diligence on prospective business combinations and continuing general and administrative expenses.

On December 19, 2019 (the “Closing Date”), the Company and LD Topco, Inc., a Delaware corporation (“LD Topco”), consummated a business combination pursuant to an Agreement and Plan of Reorganization, dated as of May 20, 2019, as amended by (i) the Amendment to Agreement and Plan of Reorganization, dated as of October 30, 2019, and (ii) the Amendment No. 2 to Agreement and Plan of Reorganization, dated as of December 16, 2019 (the “Merger Agreement”), by and among the Company, Pivotal Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of the Company (“Merger Sub”), LD Topco, and, solely in its capacity as representative of the stockholders of LD Topco, Carlyle Equity Opportunity GP, L.P., a Delaware limited partnership (“Carlyle”). Pursuant to the Merger Agreement, among other things, Merger Sub was merged with and into LD Topco, with LD Topco surviving as a wholly owned subsidiary of the Company (the “Business Combination”).

In connection with the consummation of the Business Combination:

• each outstanding share of common stock of LD Topco was converted into the right to receive a pro rata portion of (i) 34,800,000 shares of Company common stock and (ii) 2,200,000 additional shares of Company common stock if during the five-year period following the Closing Date (x) a change of control occurs or (y) the reported closing sale price of Company common stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days;

• each share of the Company’s Class B common stock, par value $0.0001 per share, was converted into one share of our single class of common stock, par value $0.0001 per share (“Common Stock”);

• each outstanding Warrant of the Company entitles the holder to purchase shares of our Common Stock beginning the later of (i) 30 days after the Closing Date and (ii) one year after the date of the Company’s IPO; and

• the Company issued (i) $200,000,000 of 8% convertible debentures due 2024 (the “Debentures”), (ii) 2,097,974 shares of Common Stock and (iii) 1,764,719 warrants (the “Debenture Holder Warrants”) in a private placement to certain “accredited investors” pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act.

The Business Combination was accounted for as a reverse merger in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). Under this method of accounting, the Company will be treated as the “acquired” company for financial reporting purposes. This determination was primarily based on (i) LD Topco shareholders owning the majority interest of the combined company, (ii) LD Topco being represented on the board of directors of the combined company by up to three members, in addition to the chief executive officer of LD Topco, (iii) LD Topco’s senior management comprising the senior management of the combined company and (iv)

3

LD Topco’s operations comprising the ongoing operations ofthe combined company. Accordingly, for accounting purposes, the Business Combination was treated as theequivalent of LD Topco issuing stock for the net assets of Pivotal, accompanied by a recapitalization. The netassets of the Company were stated at historical cost, with no goodwill or other intangible assets recorded.Operations prior to the Business Combination will be those of LD Topco.

Emerging Growth Company

We are an “emerging growth company,” as defined under the JOBS Act. As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. These include, but are not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and the requirement to obtain stockholder approval of any golden parachute payments not previously approved.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to take advantage of such extended transition period.

We will remain an emerging growth company until the earlier of (i) December 31, 2024 (the last day of the fiscal year following the fifth anniversary of the consummation of our IPO), (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and (iv) the date on which we have issued more than $1.0 billion in nonconvertible debt during the prior three-year period.

Overview

We are one of the leading eDiscovery providers and the leading data recovery services provider to corporations, law firms, government agencies and individual consumers. In 2020, we served over 4,400 legal technology clients, including 98% of the American Lawyer 100 (the “AM Law 100”) and 61% of Fortune 500 companies. We have broad geographical coverage in the eDiscovery and data recovery industries with 32 locations in 18 countries, 9 data centers and 18 data recovery labs around the globe. Our technology and service offerings protect our clients from growing information governance challenges, litigation, compliance breaches and data loss.

Our legal technology service offerings provide a wide variety of solutions for information governance and eDiscovery, including forensic collections, data processing, secure hosting, managed review, advanced analytics and document production. eDiscovery refers to a process in which electronic data is sought, located, secured, searched and analyzed with the intent of using it as evidence in a civil, criminal or investigative legal case or regulatory action. Our data recovery service offerings allow clients to recover data in the event of physical or logical loss and provide data management tools and solutions and proprietary data erasure technologies. We differentiate ourselves through our leading integrated suite of proprietary software and services, geographic scale and award-winning corporate culture, which we believe drives our client service success.

Our longstanding relationships with our clients are driven primarily by two factors: technological excellence and a culture of client service. We were ranked as a top eDiscovery provider in an aggregation of fourteen “Best Of” customer surveys from a variety of ALM online legal publications.

We offer our clients both proprietary and third-party solutions to address their legal technology requirements. Our proprietary end-to-end eDiscovery solution, Nebula, can be deployed on the cloud, on premise or behind a client’s firewall via mobile kits. This technology is a key selling point and these solutions are critical to our success. We believe that our proprietary solutions offer us a unique competitive advantage in the industry, giving us an exclusive product, which allows our clients to execute their job functions quickly and with a high degree of accuracy, thus saving them time and expense. In addition to our proprietary suite of tools, we can integrate third-party applications and tools into our workflow to create what we believe is the best possible solution for our clients. This is useful for

4

projects where clients want to take advantage of our technology platform, but may also have a need to leverage technology that specializes in one narrow aspect. We uphold a core set of client service values including teamwork, responsiveness and sole focus on client service. As we have scaled our global operations, this set of shared beliefs has created a unique environment where employees thrive and work together to deliver our white-glove, 24/7/365 service to our clients. In an industry that is driven by long-term, repeat relationship business, we believe our technology solutions, coupled with our dedication to excellent service, have continued to set us apart from the competition.

LD Topco’s History

We were founded in 2005 as a forensic and eDiscovery company. We recapitalized with an investment from WestView Capital Partners (“WestView”) in September 2011, at which point we began executing a targeted acquisition strategy focused on tuck-in acquisitions of companies that would benefit from our scale and offer us advanced technology solutions and attractive client relationships. Since 2013, we acquired nine U.S. regional eDiscovery companies ranging in size and capabilities, including our 2013 acquisition of AlphaLit and our 2014 acquisition of RenewData. The RenewData acquisition facilitated our entry into the data archiving market, allowing us to increase our geographic reach, diversify our client base, grow our salesforce and further develop our technology platform.

In 2015, we recapitalized with The Carlyle Group (“TCG or Carlyle”) and Revolution Growth III L.P. (“RG or Revolution”). This recapitalization provided us with the resources to execute our largest acquisition to date, Kroll Ontrack, which was completed in December 2016. The Kroll Ontrack acquisition expanded our international operations, allowing us to position ourselves as one of a small number of eDiscovery companies with cross-border capabilities. The acquisition also made us a global leader in data recovery services, via the “Ontrack” business, which has been providing data recovery services since 1985.

In 2017, we launched Nebula, a proprietary end-to-end eDiscovery solution optimized for the cloud. In 2018, in order to make further investments in sales and technology, we announced growth equity financing from our prior investor, WestView, together with Carlyle and Revolution. Coinciding with the investment, we released our mobile eDiscovery solution, Nebula Private Cloud (“NPC”), which allows our clients to have a small-scale private data center behind their own firewall. Also in 2018, we furthered our geographic expansion through Western Europe and Canada by opening additional data centers and managed review facilities.

In 2019, we announced our Nebula Big Data Store offering for information governance management which will include legal hold and notification services, thus expanding our proprietary technology suite into the information archiving market.

In 2020, in response to the unprecedented COVID-19 global pandemic and the corresponding travel restrictions, we announced our Remote Collection (“RCMgr”) offering as an alternative to on-site collections. This self-collection software allows end-users and IT professionals to perform defensible collections of hard drives, loose files and email servers. We also successfully transitioned to remote document review, which enabled review attorneys to continue working securely from home in light of the global disruption to in person work caused by the COVID-19 pandemic.

Industry Overview

Legal Technology Industry

eDiscovery

eDiscovery is an essential component of litigation, government investigations and regulatory and compliance submissions, where parties exchange Electronically Stored Information (“ESI”) with each other. eDiscovery is subject to rules and agreed-upon processes, which often involve reviewing data for privilege and relevance before it is exchanged. eDiscovery software and services facilitate the identification, preservation, collection, review and exchange of ESI. The eDiscovery industry is highly fragmented with over 100 vendors, and in 2020, the top three pure play eDiscovery vendors accounted for approximately 15% of the industry.

5

 According to Complex Discovery, the eDiscovery market is expected to grow from $10.9 billion in 2020 to $15.1 billion in 2025, representing a 6.8% compound annual growth rate (“CAGR”). We believe the industry is in the midst of a transformation driven by data proliferation and compounded by increasing complexity in the makeup and composition of the data we must be equipped to handle. These two factors help drive the growth.

Data Proliferation. According to IDC, electronic data will reach 175 zettabytes by 2025. Data is growing at an exponential rate due to several factors, including the adoption of mobile devices, accessibility of hosted systems and increased reliance on electronic data storage. With ESI expected to continue growing at a significant rate, the organizations that effectively deploy advanced technologies, such as predictive coding and data analytics, and are able to help their clients work through large data sets quickly and accurately will be best positioned to earn increased market share.

Market Shift to the Cloud. eDiscovery solutions are typically deployed in one of three fashions: On-premise (hosted at one of our data centers), in the public cloud (Google, Amazon Web Services, Microsoft Azure) or behind a client’s firewall. Although on-premise hosting has largely been the dominant deployment to date, cloud deployment is expected to see significant growth. IDC predicts that by 2025, 49% of data will be stored in public cloud environments. Deployment in the public cloud offers many benefits, including scalability, flexibility, security and compliance, and, as a result, the adoption of cloud technology is expected to continue to increase. In particular, small and medium-sized enterprises are adopting cloud deployment mainly due to its cost-effectiveness and advanced results.

Information Archiving

Data archiving serves a critical role in the management of organizational information resources for all businesses, regardless of size. Information archiving addresses information preservation for long-term access, enhancing access to large volumes of information in order to render it more useable and thus valuable. Information archiving also facilitates data management and disposition based on content of such data and need for preservation and/or disposition. As a result, data archiving serves as a primary source of information in legal discovery for litigious organizations. In the cloud economy, data archiving is increasingly displacing traditional backup strategies for disaster recovery purposes, since archiving provides a defense against malicious or inadvertent data loss by insiders and can be an insurance policy against ransomware. The legal hold software market overlaps with both the data archiving market and the eDiscovery software market and addresses the need for organizations to comply with legal requirements to preserve data in the face of pending litigation. Finally, the regulatory compliance software market is driven by the myriad regulatory regimes around the world that require organizations to preserve certain information, sometimes on immutable storage, for specified minimum periods. Conversely, some regulations require verifiable destruction of information when a specified time period has elapsed or certain events arise, and data archiving facilities easy execution of such requirements.

According to The Radicati Group, the information archiving market is expected to grow to $8.5 billion by 2022. Significant trends affecting this market include the shift to cloud computing and storage from traditional on-premises computing and storage, increased demands for storage to do more than simply preserve data and the advent of the “API economy,” in which vendors offer application programming interfaces (“APIs”) that enable other vendors to integrate with, extend and enhance the functionality of their core product, thereby increasing value for an end-client. These trends are driven by the widespread and general adoption of cloud services for many functions, a need for businesses or functions with variable demand to favor operational expenditures over capital expenditures, and a need for systems and data to support multiple functions, thereby driving efficiency and cost containment.

Data Recovery Industry

When consumers and businesses lose or cannot access data due to system failures, accidental deletion, physical damage, natural disasters, ransomware or user error, and no backup is available, data recovery service companies can help recover data which would have otherwise been lost. Data recovery service vendors can typically recover data from hard disk or solid state drives, flash drives and USB external drives, while some have the capability to recover data from servers, Redundant Array of Inexpensive Disks (“RAID”) systems, enterprise storage areas networks and network attached storage systems, backup tapes, optical disks, databases and virtual machines. Data recovery service companies use software tools and physical inspection to diagnose and determine the condition of

6

the media and what data may be recovered. They then make an image of the data and perform a logical reconstruction of the data. In the case of physical damage, the device may need to be disassembled in a clean room lab and spare parts used to facilitate the recovery.

This fragmented industry is served by thousands of vendors, the majority of which are small electronics repair shops using off-the-shelf data recovery software tools. There are very few global data recovery providers that have clean room labs and physical data recovery capability with multiple labs. Factors affecting the industry include the increasing use of mobile devices, use of the cloud, streaming content, cost of storage and complexities of edge and analytics workloads and advanced data protection systems.

Products and Services

We have built an integrated suite of eDiscovery tools and services covering information governance, forensic collections, data processing, secure online hosting, managed review, advanced analytics and document production. In addition, we offer data recovery solutions ranging from cleanroom facilities to proprietary data erasure, data recovery and data management tools.

eDiscovery Solutions

We are one of the largest globally scaled eDiscovery providers in a highly-fragmented industry of over 100 vendors. With approximately 2.3% of the current eDiscovery market, based on 2020 eDiscovery revenue, we are poised to continue to gain market share via strategic acquisitions.

We offer a variety of eDiscovery solutions to our clients, including:

Nebula. Nebula is a proprietary end-to-end information governance and eDiscovery platform which helps to facilitate the identification, preservation, collection, processing, review and exchange of ESI. Nebula is powered by our in-house technology that has been developed, tested and trusted to improve the eDiscovery experience. Nebula is unique to us and contains the latest advancements in eDiscovery, while still delivering essential functionality. We offer three hosting options for Nebula: On-Premise at our data centers, in the public cloud (via Microsoft Azure cloud), and at a client’s location via NPC. NPC is particularly noteworthy as it allows for processing, filtering, analysis, review and production of ESI without the need to transfer data outside of the client’s location or across borders.

eDiscovery.com Review (“EDR”). EDR is an all-encompassing, single platform used to search, review and exchange ESI. Over the past decade, our clients have produced to requesting parties over one billion documents and billions of pages using EDR.

Relativity. In 2006, we became the first vendor to license Relativity, a widely used document review tool. Shortly thereafter, we hosted the first case to reach one million records on the platform, and we have consistently worked to improve our clients’ experiences by offering a suite of proprietary enhancements exclusive to us, together with our

7

white-glove client service. Our differentiated data hosting environment offers our clients optimal performance, reliability and redundancy. We currently host Relativity in six countries worldwide.

KLD Analytics. Developed through collaboration among our data scientists, software engineers and legal professionals, KLD Analytics offers a full range of technology-assisted review tools, supported by our team of technologists and consultants. This suite of tools offers features such as:

• Predictive Coding—Leverages human expertise to automatically classify large populations of documents. Predictive coding supports entirely custom workflows and methodologies and is capable of continuous prioritization of important documents for review.

• Workflow—Automates the routing and distribution of documents to streamline document review and maximize accuracy and defensibility. Workflow eliminates the need to maintain static batch sets and manually transition documents to different review teams. Workflow works hand-in-hand with Predictive Coding to make document review as efficient as possible.

• Email Threading—Determines the relationship between email messages and identifies the most content-inclusive messages to avoid redundant review.

• Near-Duplicate Detection—Identifies and groups similar records and highlights the subtle differences among them for a quicker review.

• Language Identification—Automatically identifies the primary language on documents in a dataset.

KLD Processing. Our proprietary processing platform has been used exclusively by us for over 15 years. KLD Processing is a highly scalable platform which ingests disparate data types and sources, extracts the content of documents, removes duplicative or otherwise innocuous data, such as operating and system files, and exports data for review and production.

Managed Review Services. Our managed review services provide the facilities, staffing and expertise necessary to review large and complex data sets with a high degree of accuracy and efficiency. We assemble review teams of experienced legal professionals for any type of case. Each team member is a qualified attorney who has passed a selective screening process and has received training from our review managers. Review managers utilize proven methodologies to target and address quality issues early, allowing us to intelligently prioritize the documents that need to be reviewed more closely. Review managers are able to glean insights into productivity and quality using our proprietary technology to deliver a higher quality production. We have experience handling managed reviews for a variety of types of matters, ranging from litigation, investigations and regulatory reviews, such as second requests, and have conducted reviews in over 30 languages. We have document review facilities in the United States, the United Kingdom and the European Union, and regularly recruit over 1000 remote reviewers across the United States.

Digital Forensics Services. One of our specialties is computer forensics, including collections and analysis. Without a sound forensic collection, critical electronic evidence may be missed, inadvertently altered or otherwise rendered inadmissible. Whether it be for a small matter, such as a collection of data from a single device, or a large corporate investigation involving multiple custodians and data sources, in-person or remote, our collection analysts will determine and execute the most defensible, efficient and cost-effective strategy. Each year, we regularly collect data from many countries around the world. As a result, we possess a deep bench of talent with knowledge of country-specific discovery laws and customs. With offices across the globe, our collection team can be on the ground quickly in most regions. Our proprietary Remote Collection Manager (“RCMgr”) product is a suite of tools used to facilitate document collections remotely and by end-users, allowing defensibility and accuracy to be maintained without the need to deploy personnel onsite. RCMgr hard drives can arrive pre-configured to collect only the data within scope and the RCMgr tool logs the entire collection in granular detail, ensuring that we can track the process from start to finish. Upon completion of the collection, RCMgr verifies and encrypts the collected data for secure shipment back to one of our labs.

Our digital forensic services include analysis and investigative services in addition to collection services. Wherever electronic equipment is used, there is a potential source of electronic evidence and digital information, including a “bread crumb” trail to illuminate misuse or wrongdoing. Our computer forensics teams help extract critical evidence, recover any data that culprits may have sought to erase or hide, retrieve key data buried in documents and

8

organize data contained in multiple information sources. A forensic investigation may be undertaken on a wide range of media as anything that stores data can potentially be investigated.

Information Archiving Services

Legal Hold Management. A legal hold plan that recognizes when the duty to preserve data begins, what it entails, how to implement it and when it ends is essential to any information governance or eDiscovery strategy. Our Legal Hold Management solution addresses these issues through comprehensive technology and defensible processes. With a flexible Software-as-a-Service (“SaaS”) delivery model, clients can choose to manage holds on their own using our technology or leverage our consultants to oversee and manage the process. In addition to leveraging commercially available tools, such as Relativity Legal Hold, we offer Nebula Legal Hold, which simplifies the legal hold process by managing and tracking legal hold communications and key data in a single location. Project initiation and management is efficient and flexible, whether utilizing customized communications or leveraging a full bank of legal hold templates, including initial notices, questionnaires, follow-ups and acknowledgments.

Office 365 Migration & Management. As an inaugural Microsoft Office compliance and eDiscovery partner, we have decades of industry experience partnering with clients as they prepare for unexpected lawsuits and regulatory investigations. Our experts receive a large volume of questions from outside counsel and corporate legal departments concerning Office 365. As a Microsoft partner, we provide the expertise and services necessary to reliably and defensibly leverage the Data Governance, Search & Investigation and Advanced eDiscovery suites in Office 365. Examples of common challenges our consultants assist with include:

• constructing a defensible process for Office 365 eDiscovery, including the creation and maintenance of appropriate documentation;

• ensuring appropriate organizational boundaries are enforced and confidentiality is protected within Office 365;

• legacy data management and remediation;

• litigation readiness and data preservation and collection strategies; and

• cloud migration.

Nebula Big Data Store. Nebula Big Data Store is a highly scalable, enterprise-grade storage solution with economics that rival back-up tape. Nebula Big Data Store runs on Microsoft’s Azure cloud, allowing it to be available anywhere in the world in a highly secure and resilient manner. Time- and event-based retention policies, defensible deletion and preservation controls are all built-in, offering excellent value. Nebula Big Data Store works hand-in-hand with Nebula Legal Hold for seamless preservation activities. The product eliminates costly, highly duplicative, on-premises “dumping grounds” that cannot be searched or managed effectively.

Nebula Big Data Store is designed to solve enterprise problems stemming from burgeoning data volumes, fragmented application landscapes and increasing business, regulatory and legal demands, and it positions us to take advantage of evolving trends in the information archiving services industry. Nebula Big Data Store offers an API, making it simple for other products to connect to it and further extend and enhance the value of the information stored within the tool. The tool can assist with legacy application retirement, dark data remediation and information governance, among other use cases. Nebula Big Data Store works seamlessly with our eDiscovery offerings, covering the entire eDiscovery lifecycle. It is also less expensive and simpler to deploy than traditional archiving solutions. Finally, our experience and expertise in machine learning in eDiscovery positions us well to extend our archiving offering into the regulatory compliance intelligence market.

Data Recovery Services

Data Recovery. Business and private users routinely store business-critical data on servers, laptops, mobile devices and phones. As a result, data loss events can be devastating. The cost to an enterprise can amount to millions of dollars if they are unable to access important data for business operations.

9

To address those data loss events when they occur, we provide data recovery services worldwide. Data recovery refers to the recovery of specific information that is inaccessible due to accidental deletion, ransomware, hard drive accidental formatting, Windows reinstallation, partition loss, virtual machine deletion, system booting failure or physical damage of a storage device. The data recovery process involves a secure chain of custody and begins with a diagnosis of the media (hard disk drive, solid state drive, flash drive, RAID, database, tape or optical disk) by our data recovery engineers. The next step is to image the media, a bit by bit copy of the storage areas of the media, along with the system and hidden areas. The engineers then use proprietary tools and methods to reconstruct the data structures from the media image, which includes hidden and system areas. Physical damage may require additional clean room lab procedures, disassembly and use of new parts to access and reconstruct as much of the data as possible.

Ontrack Data Recovery performed over 42,000 data recoveries in more than 70 countries in 2020. Most of our clients believed that their data was secure, safe and backed-up although, for various reasons, it was not. When other data protection efforts fail, Ontrack can often recover our clients’ data, documents and critical systems. We believe that Ontrack is a global leader in the in-lab data recovery services industry and we have a 30-year history of developing our own recovery tools and making significant investments in automation. More than 20% of our data recovery jobs worldwide come from IT service companies or other data recovery companies who re-sell our data recovery services to their clients.

Email Extraction. We offer professional email recovery services for consumers and businesses alike. From individual files to entire databases, we maintain the expertise and technology to support practically any use case. The success of email recovery is dependent on where the email is stored. Email software, such as Microsoft Outlook, commonly stores email on hardware like a laptop, desktop, mobile phone, tablet or server. We can easily recover email from both functioning and non-functioning hardware. Additionally, our recovery engineers are experienced in recovering enterprise email no matter how it is stored on a client’s server, whether it is inside a database, a Microsoft Exchange Information Store or individual messages in separate files, such as .pst containers.

Tape Services. We provide a range of tape services to solve the problems associated with legacy backup tapes and regularly support our clients to solve the following challenges:

• backup infrastructure migration and consolidation;

• legacy tape and data remediation;

• recovery from physically-damaged tapes; and

• recovery from quickly-erased or partially-overwritten tapes.

Data Destruction Services. Permanently deleting data isn’t as straightforward as pressing a delete button – it takes time and proper resources. Data that is not completely expunged before the media is disposed of is vulnerable to exposure. To increase the security of data, a secure, verified data destruction process is required. Based on their knowledge, our data experts seek to select and execute the most appropriate data destruction method for the client’s media. Once the data has been destroyed, we provide a certificate of destruction and disposal.

We support our clients throughout the whole data destruction process by offering data destruction services in our labs or onsite using Blancco Erasing Software or our Ontrack Degausser. For clients who want to handle the data destruction process themselves, we sell these products to the client and advise them how to best use them.

Mobile Phone Repair. We can repair broken screens and replace damaged batteries in many commonly used Apple and Samsung devices at our labs around the world.

Data Recovery Software

Ontrack EasyRecovery. Developed through our partnership with one of the world’s leading data recovery software manufacturers, Ontrack EasyRecovery is able to handle nearly every type of logical data loss (not physical damage) situation. Ontrack EasyRecovery allows clients to perform precise file recovery of data lost through deletion, reformatting and a number of other data loss scenarios. The product recovers data from solid-state drives (“SSD”) and conventional hard drives, memory cards, USB hard drives, flash drives and optical media. The product functions on both Windows and Mac operating systems and comes in several different versions, ranging from a free version

10

ideal for small one-time recoveries to a Toolkit version which would give a professional the ability to handle complex projects. There is a “free” version that is capable of recovering up to 1 GB of data, a “Home” version for straightforward recoveries, a “Professional” version suitable for small to medium businesses and a “Technician” version that includes the tools needed to successfully perform data recoveries on all types of computer storage devices and rebuild broken RAID volumes.

Ontrack PowerControls. We believe Ontrack PowerControls is the market leading granular restore software product, developed from Ontrack’s expertise in data recovery. This product enables email and backup administrators and database administrators to restore individual mailboxes and messages, without having to restore the entire database. Ontrack PowerControls is used to find and export email, SharePoint items and structured query language (“SQL”) tables for eDiscovery, litigation, investigations, compliance, selective migration, develop and test and general restore use cases for IT. We believe Ontrack PowerControls provides a more powerful and faster search tool than native tools, and, most importantly for legal and compliance use cases, it does not alter the metadata, making it forensically sound. Most enterprise backup platforms do not have granular restore capabilities, so they partner with Ontrack and integrate Ontrack PowerControls with their products.

Payment and Billing Terms

Our eDiscovery solutions and information archiving services are billed on a monthly basis in arrears with amounts typically due within 30 to 45 days. Our data recovery services are billed as the services are provided, with payments due within 30 days of billing. The majority of our data recovery software is billed monthly in advance with amounts typically due within 30 to 45 days; however, depending on the client contract, billing can occur annually, quarterly or monthly.

Competitive Strengths

Market Leader Across the eDiscovery Space. We are the third largest pure play electronic services discovery provider in the $10.9 billion eDiscovery industry, according to third-party data. We have established our market-leading position by leveraging our expansive sales force, national sales and service network, longstanding client relationships and operational expertise. Based on this prior experience, we believe that we will be able to further develop our market share.

Comprehensive Product Offering. We have a broad product offering of premium proprietary technology, such as eDiscovery processing, managed review, data hosting, data analytics, forensic collection, data recovery, archiving, managed services, email management and information governance. We believe that our diverse and comprehensive products and offerings make us the provider of choice for our clients.

Nebula Product Offering. Nebula provides us with several distinct advantages. First, the breadth of Nebula allows us to capture clients as early as the identification phase, via Nebula Big Data Store and Nebula Legal Hold, and keep them in the platform all the way through production. Second, our scale allows the platform to be deployed in many key geographic regions around the world, allowing us to penetrate underserved markets. Third, the flexibility to deploy Nebula in the cloud or at a client’s location, via NPC, removes significant geographical barriers to sales. Lastly, the platform is supported by our team of over 215 project managers and hosting support analysts globally.

Expansive Geographic Footprint. Our geographic presence spans the globe, with 32 offices in 18 countries. Our broad reach provides us with a first responder-type advantage when clients have urgent work requiring immediate attention. In addition, our familiarity with local laws and regulations allows us effectively assist clients in navigating complex, cross-border situations.

Established Client Relationships and Industry Expertise. We have longstanding relationships with a large and diverse group of clients, which include 98% of the AM Law 100 and 61% of Fortune 500 companies. We provide our clients with 24/7/365, follow-the-sun service.

Proven and Experienced Management. We have a strong and highly experienced management team. Our chief executive officer Chris Weiler has more than 25 years of experience in the eDiscovery industry, and is one of the longest tenured CEO’s in the eDiscovery industry globally. During his tenure, Mr. Weiler and his team have identified, acquired and integrated 17 acquisitions and he has a proven track record and playbook for accretive

11

acquisitions with the ability to target companies that meet rigorous criteria focused on people, culture, client base, geography and technology. As a result of these acquisitions, the acquired company’s client bases are efficiently onboarded onto our proprietary platforms allowing a seamless transition for our clients and full access to our global capabilities, resulting in significant cross-selling opportunities and creating increased revenues and incremental profitability. Our chief financial officer Dawn Wilson has over 20 years of experience in finance and accounting, primarily with public companies in the technology and services industry, and has successfully acquired and integrated over 40 acquisitions in her career.

Growth Strategies

Increased Product Innovation. Adoption of cloud technology is expected to continue increasing. This shift presents market opportunities that we believe we are well positioned to capitalize upon. Our Nebula platform is a mature product, deployed globally in the cloud, in use by over 5,000 users and backed by our global client support and development teams, ensuring around-the-clock, “white glove” service and a rigorous, yet consistent, cadence for upgrades and improvements. The growth potential for this platform is further accentuated by our breadth of reach, powered largely by Nebula Big Data, which pushes our products’ capabilities into the information archiving market. We will also continue to advance our technology platform, both in and around Nebula, to give clients useful functionality and increased value.

Growth and Strengthening of Sales Force. We have been and will remain focused on attracting and retaining top sales professionals. We believe that certain key initiatives we are currently undertaking will ensure that accounts have proper coverage and penetration and will allow us to maximize wallet share.

Selectively Pursue Strategic Acquisitions. Due to the fragmentation in the legal technology and data recovery industries, there is substantial opportunity to continue completing strategic acquisitions of scale, as well as smaller, accretive tuck-in acquisitions. We have successfully sourced, executed and integrated ten strategic acquisitions since 2013. Acquisitions allow us to grow the company both inorganically and organically in that we can significantly increase revenue organically due to the breadth of service offerings and proprietary technology that we can provide to newly acquired customer relationships that were not available for the acquired sales people to sell before joining our company. For example, we acquired AlphaLit in 2013, and AlphaLit did not offer Managed Review services or Forensic Collection services. After the acquisition, the AlphaLit salespeople could sell these service offerings to existing AlphaLit customers, thereby increasing revenues. We will primarily focus on small to mid-size opportunities in order to leverage our scalable platform. We are experienced in quickly integrating acquired companies into our broader business, which has allowed us to significantly increase revenue and meaningfully increase EBITDA by focusing on preserving client facing personnel, client retention, seamless transition of clients of the target business and the ability for our new salespeople to sell across a broader platform. Our past acquisitions demonstrate our management’s ability to effectively source, execute and integrate acquisitions into their existing and growing platform. While we will continue to identify merger and acquisition opportunities to explore, we are temporarily halting such activity as a result of the COVID-19 pandemic.

Clients

Our legal technology clients include both law firms and corporations serving many industry sectors including finance and banking, pharmaceutical and biotechnology, technology, insurance, real estate and government. Our data recovery clients include individuals and corporations requiring recovery and accessing of data. For the year ended December 31, 2020, we served over 4,400 legal technology clients, including 98% of the AM Law 100 and 61% of Fortune 500 companies. We have longstanding relationships with our clients, and for the years ended December 31, 2019 and 2020, no single client accounted for more than 5% of our revenues.

Competition

The eDiscovery market is highly fragmented, competitive and evolving. Our competitors in the eDiscovery market include Consilio, EPIQ, FTI Consulting, Inc, United Lex, EY, Deloitte, KPMG, Navigant, Conduent, Lighthouse, Everlaw, Disco, Logikcull and Transperfect. We believe the principal competitive factors in this industry include:

• client service and support;

• breadth of geographic coverage;

• quality and depth of services offered;

12

• pricing of service offerings;

• security; and

• client relationships and brand loyalty.

There are hundreds of small regional eDiscovery providers which may have a few captive relationships but lack the resources or scale to compete for meaningful work. Likewise, of the global and national providers, most lack an end-to-end proprietary platform to complement their global scale and resources. We believe we are uniquely positioned with an ideal complement of global reach, scale of resources and proprietary technology to address almost any client need.

The data recovery market is highly fragmented and generally competitive. Clients choose vendors based on brand awareness and reputation, speed, price and security. Our competitors in the data recovery market include Drivesavers, Gillware Data Recovery, Disk Doctors, Digital Data Recovery DDC and Myung Information Technologies.

Sales and Marketing

Sales

We operate with a global sales team to address the specialized needs of our client base and cultivate strategic partnerships with key clients in our industry. Our Legal Technology sales organization comprises over 40 professionals and is led by our sales executives and regional managers. Our business development managers have developed “first-call” relationships with several of our largest clients while providing significant expertise in the technical nature of the services.

Our global sales structure is tailored to deliver quick responses to sales executives on pricing, account ownership requests and general assistance with client requests and training. This structure is built on our foundational values of teamwork and responsiveness. Our global sales force pursues opportunities in a wide range of geographies and is not confined by the traditional territorial structure that competitors offer. This allows us to maximize relationships and revenue.

Sales leadership encourages representatives around the world to collaborate. A global sales strategy initiative has been implemented to facilitate communication between teams on shared major accounts, which includes the coordination of regular calls and information sharing on key accounts. Most law firms have multiple buyers and this model maximizes our ability to increase wallet share.

Sales executives are encouraged to act as their own entrepreneurs, backed by the support of seasoned sales leadership and a global sales operations team. The sales operations team assists the sales team with all client requests including conflict checks, SalesForce data entry, estimate creation and generation of client agreements and work orders. This global support team allows the sales representatives to focus on what they do best – generating new business and maintaining existing client relationships. Our global sales structure and sales operations teams deliver quick responses to representatives and clients, flexible pricing models and simplified matter initiation, giving us a competitive advantage in a fast-paced industry.

Marketing

We focus on connecting with our clients through our marketing team. Our marketing campaigns are home-grown and highlight the “KLD Difference. One KLD.” and are focused on our powerful, proprietary technology, marketed as “Proprietary Powerhouse.”

We advertise in a wide variety of trade publications and at sports and entertainment events. We also sponsor a variety of events, seminars and conferences around the world. We operate approximately 35 global websites which highlight our leadership, products, services, technology, industry experience, press clippings and our community contributions. Holding true to our values, we are heavily focused on charitable donations and community work,

13

which are highlighted on our “KLD Community” website page. We also have a number of video advertising campaigns which are shared via YouTube, Twitter and LinkedIn.

Locations

We are headquartered in McLean, VA where we house key functions including accounting, finance, human resources, legal, eDiscovery operations, eDiscovery project management, managed review and data recovery. We maintain a diverse geographic footprint globally, with 32 locations in 18 countries. In addition, we have 9 data centers and 18 data recovery labs worldwide. We have document review facilities in the United States, the United Kingdom and the European Union, and regularly recruit over 1000 remote reviewers across the United States.

In addition to on-premise data centers, we deliver our proprietary Nebula platform via the cloud and Nebula Private Cloud, which means that a Nebula environment can be established in any Microsoft Azure location worldwide. The Nebula Private Cloud devices are custom-built hardware running the Nebula platform and, thus, can be deployed virtually anywhere.

Intellectual Property

We own a range of registered intellectual property rights across the world, primarily trademark registrations and patents.

We own 125 trademark registrations globally and currently have 26 trademark applications at various stages in the application process. Our material trademarks are either registered or are pending applications for registrations in the U.S. Patent and Trademark office and various non-U.S. jurisdictions (but with a focus on the European Union, the United Kingdom, Norway, Switzerland, Japan, Australia, China, Singapore and Hong Kong). We use “KLDiscovery,” “Ontrack” and “Ibas” as our primary corporate trademarks. The trademark “KLDiscovery” has proceeded to registration in Australia, China, the European Union, Hong Kong, India, Switzerland and the United Kingdom. Additionally, we have applied to register “Nebula,” the brand name for our proprietary e-discovery platform, in our key markets and, to date, applications have proceeded to registration in the United States, the European Union, United Kingdom, Switzerland and Brazil.

“Ontrack” and “Ontrack Data Recovery” are used in Canada by us subject to a perpetual license from Kroll, LLC who own the “Kroll Ontrack” trademark in that jurisdiction. This license was granted as part of the Kroll Ontrack acquisition in December 2016.

We are the registered proprietor of over 500 domain names including our key domains used to promote our activities, being kldiscovery.com, ontrack.com and ibas.com together with many local variants of these main domain names.

We own the copyright of many of our business software and tools as they have been created by employees in the course of their employment. These include the Nebula and EDR platforms (two proprietary eDiscovery platforms for access and review of data), the PMDB Database (internal job tracking tool), Service Cloud (data recovery portal), PowerControls (data recovery software for email) and several Relativity applications to enhance the license of standard Relativity platform services.

We have a total of 23 patents, either registered in their respective jurisdiction or at application stage, including recent applications for our Nebula offering.

Human Capital Management - Attracting, Developing and Retaining Highly Qualified Talent

As of December 31, 2020, we had 2,323 employees. This total included 1,125 temporary contingent employees who are employed temporarily to work on active managed review matters. Our employees are not represented by a labor union and we have not experienced any work stoppages. We believe that our employee relations are excellent.

14

Successful execution of our corporate strategy is dependent on attracting, developing and retaining key employees and members of our management team. The skills, experience and industry knowledge of our employees significantly benefit our operations and performance. We continuously evaluate, modify and enhance our internal processes and technologies to increase employee engagement, productivity and efficiency.

As of December 31, 2020, not including the 1,125 employees who are employed temporarily to work on active managed review matters, our employees, including those employed by region, were approximately:

Region	Employee Count
North America		756
Europe, Middle East, and Africa		390
Asia Pacific		52
Total		1,198

In order to comply with local employee-related laws, we do not require our employees to disclose their race and ethnicity. As of December 31, 2020, based on self-reported information of 61.8% of our employees, our global gender and ethnicity demographics were as follows:

Gender	Employee Percentage
Female	29%
Male	71%
Ethnicity	Employee Percentage
Asian	8.4%
Black / African American	7.3%
Hispanic / Latin	5.2%
Multiracial, Native American and Pacific Islander	2.8%
White	76.3%

We strive to hire employees who adhere to the following cultural values:

• Team – We beat with one heart and succeed by working together.

• Humility – No one person is above the team. Our company, clients and teammates come before personal agendas.

• Availability and Connectivity – Responsiveness and efficient communication are key.

• Frugality –Smart spending leads to greater return on investment.

• Creativity – We think outside the box and always try to improve process.

• Urgency and Productivity – Every day is an opportunity to work smarter, faster and harder.

• Vigilance (Courage/Honesty) – Management must value and be responsive to employee and client feedback, competitive information and well-designed process improvement.

• Sole Focus – Laser focus on performing your job to the best of your ability.

• Recruiting – We hire smart, hungry and humble employees.

• Customer Focus – Clients are our lifeline, and their satisfaction is our #1 priority.

15

Employee training is used to reinforce these values across our global employee base. Annual participation in trainings related to ethics, environment, health and safety, cyber-security and emergency responses are at or near 100%.

Corporate Information

The mailing address of our principal executive office is 8201 Greensboro Dr., Suite 300, McLean, VA 22102 and the telephone number is (703) 288-3380. The website address is www.kldiscovery.com. Information contained on, or that can be accessed through, our website is not part of, and is not incorporated into, this Annual Report on Form 10-K.

Available Information

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the internet at the SEC’s website at www.sec.gov. Our SEC filings are also available free of charge on our website at www.kldiscovery.com as soon as reasonably practicable after they are filed with or furnished to the SEC. Our website and the information contained on, or that can be accessed through, our website is not incorporated into this Annual Report on Form 10-K.

Item 1A. Risk Factors.

An investment in our securities carries a significant degree of risk. You should carefully consider the following risks, as well as the other information contained in this Annual Report on Form 10-K, including our historical financial statements and related notes included elsewhere in this Annual Report on Form 10-K, before you decide to purchase our securities. Any one of these risks and uncertainties has the potential to cause material adverse effects on our business, prospects, financial condition and operating results which could cause actual results to differ materially from any forward-looking statements expressed by us and a significant decrease in the value of our Common Stock and Warrants. Refer to “Cautionary Statement Regarding Forward-Looking Statements.”

We may not be successful in preventing the material adverse effects that any of the following risks and uncertainties may cause. These potential risks and uncertainties may not be a complete list of the risks and uncertainties facing us. There may be additional risks and uncertainties that we are presently unaware of, or presently consider immaterial, that may become material in the future and have a material adverse effect on us. You could lose all or a significant portion of your investment due to any of these risks and uncertainties.

Risks Related to Our Business

We process, store and use personal and other special datasets on behalf of some of our clients, which subjects us to governmental regulation and other legal obligations related to privacy and information security, and our actual or perceived failure to comply with such obligations could harm our business and reputation.

We collect, store, transmit, use, disclose and process data that was collected from persons or their devices (“personally identifiable information” or “PII”) and other sensitive client data. In addition to terms in our contractual arrangements with clients, there are numerous federal, state, local and foreign laws, regulations and directives regarding privacy and the collection, storage, transmission, use, processing, disclosure and protection of such PII and other personal or client data, the scope of which is continually evolving and subject to differing interpretations. We and our clients must comply with such laws, regulations and directives and we and our clients may be subject to significant consequences, including penalties and fines, for our failure to comply.

For example, on May 25, 2018, the General Data Protection Regulation 679/2016 (“GDPR”) replaced the Data Protection Directive 95/46/EC with respect to the processing of PII in the European Union. The GDPR imposes several stringent requirements for controllers and processors of PII (including non-E.U. processors who process personal data on behalf of E.U. controllers), including, for example, more robust internal accountability controls, a strengthened individual data rights regime, shortened timelines for mandatory data breach notifications, limitations on retention and secondary use of information and additional obligations when we contract with third parties in connection with the processing of PII. Failure to comply with the requirements of the GDPR and the applicable

16

national data protection laws of the E.U. member states may result in fines of up to €20 million or up to 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher, and other administrative penalties. Complying with the GDPR has required us to implement additional internal processes to ensure that we collect and process PII in a compliant way and re-draft all our standard contracts to meet specific articles within the GDPR. As we continue to operate under the GDPR, compliance may become onerous and adversely affect our business, financial condition, results of operations and prospects.

In addition, recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of information from the EEA to the United States. For example, on July 16, 2020, the E.U.-U.S. Privacy Shield Framework, which allows for the transfer of personal data from the US to the EU, was invalidated by the European Court of Justice (“CJEU”) and this was followed on September 8, 2020 by the invalidation of the equivalent Swiss-US Privacy Shield Framework. Three of our group companies are accredited under the E.U.-U.S. Privacy Shield Framework to legitimize the transfer of personal data from the EEA to the US. Although the CJEU upheld the adequacy of the standard contractual clauses (a standard form of contract approved by the European Commission as an adequate PII transfer mechanism) upon which we rely for intra group transfers of PII (and is the most widely used transfer mechanism by our clients), it made clear that use of the standard contractual clauses must now be assessed on a case-by-case basis taking into account the legal regime applicable in the destination country, in particular applicable surveillance laws and rights of individuals. Additionally, the European Data Protection Board (assigned by the European Commission to oversee data privacy in the EU) has issued guidance concerning data transfers following these CJEU decision which places a higher burden on compliance for data transfers. Given these legal developments, the long-term future of the standard contractual clauses remains uncertain and may be invalidated in future by European courts or supervisory authorities and we could be impacted by changes in law as a result of any future review of these transfer mechanisms. If further legal bases for transferring PII from Europe to the United States are invalidated, or if we are unable to transfer PII between and among countries and regions in which we operate, it could affect the manner in which we provide our services or could adversely affect our financial results.

The introduction of the California Consumer Protection Act (“CCPA”), which became effective on January 1, 2020, introduces the most stringent data privacy laws in the United States. While its effect is targeted at the collection and use of consumer personal data, its introduction has required us to assess certain processes and workflows when using data that could be covered by the CCPA. For example, where data relevant to CCPA is introduced into our systems, we are required to track the location of such data, hold it safely and securely, authenticate and answer requests from data subjects, and purge such data upon expiration of the contractual function for which it is held. These requirements are not only costly in implementation of new processes and functionalities but also, where any violation is found, the CCPA allows for private lawsuits from consumers and liquidated damages between $100 and $750 per consumer for incidences of data breach, in addition to the possible imposition of civil penalties by the Attorney General of California (ranging from no more than $2,500 for each violation and up to $7,500 for any intentional violation found to occur). If further states introduce new privacy laws, it could affect how our services are provided and impact our financial results.

Furthermore, any failure, or perceived failure, by us to comply with or make effective modifications to our policies, or to comply with any federal, state or international privacy, data-retention or data-protection-related laws, regulations, orders or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others (including clients), a loss of client confidence, damage to our brand and reputation or a loss of clients, any of which could have an adverse effect on our business. In addition, various federal, state and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business, our brand or our reputation with clients. For example, some countries have adopted laws mandating that PII regarding clients in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service and business operations to limit PII processing to within individual countries could increase our operating costs significantly.

Additionally, in connection with some of our product initiatives, we expect that our clients may increasingly use our cloud services to store and process PII and other regulated data. While we include minimum privacy or information security commitments in our contracts, E.U. requirements may make it so that we will be unable to do business without such commitments. Any failure by us to timely amend client contracts to conform to changing data

17

protection laws, or to comply with our posted privacy policies, other federal, state or international privacy-related or data protection laws and regulations, or the privacy or information security commitments contained in our contracts could result in proceedings against us by governmental entities or others, including individual rights of action, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, the increased attention focused upon any liability we may have as a result of lawsuits or regulatory actions could also harm our reputation or otherwise impact the growth of our business. Furthermore, although we market and sell products to our clients to help them comply with federal, state, local and foreign laws, regulations and directives, including the GDPR, our clients are responsible for ensuring they are in compliance with such laws, regulations and directives. Any failure by our clients to comply could result in significant consequences to them, including penalties and fines, and despite the existence of contractual exclusions and marketing disclaimers which make their responsibility for their own compliance clear, our clients may file claims or seek indemnification from us, which may result in reputational harm and require us to expend time, effort and costs to defend such claims or respond to indemnification requests.

In addition to government regulation, privacy advocacy and industry groups or other third parties may propose new and different self-regulatory standards that either legally or contractually apply to our clients or us. Any significant change to applicable laws, regulations, directives or industry practices regarding the collection, storage, transmission, processing, use or disclosure of our clients’ data, or regarding the manner in which the express or implied consent of clients for the collection, storage, transmission, processing, use and disclosure of such data is obtained, could require us to modify our solutions and features, possibly in a material manner, and may limit our ability to develop new services and features that make use of the data that our clients voluntarily share with us. Any failure or perceived failure by us to comply with our privacy policies, our privacy-related obligations to clients or other third parties, our privacy-related legal obligations or any compromise of security that results in the unauthorized access to, use, release or transfer of PII or other client data, may result in governmental enforcement actions, litigation, negative media attention or public statements against us by consumer advocacy groups or others and could cause our clients to lose trust in us, which would have an adverse effect on our reputation and business. Our clients may also accidentally disclose their passwords or store them on a mobile device that may be lost or stolen, resulting in unauthorized access to their data and creating the perception that our systems are not secure against third-party access. Additionally, if employees or third parties that we work with, such as contractors, vendors or developers, violate applicable laws or our policies, such violations may also put our clients’ information at risk and could in turn have an adverse effect on our business.

We have expanded our involvement in the delivery and provision of cloud computing through business alliances with various providers of cloud computing services and software and expect to continue to do so in the future. The application of U.S. and international data privacy laws to cloud computing vendors is uncertain, and our existing contractual provisions may prove to be inadequate to protect us from claims for data loss or regulatory noncompliance made against us resulting from the failures of cloud computing providers which we may partner with. While we do limit this in our contractual agreements with clients, the failure to comply with data protection laws and regulations by our clients and business partners who provide cloud computing services could have a material adverse effect on our business. Some cloud computing providers have been reluctant to provide us with information which we need in order to comply with E.U. privacy laws, and some providers refuse to offer legally compliant terms or offer terms that are commercially reasonable. We will need to modify our procurement processes in response to changing client and regulatory demands. If we fail to do so correctly, or in a timely manner, we may experience disruptions in client relationships, or receive regulatory inquiries or be the subject of government enforcement actions, which may in turn cause a material loss in revenues or damage our brand and reputation.

An outbreak of disease or similar public health threat, such as a novel strain of coronavirus, could have an ongoing material adverse impact on the Company’s business, operating results and financial condition.

We are vulnerable to the general economic effects of disease outbreaks and similar public health threats. COVID-19 began to spread globally in late 2019 and was declared a pandemic by the World Health Organization and continues to impact worldwide economic activity. A public health pandemic, including COVID-19, poses the risk that we or our employees, contractors, suppliers, customers and other business partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns that may be requested or mandated by governmental authorities. KLDiscovery was eligible for federal government stimulus incentives, including U.S.

18

payroll tax deferral and employee retention tax credits. For the year ended December 31, 2020, we have deferred $4.0 million in payroll taxes, which we will repay $2.0 million by December 31, 2021 and $2.0 million by December 31, 2022.As of December 31, 2020, we have claimed tax credits of $1.8 million, primarily related to the retention of our employees, which we do not have to repay.

Primarily due to the impact of COVID-19, our revenues decreased by $22.5 million, or 7.2%, to $289.5 million for the year ended December 31, 2020 as compared to $312.1 million for the year ended December 31, 2019 as many clients delayed new litigation and court systems closed for a period of time and have been slow to reopen. The extent to which COVID-19 will impact our results, including the ability of our customers to survive and continue to pay in a timely manner, is dependent on uncertain and unpredictable new information about COVID-19 and various new strains now emerging, and the responsive measures taken by the governments of countries we serve, which could adversely impact our business, financial condition or results of operations.

We operate in highly competitive markets and our inability to effectively compete may adversely affect our financial condition and results of operations.

The markets for our products and services are highly competitive and are subject to rapid technological changes and evolving client demands and needs. We compete on the basis of various factors, including product functionality, product integration, platform coverage, quality of service interoperability with third-party technologies, ability to scale and price products and services, worldwide sales infrastructure, global technical support, name recognition and reputation.

Our competitors vary in size, scope and breadth of the products and services they offer and include software vendors that offer software products that directly compete with our product offerings. In our Data & Storage Technology (“DST”) business, we face growing competition from network equipment, computer hardware manufacturers, large operating system providers and other technology companies that increasingly develop and incorporate into their products storage, server management software and backup that compete at some levels with our product offerings. Our competitive position could be materially adversely affected if our clients perceive the functionality incorporated into these products as a replacement for our products. Many of our principal competitors are established companies that have substantial financial resources, recognized brands, technological expertise and market experience, and sometimes have more established positions in certain product lines and geographies than we do. We also compete with smaller and sometimes newer companies, some of which are specialized with a narrower focus than our company, and face competition from other eDiscovery and data management services providers. Our competitors invest significantly in research and development as well as sales and marketing. We also face competition from the backup services solutions offered by cloud IT providers.

Our competitors may be able to more quickly adopt new or emerging technologies or address client requirements and new and emerging technologies may allow startup companies to more quickly enter the market than in the past. We may also face increased competition from companies that provide more in-depth offerings, adapting their products and services to meet the demands of their clients or combining with one of their competitors to enhance their products and services. A number of our principal competitors may continue to make acquisitions to improve the competitiveness of their offerings. Increased competition could cause, among other things, price reductions of our products, reduced profitability and loss of market share. To competitively serve the needs of our existing clients and to attract new clients, we must continue to:

• enhance and improve our existing products and services (such as by adding new content and functionalities);

• develop new products and services;

• invest in technology; and

• strategically acquire additional businesses and partner with other businesses in key sectors that will allow us to offer a broader array of products and services.

19

We may need to change our pricing models in order to compete successfully.

General economic and business conditions together with intense competition in the sales of our products and services place pressure on us to reduce prices for our software and services, and we frequently encounter aggressive price competition. If our competitors offer deep discounts on certain products or services or develop products that the marketplace considers more valuable than ours, we may need to lower our prices or offer other incentives in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Additionally, the increasing prevalence of cloud and SaaS delivery models offered by us and our competitors may unfavorably impact pricing of both our on-site software business and our cloud business, as well as overall demand for our on-site software product and service offerings, which could reduce our revenues and profitability.

Industry pricing models are evolving, and we anticipate that clients may increasingly request alternative pricing models. These pricing models may exacerbate existing pricing pressures, require investments in different product solutions or place us at a competitive disadvantage relative to our competitors. Moreover, the use of evolving technology by our clients to develop more complex pricing models may lead to additional pricing pressures. If we are unable to adapt our operations to these evolving pricing models, our results of operations may be adversely affected or we may not be able to offer pricing that is attractive relative to our competitors.

Any broad-based change to our prices and pricing policies could cause our revenues to decline or be delayed as our sales force implements, and our clients adjust to, such new pricing policies. Some of our competitors may bundle products for promotional purposes or as a long-term pricing strategy or provide guarantees of prices and product implementations. These practices could, over time, significantly constrain the prices that we can charge for certain of our products. If we do not adapt our pricing models to reflect changes in client use of our products or changes in client demand, our revenues could decrease. An increase in open source software distribution may also cause us to change our pricing models.

Our inability to successfully recover from a disaster or other business continuity event could impair our ability to deliver our products and services and harm our business.

We are heavily reliant on our technology and infrastructure to provide our products and services to our clients. For example, we provide services through computer hardware that is located in our 9 global data centers around the world as well as in cloud-based data centers offered through the Microsoft Azure Cloud. Our physical data centers are vulnerable to damage, interruption or performance problems from earthquakes, floods, fires, power loss, terrorist attacks, telecommunications failures and similar events. They are also subject to break-ins, computer viruses, sabotage, intentional acts of vandalism and similar misconduct. The occurrence of any of these events, a decision to close a data center, or other unanticipated problems could result in interruptions in the delivery of certain of our products and services.

Any errors, defects, disruptions or other performance problems with our systems, products and services could reduce our revenue, cause us to issue credits or pay penalties, cause clients to terminate their agreements with us, commence or threaten litigation against us, harm our reputation and damage our clients’ businesses. For example, we may experience disruptions, outages and other performance problems due to a variety of factors, including infrastructure changes, human or software errors, capacity constraints due to an overwhelming number of users accessing our website simultaneously, fraud or security attacks. In some instances, we may not be able to identify the cause or causes of these performance problems within an acceptable period of time. Interruptions in our products and services could impact our revenues or cause clients to cease doing business with us. In addition, our business would be harmed if any events of this nature caused our clients and potential clients to believe our services are unreliable. Our operations are dependent upon our ability to protect our technology infrastructure against damage from business continuity events that could have a significant disruptive effect on our operations.

Our products, SaaS offerings, website and networks may be subject to intentional or accidental disruption that could materially adversely affect our reputation, business and future sales.

Despite our precautions and significant ongoing investments to protect against security risks such as data breaches, cyber-attacks and other intentional or accidental disruptions of our products, offerings and networks, we expect to be an ongoing target of attacks specifically designed to breach or interrupt our networks and systems, which could

20

harm our reputation and result in litigation, fines and penalties. Sophisticated actors may attempt to penetrate our network security or the security of our website and misappropriate proprietary information or cause interruptions to our services. Our products may come under focused threats and attacks and we or our clients may suffer data loss as a consequence of such attacks on our products. Such cyber-attacks threaten to misappropriate our proprietary information and cause interruptions of our information technology (“IT”) services. Because the techniques used by unauthorized persons to access or sabotage networks change frequently and may not be recognized until launched against a target, we may be unable to anticipate or detect these techniques. Further, if unauthorized access or sabotage remains undetected for an extended period of time, the effects of such breach could be exacerbated. In addition, sophisticated hardware and operating system software and applications that we produce or procure from third parties may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation of our systems and networks. We have experienced and defended against threats to our systems and security including malware, phishing attacks and Distributed Denial of Service attacks, with none having had a material adverse effect on our business to date. However, we may experience more serious incidents in the future. Our exposure to cybersecurity threats and negative consequences of cybersecurity breaches will likely increase as we store increasing amounts of our clients’ data in cloud-based environments.

We outsource a number of our internal business functions to third-party contractors, and some of our client facing business operations depend, in part, on the success of our contractors’ own cybersecurity measures. We also partner with cloud service providers for some client service offerings. Similarly, particularly for the DST business, we rely upon distributors, resellers, system vendors and systems integrators to sell our products and our sales operations depend, in part, on the reliability of their cybersecurity measures. Additionally, we depend upon our employees to appropriately handle confidential information and deploy our IT resources in a safe and secure fashion and in accordance with our policies so as not to expose our network systems to security breaches and the loss of data. Accordingly, if our cybersecurity systems, policies and procedures, and those of our contractors, partners and vendors fail to protect against unauthorized access, cyber-attacks or the mishandling of information by our employees, contractors, partners or vendors, our ability to conduct our business effectively could be damaged in a number of ways, including:

• sensitive data regarding our business, including intellectual property and other proprietary data, could be stolen or mishandled;

• our sensitive or proprietary data or the sensitive and proprietary data of our could be rendered unavailable through a ransomware attack, resulting in potentially significant service disruptions, negative publicity, and loss of business

• our electronic communications systems, including email and other methods, could be disrupted, and our ability to conduct our business operations could be seriously damaged until such systems can be restored and secured;

• our ability to process client orders and electronically deliver products and services could be lost or degraded, and our distribution channels could be disrupted, resulting in delays in revenue recognition;

• defects and security vulnerabilities could be exploited or introduced into our products or our cloud offerings, thereby damaging the reputation and perceived reliability and security of our products and services and potentially making the data systems of our clients vulnerable to further data loss and cyber incidents; and

• PII, protected health information (“PHI”) or other confidential data of our clients, employees and business partners could be stolen or lost.

Should any of the above events occur, we could be subject to significant claims for liability from our clients and regulatory actions from governmental agencies, our ability to protect our intellectual property rights could be compromised and our reputation and competitive position could be significantly harmed. The regulatory and contractual actions, litigations, investigations, fines, penalties and liabilities relating to data breaches that result in losses of PII, PHI or credit card information of users of our services can be significant in terms of fines and reputational impact, and necessitate changes to our business operations that may be disruptive to us. Additionally, we could incur significant costs in order to upgrade our cybersecurity systems and remediate damages. Consequently, our financial performance and results of operations would be materially adversely affected.

21

If we do not continue to attract, motivate and retain members of our senior management team and key employees, we may be unable to expand our products and services offeringor effectively manage or grow our business.

Our future success depends upon the continued service and performance of our senior management team and key technical and sales personnel. If we lose any of our senior management term or key technical and sales personnel, we may be unable to effectively manage our current and future operations.

Our success depends upon our ability to attract, motivate and retain highly qualified technical, managerial, and sales and marketing employees in order to implement our corporate development strategy and operations. The pool of qualified candidates is limited and we face intense competition. If we are unable to continue to successfully recruit and retain the most skilled and capable senior managers and key technical and sales employees, our ability to implement our business plan and develop and maintain our software could be adversely affected and our business, financial condition and results of operations could be adversely affected.

Our ability to expand our operations and maintain or increase our revenue is dependent on the quality of our client service and support services, and our failure to provide high level service could have a material adverse effect on our results of operations.

Our clients depend upon our client service and support staff to meet their eDiscovery needs and they demand high-quality support services. Failure to meet that demand could negatively affect our reputation in the marketplace and could adversely affect sales of our services and solutions, potentially having a material and adverse affect on our business, results of operations and financial condition.

Defects, disruptions, performance problems or risks related to the provision of our product offerings could impair our ability to deliver our services and could expose us to liability, damage our brand and reputation or otherwise negatively impact our business.

Certain of our products and services utilize software solutions developed by us or third parties for our clients’ needs, and new releases of software products are issued to our clients periodically. Complex software products, such as those we offer, may contain undetected errors or defects, especially when they are first introduced or new versions are released. Despite testing, these undetected errors may be discovered only after a product has been installed and used either in our internal processing system or by our clients, and could result in unanticipated service interruptions or other performance problems and cause damage to our clients’ businesses. If that occurs, clients could elect not to renew with us, to delay or withhold payment to us, or to make warranty or other claims against us, and we could be obligated to provide service credits based on our failure to meet service level commitments, which could result in additional expense and risk of litigation.

We believe that our reputation and name recognition are critical factors in our ability to compete and generate additional sales. Promotion and enhancement of our name will depend largely on our success in continuing to provide effective products and services. The occurrence of errors in our products or services, the discovery of security vulnerabilities or the detection of bugs by our clients may damage our reputation in the market and our relationships with our existing clients, and as a result, we may be unable to attract or retain clients.

In addition, because our products and services are used to manage data that is often critical to our clients, they may have a greater sensitivity to defects in our products than to defects in other, less critical, applications. As a result, the licensing and support of our products and services involve the risk of product liability claims. Our license agreements with our clients typically contain provisions designed to limit our exposure to potential product liability claims. However, the limitation of liability provisions contained in our license agreements vary and may not be effective as a result of existing or future national, federal, state or local laws or ordinances or unfavorable judicial decisions. Although we have not experienced any material product liability claims to date, the sale and support of our products entail the risk of such claims, which could be substantial in light of the use of our products in enterprise-wide environments. In addition, our insurance against product liability may not be adequate to cover all potential claims.

22

If we are unable to develop new and enhanced products and services that achieve widespread market acceptance, or if we are unable to continually improve the performance, features and reliability of our existing products and services or adapt our business model to keep pace with industry trends, our business and operating results could be materially adversely affected.

The markets in which we compete are characterized by rapid technological change, frequent new product introductions, evolving industry standards and changing client needs. We believe that key competitive factors in the markets we serve include the breadth and quality of professional services, system and software solution offerings, product integration, platform coverage, the stability of our information systems, the features and capabilities of our product and service offerings, the pricing of our products and services, and the potential for future product and service enhancements. Our future success depends on our ability to keep pace with technological changes and to respond to the rapidly changing needs of our clients by developing or introducing new products, product upgrades and services on a timely and cost-effective basis. We have in the past incurred, and will continue to incur, significant research and development expenses as we strive to remain competitive. Clients may require features and capabilities that our current products and services do not have, such as remote collections from mobile phones. We need to successfully respond to significant market challenges to our existing product portfolio as well as invest in new growth areas based on our core technical capabilities. Our failure to develop products and services that satisfy client preferences in a timely and cost-effective manner may harm our ability to maintain relationships with existing clients, as well as our ability to create or increase demand for our products and services, and may materially adversely affect our operating results. As competition in the IT industry increases, it may become increasingly difficult for us to maintain a technological advantage and to leverage that advantage toward increased revenues and profits. New product development and introduction involve a significant commitment of time and resources and are subject to a number of risks and challenges including:

• managing the length of the development cycle for new products and product enhancements, which can fluctuate as new features are developed;

• designing and marketing products and professional services solutions that will be adopted by our client base as well as attract new clients for our technology;

• managing clients’ transitions to new products and services;

• adapting to emerging and evolving industry standards and to technological developments by our competitors and clients;

• extending the operation of our products and services to new and evolving platforms, operating systems, operating environments and models, including support of new workloads and data management technologies, and hardware products;

• clients’ ability to upgrade to the most current versions of software to take advantage of new functionalities;

• reacting to trends and predicting which technologies will be successful and develop into industry standards;

• tailoring our business and pricing models appropriately as we enter new markets and respond to competitive pressures and technological changes;

• extending or creating technology alliances with other key technology players in our industry;

• managing new product and service strategies for the markets in which we operate;

• addressing trade compliance issues affecting our ability to ship our products;

• developing or expanding efficient sales channels; and

• obtaining sufficient licenses to technology and technical access from proprietary software providers, open source software providers and operating system software vendors on reasonable terms to enable the development and deployment of interoperable products, including source code licenses for certain products with deep technical integration into operating systems.

23

If we are not successful in managing these risks and challenges, if our new products, product upgrades and services are not technologically competitive or do not achieve market acceptance, or if our efforts are more costly or resource-intensive than anticipated or fail to achieve the expected outcomes, our business, financial condition and results of operations could be adversely affected.

We develop products and services that interoperate with certain software, operating systems and hardware developed by others, and if the developers of such software, operating systems and hardware do not cooperate with us, if we are unable to obtain access to their new products or if we are unable to devote the necessary resources so that our applications interoperate with those third-party systems, our development efforts may be delayed or foreclosed and our business, financial condition and results of operations may be adversely affected.

Our products and services operate primarily on the Windows, UNIX and Linux operating systems, are used in conjunction with the Microsoft SQL and Microsoft Azure platforms, and operate on hardware devices of numerous manufacturers. When new or updated versions of these operating systems, software applications and hardware devices are introduced, it is often necessary for us to develop updated versions of our software applications so that they interoperate properly with these systems and devices. We may not accomplish these development efforts quickly or cost-effectively, or at all, and it is not clear what the relative growth rates of these operating systems and hardware will be. These development efforts require the cooperation of the developers of the operating systems, software applications, and hardware, as well as substantial capital investment and the devotion of substantial employee and/or financial resources. For some operating systems, we must obtain some proprietary application program interfaces from the owner in order to develop software applications that interoperate with the operating system. Operating system and software owners have no obligation to assist in these development efforts, provide us with early access to their technology and products or share with or sell to us any application program interfaces, formats or protocols we may need. If they do not provide us with the necessary access, assistance or proprietary technology on a timely basis, or at all, we may experience product development delays or be unable to expand our software applications into other areas.

A large number of our proprietary software and applications are built on commonly used “open source” licenses. We maintain a record of all “open source” licenses used for such software and applications. Despite this, a failure to materially comply with the terms of such “open source” licenses could negatively affect our business and subject us to possible litigation.

The unavailability of third-party technology could adversely impact our revenue and results of operations.

We license certain eDiscovery-related software from third parties and incorporate or integrate such components into and with our services and products. For instance, we integrate third-party solutions licensed from certain providers such as Relativity, a key supplier of one of our eDiscovery platforms, with the delivery of our eDiscovery services and products. While we have developed our own proprietary platforms, certain third-party software, such as that licensed from Relativity, has become central to the operation and delivery of our eDiscovery services and products.

Certain of our third-party software license contracts expire within the next one to three years and may be renewed only by mutual consent. For instance, our license contract with Relativity expires on June 30, 2024. There is no assurance that we will be able to renew these contracts as they expire or that such renewals will be on the same or substantially similar terms or on conditions that are commercially reasonable to us. If we fail to renew these contracts as they expire, we may be unable to offer certain eDiscovery-related services and products to our clients. In addition, our third-party software licenses are non-exclusive. For example, all of our primary competitors in the eDiscovery business use Relativity in connection with their eDiscovery platforms (in addition to any proprietary platforms that they may own themselves).

If certain of our third-party licensors were to change their product offerings, cease actively supporting their existing technologies, fail to update and enhance their technologies to keep pace with changing industry standards, encounter technical difficulties in the continued development of their technologies, significantly increase prices, terminate our licenses, suffer significant capacity or supply chain constraints or suffer other disruptions, we would need to identify alternative suppliers and incur additional internal and/or external development costs to ensure continued performance of our eDiscovery-related services and products. Such alternatives may not be available on attractive

24

terms, or at all, or may not be as widely accepted or as effective as the software provided by our existing suppliers. If the cost of licensing or maintaining this third-party technology significantly increases, our revenues could significantly decrease. In addition, interruptions in the functionality of our services and products resulting from changes in or with our third party licensors could adversely affect our commitments to clients, future sales of our services and products solutions, and negatively affect our business, financial condition and results of operations.

We utilize various web service providers, such as Microsoft Azure, for the delivery of our cloud-based products. These services are operated by third parties that we do not control and that could require significant time to replace. We expect this dependence on third parties to continue. These systems are vulnerable to damage or interruption and have experienced interruptions in the past. A prolonged web service disruption affecting our cloud-based offerings for any of the foregoing reasons would negatively impact our ability to serve our clients and could damage our reputation with current and potential clients, expose us to liability, cause us to lose clients or otherwise harm our business. We may also incur significant costs for using alternative equipment or taking other actions in preparation for, or in reaction to, events that damage the web services we use. Interruptions in these third party-services on which we rely could affect the security or availability of our products and cloud infrastructure and could have a material adverse effect on our business. In addition, these web services providers may generally terminate our agreements for convenience upon providing some nominal period of notice and may terminate our agreements for cause if a breach by us has not been cured within a short time period. In the event that our service agreements are terminated, or there is a lapse of service, elimination of web services or features that we utilize, interruption of internet service provider connectivity or damage to such facilities, we could experience interruptions in access to our platforms as well as significant delays and additional expense in arranging or creating new facilities and services and/or re-architecting our solutions for deployment on a different cloud infrastructure service provider, which may adversely affect our business, operating results and financial condition.

If we we encounter difficulties as we implement our new consolidated business systems, our business may be adversely affected.

We are in the process of implementing new consolidated business systems across our global operations. We rely on our IT to help us effectively manage our client relationships, sales information, order processing and support and marketing services, and we anticipate that the implementation of new consolidated business systems will improve our processes. However, there is a risk that implementation of these new systems will not achieve these expected benefits as quickly as anticipated or at all. In addition, there can be no assurance that there will not be errors, delays or other related issues resulting from the transition to our new business systems and adjustments to associated business processes, or that we will be able to fix any error or issue. Such errors, delays or issues may result in unanticipated costs or expenditures and divert the attention of key senior management away from other aspects of our business, which may adversely affect our business, operating results and financial condition.

Our failure to comply with the export controls and trade and economic sanctions laws and regulations of the United States and various international jurisdictions could result in legal liability and materially adversely affect our reputation and results of operations.

Our business activities are subject to various export controls and trade and economic sanctions laws and regulations, including, without limitation, the U.S. Commerce Department’s Export Administration Regulations, the U.S. Treasury Department’s Office of Foreign Assets Control’s (“OFAC”) trade and economic sanctions programs, the United Nations Security Council, and other laws and regulations of a similar nature administered and enforced by relevant government authorities (collectively, “Trade Controls”). Such Trade Controls may prohibit or restrict our ability to, directly or indirectly, conduct activities or dealings in or with certain countries, as well as with individuals or entities that are the subject of Trade Controls-related prohibitions and restrictions. For example, our ability to procure items necessary for our business activities could be adversely impacted by the imposition of export or sanctions-related prohibitions or restrictions on our contractual counterparties. Similarly, our sales of certain commodities, software and technology, and our provision of services to persons located outside the United States may be subject to certain regulatory prohibitions, restrictions or other requirements, including certain licensing or reporting requirements. Similarly, our ability to procure such items necessary for our business activities could be adversely impacted by the imposition of export or sanctions-related prohibitions or restrictions on our contractual counterparties. Our failure to successfully comply with applicable Trade Controls may expose us to negative legal and business consequences, including civil or criminal penalties, government investigations, disgorgement of

25

profits, injunctions and suspension or debarment from government contracts, other remedial measures, and reputational harm. Investigations of alleged violations can be expensive and disruptive.

Although we have implemented compliance policies and internal procedures reasonably designed to promote compliance with applicable Trade Controls, we cannot assure compliance by our employees or representatives for which we may be held responsible, and any such violation could materially adversely affect our reputation, business, financial condition and results of operations.

Third party claims of infringement could cause us to incur significant legal expenses and prevent us from selling our products.

The software and internet industries are characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. We have received in the past, and may receive in the future, communications from third parties alleging infringement of their intellectual property rights, including claims regarding patents, copyrights, trade secrets and trademarks.

Because of the constant technological change in the markets in which we compete and the extensive coverage of intellectual property protection for existing technologies, including software patents, it is possible that the number of these claims may grow.

Any such intellectual property claim, with or without merit, could result in costly litigation and distract management from day-to-day operations, and the outcomes of such claims are uncertain. If we are not successful in defending such claims, we could be required to stop selling, delay shipments of or redesign our products, stop offering (or temporarily stop offering) our services to others, pay monetary amounts as damages, enter into royalty or licensing arrangements or satisfy indemnification obligations that we have with some of our clients, which could materiallyadversely affect our business, results of operations, financial condition or cash flows. There is no assurance that any royalty or licensing arrangements we may seek in such circumstances will be available on commercially reasonable terms or at all. In addition, certain client agreements require us to indemnify our clients for third-party intellectual property infringement claims, which would increase the cost to us of an adverse ruling on such a claim. We have made and expect to continue making significant expenditures to preempt, investigate, defend and settle claims related to the use of technology and intellectual property rights, including trademarks, as part of our strategy to manage this risk.

Risks Related to our Substantial Indebtedness

Our substantial levels of indebtedness could adversely affect our financial condition.

As of December 31, 2020, we had approximately $506 million of indebtedness, consisting of borrowings under our First Lien Facility (as defined herein) and the Debentures. See “Item 13 - Certain Relationships and Related Person Transactions” for additional information.

Our indebtedness could have important consequences to us and our investors, including, but not limited to:

• increasing our vulnerability to, and reducing our flexibility to respond to, general adverse economic and industry conditions;

• requiring the dedication of a substantial portion of cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures, acquisitions, joint ventures or other general corporate purposes;

• limiting flexibility in planning for, or reacting to, changes in our business and the competitive environment; and

• limiting our ability to borrow additional funds and increasing the cost of any such borrowing.

In addition, as our indebtedness matures, or if we are unable to service our high level of indebtedness, we may need to restructure or refinance all or a portion of our indebtedness, sell material assets or operations or raise additional

26

debt or equity capital. We may not be able to effect any of these actions on a timely basis, on commercially reasonable terms, or at all, and these actions may not be sufficient to meet our capital requirements. Furthermore, we may not be able to invest in our business and as a result, we may not be able to achieve our forecasted results of operation.

If we are unable to make required interest and principal payments on our indebtedness, it would result in an event of default under the agreements governing such indebtedness, which may result in the acceleration of some or all of our outstanding indebtedness and foreclosure on the assets that secure such indebtedness.

Although our debt agreements contain restrictions on the incurrence of additional indebtedness, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial, thereby exacerbating the risks associated with our high level of indebtedness.

For additional information on our indebtedness, see the Liquidity and Capital Resources discussion in Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operation and Note 7 – Subsequent Events in Item 8 – Financial Statements and Supplementary Data.

Risks Related to our Capital Stock and Other Business Risks

We may need to recognize impairment charges related to goodwill, identified intangible assets and fixed assets.

We have substantial balances of goodwill and identified intangible assets. We are required to test goodwill and any other intangible assets with an indefinite life for possible impairment on an annual basis, or more frequently when circumstances indicate that impairment may have occurred. We are also required to evaluate amortizable intangible assets and fixed assets for impairment if there are indicators of a possible impairment.

Based on the results of the annual impairment test as of October 1, 2020, the fair value of our reporting unit exceeded the individual reporting unit’s carrying value, and goodwill was not impaired. There is significant judgment required in the analysis of a potential impairment of goodwill, identified intangible assets and fixed assets. If, as a result of a general economic slowdown, deterioration in one or more of the markets in which we operate or impairment in our financial performance and/or future outlook, the estimated fair value of our long-lived assets decreases, we may determine that one or more of our long-lived assets is impaired. An impairment charge would be recorded if the estimated fair value of the assets is lower than the carrying value and any such impairment charge could have a material adverse effect on our results of operations and financial position.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited and could adversely impact ur business, financial condition and operating results.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” (as defined under U.S. income tax laws) that exceeds 50 percentage points over a rolling three-year period. Similar rules apply under state tax laws. If we experience one or more ownership changes as a result of future transactions in our stock, then we may be limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn.

The insurance coverage that we purchase may prove to be inadequate or unavailable when we need the coverage.

We carry liability, property, directors and officers, business interruption, Cyber and other insurance policies to cover insurable risks to our company. We select the types of insurance, the limits and the deductibles based on our specific risk profile, the cost of the insurance coverage versus its perceived benefit and general industry standards. Our insurance policies contain industry standard exclusions for events such as war. Although we generally attempt to select reputable insurance carriers, any economic disruptions may prevent us from using our insurance if the counterparty does not have the capital necessary to meet the coverage. In addition, our agreements with customers also contain obligations to carry comprehensive general liability, property, workers' compensation, and automobile

27

liability insurance. Any of the limits of insurance that we purchase could prove to be inadequate, which could materially and adversely impact our business, financial condition and results of operations.

Unanticipated changes in our effective tax rate or challenges by tax authorities could harm our future results.

We are subject to income taxes in the United States and various non-U.S. jurisdictions. Our effective tax rate could be adversely affected by changes in the allocation of our pre-tax earnings and losses among countries with differing statutory tax rates, in certain non-deductible expenses as a result of acquisitions, in the valuation of our deferred tax assets and liabilities, or in federal, state, local or non-U.S. tax laws and accounting principles, including increased tax rates, new tax laws or revised interpretations of existing tax laws and precedents. Increases in our effective tax rate would adversely affect our operating results.

In addition, we may be subject to income tax audits by various tax jurisdictions throughout the world.The application of tax laws in such jurisdictions may be subject to diverging and sometimes conflicting interpretations by tax authorities in these jurisdictions. Although we believe our income tax liabilities are reasonably estimated and accounted for in accordance with applicable laws and principles, an adverse resolution of one or more uncertain tax positions in any period could have a material impact on the results of operations for that period.

Taxing authorities may successfully assert that we should have collected or in the future should collect additional sales and use taxes, and we could be subject to liability with respect to past or future sales, which could adversely affect our results of operations.

We have not historically filed sales and use tax returns or collected sales and use taxes in all jurisdictions in which we have sales, based on our belief that such taxes are not applicable. Taxing authorities may seek to impose such taxes on us, including for past sales, which could result in penalties and interest. Any such tax assessments may adversely affect the results of our operations.

Taxing authorities could reallocate our taxable income among our subsidiaries, which could increase our consolidated tax liability.

We conduct integrated operations internationally through subsidiaries in various tax jurisdictions pursuant to transfer pricing arrangements between our subsidiaries and between our subsidiaries and us. If two or more affiliated companies are located in different countries, the tax laws or regulations of each country generally require that transfer prices be the same as those between unrelated companies dealing at arm’s length and that contemporaneous documentation is maintained to support the transfer prices. While we believe that we operate in compliance with applicable transfer pricing laws and intend to continue to do so, our transfer pricing procedures are not binding on applicable tax authorities. If tax authorities in any of these countries were to successfully challenge our transfer prices as not reflecting arms’ length transactions, they could require us to adjust our transfer prices and thereby reallocate our income to reflect these revised transfer prices, which could result in a higher tax liability to us. Such reallocations may subject us to interest and penalties that would increase our consolidated tax liability and could adversely affect our financial condition, results of operations and cash flows.

We may issue additional shares of Common Stock or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of our Common Stock.

As of the date of this Annual Report on Form 10-K, we have Warrants outstanding to purchase up to an aggregate of 29,350,000 shares of Common Stock and may issue an aggregate of 2,200,000 shares of Common Stock to certain of our stockholders if the reported closing sale price of our Common Stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Merger. We also have the ability to initially issue up to 7,500,000 shares under the 2019 Incentive Award Plan (the “2019 Plan”), and as of December 31, 2020, we have issued 6,054,772 options and Restricted Stock Units. Additionally, in the event we voluntarily prepay all or a portion of the Debentures prior to maturity, the holders of such prepaid Debentures will have the right to purchase shares of our Common Stock in amount commensurate in value to the pre-payment at a price of $18 per share, subject to adjustment (the “conversion price”). The holders of the Debentures also have the option to convert the Debentures into shares of our Common Stock at the conversion price at any time. The number of shares that may

28

be issued in such a circumstance cannot be determined at this time. We may issue additional shares of Common Stock or other equity securities of equal or senior rank in the future in connection with, among other things, future acquisitions or repayment of outstanding indebtedness, without stockholder approval, in a number of circumstances.The issuance of additional shares of Common Stock or other equity securities of equal or senior rank would dilute the ownership interests of existing stockholders and could cause the market price of our Common Stock to decline.

Our charter and Delaware law may hinder or prevent a changein control of our company.

Certain provisions of our Second Amended and Restated Certificate of Incorporation could limit the ability of a third party to acquire control of our company. For example, our directors are authorized to issue additional shares of common and preferred stock, only our directors are authorized to call a special meeting of our stockholders, stockholders are subject to advance notice requirements, minimum shareholding periods and ownership thresholds to propose matters for consideration at stockholder meetings, and we have a staggered board of three classes, with each class subject to retirement and re-election once every three years.

Future resales of Common Stock may cause the market price of our securities to drop significantly, even if our business is doing well.

The Founder, the former officers and directors of Pivotal, and certain of our stockholders were granted certain rights, pursuant to a registration rights agreement, dated as of the Closing Date, entered into in connection with the consummation of the Business Combination among the Company, the stockholders LD Topco, the holders of the founder shares and certain other securityholders of the Company (the “Registration Rights Agreement”), to require us to register, in certain circumstances, the resale under the Securities Act of Common Stock held by them, subject to certain conditions. The sale or possibility of sale of these shares could have the effect of increasing the volatility in our share price or putting significant downward pressure on the price of our stock.

An active, liquid and orderly trading market for our Common Stock may not develop or be maintained, and our stock price may be volatile, which could result in securities litigation.

Our Common Stock currently trades in over-the-counter markets and is quoted on the OTC Pink Sheet Market under the ticker symbol “KLDI” and an active, liquid and orderly trading market for our Common Stock may not develop or be maintained. The market price of our Common Stock could fluctuate significantly due to a number of factors, some of which are beyond our control.

The following factors, among others, could affect our stock price:

• our operating and financial performance, including reserve estimates;

• quarterly variations in the rate of growth of our financial indicators, such as net income per share, net income and revenues;

• the public reaction to our press releases, our other public announcements and our filings with the SEC;

• strategic actions, including acquisitions, or investments by us or our competitors;

• changes in revenue or earnings estimates,

• speculation in the press or investment community;

• sales of our Common Stock by us, our directors or officers or stockholders or the perception that such sales may occur; •

• changes in accounting principles, policies, guidance, interpretations or standards;

• changes in key management personnel;

• actions by our stockholders;

• general market conditions, including fluctuations in commodity prices;

29

• domestic and international economic, legal and regulatory factors unrelated to our performance; and

• the realization of any risks described under this “Risk Factors” section or described elsewhere in this Annual Report on Form 10-K.

The stock markets in general have experienced extreme volatility often unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Common Stock. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in substantial costs, divert our management’s attention and resources and harm our business, operating results, financial condition and reputation.

The trading price of our common stock may decline if our stockholders sell a large number of shares of our common stock or if we issue a large number of new shares of our common stock or shares convertible into our common stock.

A majority of our outstanding shares of common stock are held by a relatively small number of our stockholders. A sale of a substantial number of our shares in the public market by our significant stockholders or pursuant to new issuances by us could depress the market price of our common stock and impair our ability to raise capital through the sale of additional equity securities.

In addition, the Business Combination resulted in our merging with a special purpose acquisition company (“SPAC”), which can cause additional volatility in the price of our Common Stock. We expect that the price of our Common Stock and of that of SPACs in general may be more volatile compared to the stock price of an operating company.

Rule 144 of the Securities Act provides a safe harbor under which affiliates of an issuer may resell their securities into the public market. Any further sales by these stockholders or further issuances of common stock could have material adverse effect on the market price of our common stock. In addition, new issuances of common stock or shares convertible into common stock by us would dilute the equity interests and voting power of our existing stockholders.

Concentration of ownership among our large stockholders and their affiliates may limit the influence of smaller stockholders on corporate decisions and the interests of such large stockholders may not align with those of the smaller stockholders.

A majority of our outstanding shares are held by a relatively small number of our stockholders. As a result, if some of these stockholders vote in an aligned manner, they could meaningfully influence the outcome of matters submitted to our stockholders for approval, including the election of directors and approval of significant corporate transactions, such as a merger or sale of our company or its assets. This concentration of ownership could limit the ability of other stockholders to influence corporate matters and may delay or preclude an acquisition or cause the market price of our stock to decline. Some of these persons or entities may have interests that may materially differ from the rest of our stockholders.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We do not own any properties and all of our material physical properties are occupied pursuant to either the terms of a negotiated lease or another contractual arrangement for occupation of space, such as space rental in a data center facility.

30

The table below presents summary information regarding our material properties as ofDecember 31, 2020.

Country	Location	Legal Technologies Office	Data Storage Technologies Office	Managed Review Facility	Data Center	Clean Room
Australia	Brisbane	X	X			X
Canada	Toronto		X			X
Canada	Toronto				X
China	Shanghai		X
China	Suzhou		X			X
Finland	Helsinki		X			X
France	Paris		X			X
France	Paris				X
Germany	Boblingen	X	X			X
Germany	Frankfurt				X
Hong Kong	North Point		X			X
Hong Kong	Won Chai	X
Ireland	Balleycoolin				X
Italy	Varese		X			X
Japan	Tokyo	X	X			X
Japan	Tokyo				X
Netherlands	Amersfoort		X			X
Norway	Kongsvinger	X	X			X
Poland	Katowice	X	X	X		X
Spain	Madrid		X			X
Sweden	Uppsala		X			X
Switzerland	Wallisellen		X			X
United Kingdom	London	X		X
United Kingdom	Slough				X
United Kingdom	Surrey		X			X
United States	Austin, Texas	X			X
United States	Brooklyn Park, Minnesota				X
United States	Chicago, Illinois	X
United States	Eden Prairie, Minnesota	X	X	X	X	X
United States	Fairfax, Virginia	X
United States	McLean, Virginia	X	X	X		X
United States	Richmond, Virginia	X

Item 3. Legal Proceedings.

We are currently not a party to any legal proceedings that are expected to have a material adverse effect on our business or financial condition. From time-to-time, we are subject to litigation incidental to our business, as well as other litigation of a non-material nature in the ordinary course of business.

Item 4. Mine Safety Disclosures.

Not applicable.

31

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock, par value $0.0001 per share, is quoted on the OTC Pink Sheet Market under the symbol “KLDI.” Our public warrants are quoted on the OTC Pink Sheet Market under the symbol “KLDIW.” Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

As of December 31, 2020, there were 70 holders of record of our common stock, and 8 holders of record of our warrants.

On February 18, 2020, we filed a registration statement on Form S-8, registering 7,500,000 shares of common stock, relating to awards to be undertaken in the future, with such vesting conditions, as applicable, to be determined in accordance with the 2019 Plan. The following types of awards can be issued under the 2019 Plan: stock options, stock appreciation rights, restricted stock, restricted stock units, performance compensation awards and other stock-based awards.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and we currently do not anticipate paying any cash dividends for the foreseeable future. Instead, we anticipate that all of our earnings on our common stock will be used to provide working capital, to support our operations, and to finance the growth and development of our business, including potentially the acquisition of, or investment in, businesses, technologies or products that complement our existing business. Any future determination relating to dividend policy will be made at the discretion of our Board of Directors and will depend on a number of factors, including, but not limited to, our future earnings, capital requirements, financial condition, future prospects, and applicable Delaware law, which provides that dividends are only payable out of surplus or current net profits and other factors our Board of Directors might deem relevant.

Equity Compensation Plan Information

The following table provides certain information as of December 31, 2020, with respect to our equity compensation plans under which common stock is authorized for issuance:

	Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights			Weighted-Average Exercise Price of Outstanding Options			Number of Securities Remaining Available for Future issuance under Equity Compensation Plans (Excluding Securities Reflected in First Column)
Equity compensation plans approved by    security holders (1)		5,551,185	(2)	$	8.46	(3)		3,198,815	(4)
Equity compensation plans not approved by security holders		—			—			—

(1) Consists of the 2019 Incentive Award Plan (“2019 Plan”) and the 2019 Employee Stock Purchase Plan (“ESPP”).

(2) Includes 4,260,753 outstanding options to purchase stock under the 2019 Plan and 1,290,432 restricted stock units that were outstanding under the 2019 Plan as of December 31, 2020.

(3) Represents the weighted-average exercise price of outstanding options under the 2019 Plan.

32

(4) As of December 31, 2020, a total of 3,198,815 shares of Common Stock were available for issuance, consisting of 1,948,815 shares under the 2019 Plan and 1,250,000 shares under the ESPP. Pursuant to the 2019 Plan, the number of shares of Common Stock available for issuance under the 2019 Plan automatically increases on each January 1 until and including January 1, 2029, by an amount equal to the lesser of: (a) 5% of the shares of Common Stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as is determined by our Board of Directors.  Our Board of Directors determined that the number of shares available for issuance under the 2019 Plan would not increase on January 1, 2021. Pursuant to the terms of the ESPP, the number of shares of Common Stock available for issuance under the ESPP automatically increases on each January 1 until and including January 1, 2029, by an amount equal to the lesser of (a) 1% of the shares of Common Stock outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as is determined by our Board of Directors. Our Board of Directors determined that the number of shares available for issuance under the ESPP would not increase on January 1, 2021.

33

Item 6. Selected Financial Data.

The following table presents a summary of our selected historical financial data derived from our last two years of Financial Statements. Because this information is only a summary and does not provide all of the information contained in our Financial Statements, including the related notes, you should read “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Financial Statements for more detailed information.

(in thousands)	Year ended December 31, 2020			Year ended December 31, 2019
Revenues	$	289,545		$	312,054
Cost of revenues		147,732			160,845
Gross profit		141,813			151,209
Operating expenses
General and administrative		58,509			55,005
Research and development		7,167			5,945
Sales and marketing		38,395			48,517
Depreciation and amortization		35,955			39,149
Total operating expenses		140,026			148,616
Income from operations		1,787			2,593
Other expenses
Other expense		118			308
Loss on extinguishment of debt		—			7,203
Interest expense		50,659			48,377
Loss before income taxes		(48,990	)		(53,295	)
Income tax provision		936			719
Net loss	$	(49,926	)	$	(54,014	)
Other comprehensive income, net of tax
Foreign currency translation		4,947			311
Total other comprehensive income, net of tax		4,947			311
Comprehensive loss	$	(44,979	)	$	(53,703	)
Net loss per share - basic and diluted	$	(1.17	)	$	(1.27	)
Weighted average shares outstanding - basic and diluted		42,529,017			42,425,295
Cash Flow Data:
Net cash provided by (used in) operating activities	$	39,776		$	(8,297	)
Net cash used in investing activities		(14,059	)		(15,218	)
Net cash (used in) provided by financing activities		(18,595	)		43,490
Other Financial Data:
Depreciation and amortization	$	47,762		$	50,407
Interest expense, including loss on extinguishment of debt	$	50,659		$	55,580
EBITDA	$	49,431		$	52,692
Adjusted EBITDA	$	63,290		$	68,723
Consolidated Balance Sheet Data:
Cash and cash equivalents	$	51,201		$	43,407
Total assets	$	679,746		$	714,912
Current portion of long-term debt	$	10,948		$	11,689
Long term debt - net of current portion	$	472,600		$	468,932
Total stockholders' equity	$	142,221		$	183,765
Working capital	$	93,968		$	100,103

34

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Throughout this section, unless otherwise noted “we,” “us,” “our,” “Company,” “KLDiscovery,” “KLD”, “KLDiscovery Inc.” or “LD Topco, Inc.” refer to KLDiscovery Inc. and its consolidated subsidiaries. As a result of the Business Combination, (i) KLDiscovery Inc.’s consolidated financial results for periods prior to December 19, 2019 reflect the financial results of LD Topco, Inc. and its consolidated subsidiaries, as the accounting predecessor to KLDiscovery Inc., and (ii) for periods from and after this date, KLDiscovery Inc.’s financial results reflect those of KLDiscovery Inc. and its consolidated subsidiaries (including LD Topco, Inc. and its subsidiaries) as the successor following the Business Combination. The following discussion and analysis of financial condition and results of operations of the Company should be read together with the financial statements and related notes included elsewhere in this Annual Report on Form 10-K. Such discussion and analysis reflects the historical results of operations and financial position of the Company. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors,” “Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K.

OVERVIEW

We are one of the leading eDiscovery providers and the leading data recovery services provider to corporations, law firms, government agencies and individual consumers. We provide technology-enabled services and software to help law firms, corporations, government agencies and consumers solve complex data challenges. We have broad geographical coverage in the eDiscovery and data recovery industries with more than 32 locations in 18 countries, 9 data centers and 18 data recovery labs around the globe. Our legal technology services cover both eDiscovery and information governance services to support the litigation, regulatory compliance, and internal investigation needs of our clients. We offer data collection and forensic investigation, early case assessment, electronic discovery and data processing, application software, data hosting, and managed review services. In addition, through our global Ontrack Data Recovery name, we deliver world-class data recovery, email extraction and restoration, data destruction and tape management services.

KEY COMPONENTS OF OUR RESULTS OF OPERATIONS

Data proliferation is contributing to growth in the eDiscovery and information governance market. Data is growing at an exponential rate due to several factors, including the adoption of mobile devices, accessibility of hosted systems and increased reliance on electronic data storage. We are well positioned to gain market share from the growth of electronically stored information given our prior and continued investment in our infrastructure and proprietary technologies that allows us to efficiently identify, preserve, collect, process, review and host complex data sets. We will continue to develop and enhance our technology which will position us to continue to evolve as the market changes.

The eDiscovery and information governance market is highly fragmented and price competitive. While many of our competitors rely on third party software tools to provide their services, we offer our services utilizing third party platforms enhanced with our proprietary tools, as well as our own end-to-end tools. Because we can provide service offerings utilizing proprietary technology, we have more flexibility in pricing, and we are not hindered by third party licensing software expenses. As such, our proprietary tools allow us to be less impacted by significant price compression than our competitors.

Historically, on-premise tools have been the dominant deployment solution in the past. However, recently the market has shifted to cloud-based solutions and this shift can result in increased revenue for us as we offer our own proprietary cloud-based solutions.

We classify our legal technology revenue as follows:

• Collections and Processing Services: We have remote and onsite collection services. Our proprietary workflows and tools allow us to ingest, extract native file metadata and index in a normalized format. We have near duplication tools to quickly discard duplicative or irrelevant data, significantly minimizing the data that needs to be reviewed. Our analytics include predictive coding which allows us to automatically classify millions of documents in a matter of hours. We offer email threading that looks at relationships between email messages to identify the most content-inclusive messages to avoid redundant review and we have language identification that can automatically identify the primary language in all documents in the data set. The collection of data is billed either by the unit or hour and the data that is processed and produced is billed per gigabyte, page or per file.

35

• Forensics and Consulting Services: We provide the expertise and tools needed to extract and analyze digital evidence to support a client’s legal matter. Our forensics experts help extract critical evidence, recover any data that individuals may have sought to erase or hide, retrieve key data buried in documents and organize data contained in multiple information sources to give our client the insight and knowledge they need. Our forensics and consulting services are billed either by hour or unit.

• Professional Services: We manage complex eDiscovery matters and partner with our clients to assist through the lifecycle of a case. Our professional services are billed on an hourly basis.

• Managed Review Services: We use our extensive eDiscovery project management experience, technological excellence and global presence to provide clients with a secure, seamless and cost-effective managed review solution. We assemble review teams of experienced legal professionals for any type of case. Each team member is a qualified attorney who has passed a selective screening process and has received training from KLDiscovery review manager to ensure the most efficient and defensible review of a client’s documents. Document review managers have extensive project managed experience to oversee the entire review process and work with the client’s legal team as an integrated partner. Our industry experts have developed advanced managed review processes and tools and deliver services in state of the art facilities, handle subject matter versatility, are platform agnostic, possess expert working knowledge of predictive coding and technology assisted review workflows, have multilingual capabilities and focus on quality. Our managed review services are billed on an hourly basis.

• Hosting: We have flexible technology options and platforms to host our client’s data for the life of the matter. We offer secure data centers around the globe to support data across jurisdictions and privacy laws. Hosting is billed per gigabyte.

• Subscription: We offer subscription pricing options to provide cost predictability over time. Subscriptions cover a range of our services and are typically a fixed fee billed monthly for contract terms averaging one to three years.

We classify our data recovery revenue as follows:

• Data Recovery Services: We recover lost data from devices that store digital information, including data centers, cloud, business servers, workstations, laptops and mobile devices. Pricing is per device.

• PowerControls and Data Recovery Software: We enable search and recovery of data from database files and physically sound devices. Pricing is typically an annual or multi-year agreement at a fixed price.

For the years ended December 31, 2020 and December 31, 2019, our legal technology revenue was $247.3 million and $265.9 million, respectively, and our data recovery revenue was $42.3 million and $46.2 million, respectively. Additionally, we have longstanding relationships with our clients and for the years ended December 31, 2019 and 2020, no single client accounted for more than 5% of our revenues.

Non-U.S. GAAP Financial Measures

We prepare audited financial statements in accordance with U.S. GAAP. We also disclose and discuss other non-U.S. GAAP financial measures such as EBITDA and adjusted EBITDA. We believe that these measures are relevant and provide useful supplemental information to investors by providing a baseline for evaluation and comparing our operating performance against that of other companies in our industry.

The non-U.S. GAAP financial measures that we use may not be comparable to similarly titled measures reported by other companies and, in the future, we may disclose different non-U.S. GAAP financial measures in order to help our investors meaningfully evaluate and compare our results of operations to our previously reported results of operations or to those of other companies in our industry. We believe these non-U.S. GAAP financial measures reflect our ongoing operating performance because the isolation of non-cash charges, such as amortization and depreciation, and other items, such as interest, income taxes, management fees and equity compensation, acquisition and transaction costs, restructuring costs, systems establishment and costs associated with strategic initiatives which are incurred outside the ordinary course of our business, and provide information about our cost structure, that helps track our operating progress. We encourage investors and potential investors to carefully review the U.S. GAAP financial information and compare them with our EBITDA and adjusted EBITDA.

36

Adjusted EBITDA

We define EBITDA as net income (loss) plus interest (income) expense, income tax expense (benefit), depreciation and amortization. We view adjusted EBITDA as our operating performance measure and as such, we believe that the most directly comparable U.S. GAAP financial measure is net loss. In calculating adjusted EBITDA, we exclude from net loss certain items that we believe are not reflective of our ongoing business and exclusion of these items allows us to provide additional analysis of the financial components of the day-to-day operation of our business. We have outlined below the type and scope of these exclusions:

• Acquisition, financing and transaction costs generally represented by non-ordinary course earn-out valuation changes, rating agency fees, letter of credit and revolving facility fees, as well as professional service fees and direct expenses related to acquisitions. Because we do not acquire businesses on a predictable cycle, we do not consider the amount of acquisition- and integration-related costs to be a representative component of the day-to-day operating performance of our business.

• Strategic initiatives expenses relate to costs resulting from pursuing strategic business opportunities. We do not consider the amounts to be representative of the day-to-day operating performance of our business.

• Management fees, stock compensation and other primarily represents consulting fees and portion of compensation paid to our employees and executives through stock-based instruments. Determining the fair value of the stock-based instruments involves a high degree of judgment and estimation and the expenses recorded may not align with the actual value realized upon the future exercise or termination of the related stock-based awards. Therefore, we believe it is useful to exclude stock-based compensation to better understand the long-term performance of our core business.

• Restructuring costs generally represent non-ordinary course costs incurred in connection with a change in a contract, lease, or a change in the makeup of our personnel often related to an acquisition. We do not consider the amount of restructuring costs to be a representative component of the day-to-day operating performance of our business.

• Systems establishment costs relate to non-ordinary course expenses incurred to develop our IT infrastructure, including system automation and enterprise resource planning system implementation. We do not consider the amount to be representative of a component of the day-to-day operating performance of our business.

Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by any of these adjustments, or that our projections and estimates will be realized in their entirety or at all. In addition, because of these limitations, adjusted EBITDA should not be considered as a measure of liquidity or discretionary cash available to us to fund our cash needs, including investing in the growth of our business and meeting our obligations.

The use of adjusted EBITDA instead of U.S. GAAP measures has limitations as an analytical tool, and adjusted EBITDA should not be considered in isolation, or as a substitute for analysis of our results of operations and operating cash flows as reported under U.S. GAAP. For example, adjusted EBITDA does not reflect:

• our cash expenditures or future requirements for capital expenditures;

• changes in, or cash requirements for, our working capital needs;

• interest expense, or the cash requirements necessary to service interest or principal payments, on our indebtedness;

• any cash income taxes that we may be required to pay;

• any cash requirements for replacements of assets that are depreciated or amortized over their estimated useful lives and may have to be replaced in the future; or

• all non-cash income or expense items that are reflected in our statements of cash flows.

37

The following table provides a reconciliation of net loss to EBITDA and adjusted EBITDA:

(in millions)	Year ended December 31, 2020			Year ended December 31, 2019
Net loss	$	(49.9	)	$	(54.0	)
Interest expense		50.7			48.4
Income tax expense		0.9			0.7
Depreciation and amortization expense		47.7			50.4
Loss on debt extinguishment		-			7.2
EBITDA	$	49.4		$	52.7
Acquisition, financing and transaction costs		5.2			3.6
Strategic Initiatives:
Sign-on bonus amortization		0.2			0.4
Non-recoverable draw		0.3			3.7
Total strategic initiatives		0.5			4.1
Management fees, stock compensation and other		3.7			3.5
Restructuring costs		2.5			2.2
Systems establishment		2.0			2.6
Adjusted EBITDA	$	63.3		$	68.7

RESULTS OF OPERATIONS

For the year ended December 31, 2020 Compared with the year ended December 31, 2019

The results for the periods shown below should be reviewed in conjunction with our audited consolidated financial statements included in “Item 8 – Financial Statements and Supplementary Data.”

	For The Years Ended December 31,
(in millions)	2020			2019
Revenues	$	289.5		$	312.1
Cost of revenues		147.7			160.9
Gross profit		141.8			151.2
Operating expenses	$	140.0			148.6
Income from operations		1.8			2.6
Interest expense		50.7			48.4
Loss on debt extinguishment		—			7.2
Other expense		0.1			0.3
Loss before income taxes		(49.0	)		(53.3	)
Income tax provision		0.9			0.7
Net loss		(49.9	)		(54.0	)
Total other comprehensive income, net of tax		4.9			0.3
Comprehensive loss	$	(45.0	)	$	(53.7	)

Revenues

Revenues decreased by $22.6 million, or 7.2%, to $289.5 million for the year ended December 31, 2020 as compared to $312.1 million for the year ended December 31, 2019. This decrease is primarily due to a decrease of $18.6 million in legal technology revenue and a decrease of $3.9 million in data recovery revenue. These decreases are primarily due to the impacts of COVID-19, as many clients have delayed the start of new matters and court systems have been slow to reopen.

38

Cost of Revenues

Cost of revenues decreased by $13.2 million, or 8.2%, to $147.7 million for the year ended December 31, 2020 as compared to $160.9 million for the year ended December 31, 2019. This decrease is primarily due to decreased variable costs of $1.5 million associated with decreased revenues, decreased hardware and software expenses of approximately $2.3 million, decreased communications expenses of $0.9 million and expense reduction measures implemented by management, including decreased (i) personnel expense of approximately $7.4 million, (ii) travel and entertainment expense of $1.3 million, and (iii) other operational expenses of $0.9 million. These decreases were partially offset by $0.6 million of increased severance expenses due to the integration of operational business units. As a percentage of revenue, our cost of revenues for the year ended December 31, 2020 decreased to 51.0% as compared to 51.6% for the year ended December 31, 2019. This decrease was due to the factors noted above.

Gross Profit

Gross profit decreased by $9.4 million, or 6.2%, to $141.8 million for the year ended December 31, 2020 as compared to $151.2 million for the year ended December 31, 2019. Gross profit decreased primarily due to the factors noted above. As a percentage of revenue, our gross profit for the year ended December 31, 2020 increased to 49.0% as compared to 48.4% for the year ended December 31, 2019.

Operating Expenses

Operating expenses decreased by $8.6 million, or 5.8%, to $140.0 million for the year ended December 31, 2020 as compared to $148.6 million for the year ended December 31, 2019. This decrease is primarily due to expense reduction measures implemented by management which decreased (i) personnel expenses by $7.3 million, (ii) travel and entertainment expenses by $2.0 million, (iii) marketing expenses by $0.9 million, and (iv) other operational expenses of $0.9 million. In addition, depreciation and amortization decreased by $3.2 million. These decreases were partially offset by increased costs incurred related to lease terminations to optimize our real estate footprint of $4.6 million and $0.6 million of increased severance costs due to the integration of operational business units. As a percentage of revenue, our operating expenses for the year ended December 31, 2020 increased to 48.4% as compared to 47.6% for the year ended December 31, 2019 due to the factors noted above.

Interest Expense

Interest expense increased by $2.3 million, or 4.8%, to $50.7 million for the year ended December 31, 2020 as compared to $48.4 million for the year ended December 31, 2019. This increase is primarily due to the increase in outstanding debenture related debt, partially offset by lower interest rates during the year ended December 31, 2020 compared to the year ended December 31, 2019.

Income Tax Provision

A valuation allowance has been established against our net U.S. federal and state deferred tax assets, including net operating loss carryforwards. As a result, our income tax provision is primarily related to foreign taxes and U.S. deferred taxes for tax deductible goodwill and other indefinite-lived liabilities.

During the years ended December 31, 2020 and 2019, we recorded an income tax provision of $0.9 million and $0.7 million, respectively, resulting in an effective tax rate of (1.8) % and (1.3) %, respectively. These effective tax rates differ from the U.S. federal statutory rate primarily due to the effects of foreign tax rate differences and the valuation allowance against our domestic deferred tax assets. The effective rate for the year ended December 31, 2020 did not meaningfully change from the year ended December 31, 2019.

We reported pre-tax loss of $49.0 million during the year ended December 31, 2020 with an effective tax rate of (1.8) %, resulting in a $0.9 million income tax provision. The effective tax rate was primarily impacted by our valuation allowance, which caused a decrease in the tax benefit of $9.6 million. Without this item, our effective tax rate would have been 21.4%, which is higher than the statutory tax rate of 21.0%, primarily due to the effects of foreign tax rate differences, U.S. state taxes and certain permanent items.

39

We reported pre-tax loss of $53.3 million during the year ended December 31, 2019 with an effective tax rate of (1.3) %, resulting in a $0.7 million income tax provision. The effective tax rate was primarily impacted by our valuation allowance, which caused a decrease in the tax benefit of $12.7 million. Without this item, our effective tax rate would have been 25.1%, which is higher than the statutory tax rate of 21.0%, primarily due to the effects of foreign tax rate differences, U.S. state taxes and certain permanent items.

Net Loss

Net loss for the year ended December 31, 2020 was $49.9 million compared to $54.0 million for year ended December 31, 2019. Net loss decreased for the year ended December 31, 2020 as compared to the year ended December 31, 2019 due to the factors noted above.

Liquidity and Capital Resources

Our primary cash needs have been to meet debt service requirements and to fund working capital and capital expenditures. We fund these requirements from cash generated by our operations, as well as funds available under our 2021 Credit Agreement (as defined below). See “2021 Credit Agreement”. Although our eDiscovery solutions and information archiving services are billed on a monthly basis in arrears with amounts typically due within 30 to 45 days, the eDiscovery industry tends towards longer collectability trends. As a result, we have typically collected on the majority of our eDiscovery accounts receivables within 90 to 120 days, which is consistent within the industry. With respect to our data recovery services, they are billed as the services are provided, with payments due within 30 days of billing. We typically collect on our data recovery services accounts receivables within 30 to 45 days. Lastly, the majority of our data recovery software is billed monthly in advance with amounts typically due within 30 to 45 days; however, depending on the client contract, billing can occur annually, quarterly or monthly. Long outstanding receivables are not uncommon due to the nature of our legal technology services as litigation cases can go on for years, and in certain instances, our collections are delayed until the customer has received payment for their services in connection with a legal matter or the case has been settled. These long-outstanding invoices are a function of the industry in which we operate, rather than indicative of an inability to collect. We have experienced no material seasonality trends as it relates to collection on our accounts receivable. As of December 31, 2020, we had $51.2 million in cash compared to $43.4 million as of December 31, 2019. As of December 31, 2020, we had $503.5 million of outstanding borrowings compared to $506.0 million as of December 31, 2019. We expect to finance our operations over the next 12 months primarily through existing cash balances and cash flow, supplemented as necessary by funds available through our 2021 Credit Agreement.

2021 Credit Agreement

The Facilities

On February 8, 2021, the Company entered into a new secured credit agreement (the “2021 Credit Agreement”). Proceeds were used to pay in full all outstanding loans and terminate all lending commitments under the 2016 Credit Agreement.

The 2021 Credit Agreement provides for (i) initial term loans in an aggregate principal amount of $300 million (the “Initial Term Loans”), (ii) delayed draw term loans in an aggregate principal amount of $50 million (the “Delayed Draw Term Loans”), and (iii) revolving credit loans in an aggregate principal amount of $40 million (the “Revolving Credit Loans”). The Delayed Draw Term Loans will be available to the Company at any time prior to February 8, 2023, subject to certain conditions.

The Initial Term Loans and Delayed Draw Term Loans will bear interest, at the Company’s option, at the rate of (x) with respect to Eurocurrency Rate Loans (as defined in the 2021 Credit Agreement), the Adjusted Eurocurrency Rate (as defined in the 2021 Credit Agreement) with a 1.0% floor, plus 6.50% per annum, or (y) with respect to Base Rate Loans (as defined in the 2021 Credit Agreement), the Base Rate (as defined in the 2021 Credit Agreement) plus 5.50% per annum. The Revolving Credit Loans will bear interest, at our option, at the rate of (x) with respect to Eurocurrency Rate Loans, the Adjusted Eurocurrency Rate plus 4.00% per annum, or (y) with respect to Base Rate Loans, the Base Rate plus 3.00% per annum. The Initial Term Loans and Delayed Draw Term Loans amortize at a rate of 1.00% of the aggregate principal amount of Initial Term Loans and Delayed Draw Term Loans outstanding, payable in consecutive quarterly installments, beginning on June 30, 2021.

40

The Initial Term Loans, Delayed Draw Term Loans and Revolving Credit Loans are each scheduled to mature on the earlier of February 16, 2026 andor six months prior to maturity of our Debentures due in December 2024.The Initial Term Loans and Delayed Draw Term Loans may be voluntarily repaid at any time, but may be subject to a prepayment premium. The Initial Term Loans and Delayed Draw Term Loans are required to be repaid under certain circumstances, including with Excess Cash Flow (as defined in the 2021 Credit Agreement), the proceeds of an Asset Sale or Casualty Event (each as defined in the 2021 Credit Agreement) and the proceeds of certain refinancing indebtedness.

The obligations under the 2021 Credit Agreement are secured by substantially all of the Company’s assets.The 2021 Credit Agreement contains customary affirmative and negative covenants as well as a financial maintenance covenant that requires the Loan Parties to maintain a First Lien Net Leverage Ratio of less than or equal to 7.00 to 1.00, tested at the end of each fiscal quarter.

The Company closing fees of $8.0 million in connection with the entry into the 2021 Credit Agreement. These fees will be amortized over the full term of the 2021 Credit Agreement.

In February 2021, a loss on debt extinguishment of $7.2 million was recognized in connection with the retirement of the 2016 Credit Agreement.

2016 Credit Agreement

The Facilities

On December 9, 2016, we entered into a Credit Agreement (as amended or supplemented to date, the “2016 Credit Agreement”) with a group of lenders to establish term loan facilities and a revolving line of credit for borrowings by LD Intermediate, Inc. and LD Lower Holdings, Inc. (the “Initial Term Loans”). The Initial Term Loan borrowings of $340.0 million (the “First Lien Facility”) and $125.0 million (the “Second Lien Facility” and, together with the First Lien Facility, the “Facilities”) were to mature on December 9, 2022 and December 9, 2023, respectively. The First Lien Facility was repaid on February 8, 2021 and the Second Lien Facility was repaid on December 19, 2019.

The First Lien Facility established a term loan principal payment schedule with payments due on the last day of each calendar quarter, beginning on March 31, 2017 with a payment of $2.1 million. Quarterly principal payments increased to $4.3 million beginning on March 31, 2019 with a balloon payment of $259.3 million due at maturity. The interest rate for the First Lien Facility adjusted every interest rate period, which can be one, two, three or six months in duration and is decided by us, or to the extent consented to by all Appropriate Lenders (as defined in the 2016 Credit Agreement), 12 months thereafter. Interest payment dates included the last day of each interest period and any maturity dates of the facility; however, if any interest period exceeded three months, the respective dates that fall every three months after the beginning of an interest period was also an interest payment date. For each interest period, the interest rate per annum was 5.875% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate (as defined in the 2016 Credit Agreement) multiplied by the greatest of (a) LIBOR, (b) 0.00% per annum and (c) solely with respect to the Initial Term Loans, 1.00% per annum. As of December 31, 2020, the net balance due was $289.0 million, with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 1.00%. As of December 31, 2019, the net balance due was $306.0 million, with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 2.596%.

The Second Lien Facility required a balloon payment of $125.0 million due at maturity. The interest rate for the Second Lien Facility adjusted every interest rate period, which could be one, two, three or six months in duration and is decided by the Company, or to the extent consented to by all Appropriate Lenders (as defined in the 2016 Credit Agreement), 12 months thereafter. Interest payment dates included the last day of each interest period and any maturity dates of the facility; however, if any interest period exceeded three months, the respective dates that fall every three months after the beginning of an interest period was also an interest payment date. For each interest period, the interest rate per annum is 10.0% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate multiplied by the greatest of (a) LIBOR, (b) 0.00% per annum and (c) solely with respect to the Initial Term Loans, 1.00% per annum. The Second Lien Facility was repaid upon consummation of the Business Combination on December 19, 2019.

41

The Facilities were secured by substantially all of our assets and contain certain covenants. As of December 31, 2020 and December 31, 2019, we were in compliance with all covenants.

The 2016 Credit Agreement included a mandatory prepayment within ten days after delivery of the annual audited financial statements commencing with the year ended December 31, 2017. The Excess Cash Flow amount is specifically defined in section 1.01 of the 2016 Credit Agreement. The Excess Cash Flow calculation starts with net income and then adds back a series of non-cash expenses, capital expenditures, M&A, and debt related amounts to arrive at a final amount due.

The amount of the Excess Cash Flow payment would have been reduced if the First Lien Net Leverage Ratio falls below certain thresholds. Such percentage in respect of any Excess Cash Flow Period shall be reduced to 50%, 25% or 0% if the First Lien Net Leverage Ratio as of the last day of the year to which such Excess Cash Flow Period relates was equal to or less than 3.75 to 1.00, 3.25 to 1.00 or 2.75 to 1.00, respectively.

We were not required to make any additional principal payments under the Excess Cash Flow covenant for the year ended December 31, 2019 or December 31, 2020.

Revolving Credit Facility

The 2016 Credit Agreement also provided for a Revolving Credit Facility of up to $30.0 million that was scheduled to mature on June 9, 2022. Borrowings under the Revolving Credit Facility were subject to meeting certain financial covenants set forth in the 2016 Credit Agreement, including the First Lien Net Leverage Ratio. We were able to draw up to $30.0 million under the Revolving Credit Facility, on a term loan basis, with either an adjustable eurocurrency loan interest rate of 5.375%, 5.625%, or 5.875% with interest rates based on the First Lien Net Leverage Ratio plus an amount equal to the LIBOR, or a base rate loan interest rate of 4.375%, 4.635%, or 4.875% plus the Base Rate. As of December 31, 2020 and 2019, we had no amounts outstanding under our Revolving Credit Facility and $0.7 million in letters of credit were issued with approximately $29.3 million of available borrowing capacity under the Revolving Credit Facility. As discussed above, the Revolving Credit Facility was repaid on February 8, 2021 and was terminated.

The Initial Term Loan borrowings pursuant to the 2016 Credit Agreement were issued at an original issue discount of $11.9 million and $6.3 million for the First Lien Facility and Second Lien Facility, respectively. The original issue discount was amortized using the effective yield method over the respective term of each Facility.

We incurred closing fees in connection with the entry into the Facilities and the Revolving Credit Facility pursuant to the 2016 Credit Agreement of $13.6 million. These closing fees were deferred on December 9, 2016, along with fees of $0.6 million related to our prior term loan facility that we refinanced in connection with our entry into the 2016 Credit Agreement and are amortized over their respective terms.

Debentures

In connection with the Business Combination on December 19, 2019, we issued $200 million aggregate principal amount of Debentures due 2024 in a private placement to certain “accredited investors” pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act. The equity structure as of the date of the Business Combination included 2,097,974 shares of common stock and 1,764,719 warrants for the issuance of common stocks to the debenture holders related to the Debenture issuance. The proceeds of the Debentures were in part to repay our outstanding Second Lien Facility and amounts outstanding under the Revolving Credit Facility.

The Debentures mature on December 19, 2024 unless earlier converted, redeemed or repurchased. The Debentures bear interest at an annual rate of 4.00% in cash and 4.00% in kind, payable quarterly on the last business day of March, June, September and December. In addition, on each anniversary of the Closing Date, we will add to the principal amount (subject to reduction for any principal amount repaid) of the Debentures an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding, which will accrue from the last payment and will be payable at maturity, upon conversion or upon an optional redemption, if no prior payment was made.

42

At any time, upon notice as set forth in the Debentures, the Debentures will be redeemable at our option, in whole or in part, at a price equal to 100% of the principal amount of the Debentures redeemed, plus accrued and unpaid interest thereon.

Subject to approval to allow for the full conversion of the Debentures into common stock, the Debentures will be convertible into shares of our common stock at the option of the debenture holders at any time and from time to time at a price of $18 per share, subject to certain adjustments. However, in the event we elect to redeem any Debentures, the holders will have a right to purchase common stock from us in an amount equal to the amount redeemed at the conversion price.

The Debentures contain covenants that limit our ability to, among other things: (i) incur additional debt; (ii) create liens on assets; (iii) engage in certain transactions with affiliates; or (iv) designate our subsidiaries as unrestricted subsidiaries. The Debentures provide for customary events of default, including non-payment, failure to comply with covenants or other agreements in the Debentures and certain events of bankruptcy or insolvency. If an event of default occurs and continues, the holders of at least 25% in aggregate principal amount of the outstanding Debentures may declare the entire principal amount of all the Debentures to be due and payable immediately.

Our net cash flows from operating, investing and financing activities for the years ended December 31, 2020 and 2019 were as follows:

	2020			2019
Net cash provided by (used in):
Operating activities	$	39,776		$	(8,297	)
Investing activities	$	(14,059	)	$	(15,218	)
Financing activities	$	(18,595	)	$	43,490
Effect of foreign exchange rates	$	672		$	(7	)
Net increase in cash	$	7,794		$	19,968

Cash Flows Provided By (Used in) Operating Activities

Net cash provided by operating activities was $39.8 million for the year ended December 31, 2020 as compared to net cash used in operating activities of $(8.3) million for the year ended December 31, 2019. The increase in net cash provided is due to a $4.1 million reduction in net loss, a $7.3 million increase in non-cash expenses and a $36.7 million increase in working capital. The period over period decrease in non-cash items is primarily due to a $14.1 million increase in non-cash interest, a $1.2 million increase in stock-based compensation, an increase in the provision for losses on accounts receivable of $1.0 million and a $0.8 million decrease in deferred tax benefit, offset by a $7.2 million decrease on the loss on debt extinguishment and a $2.7 million decrease in depreciation and amortization. The increase in working capital for the period is primarily due to a $26.8 million decrease in accounts receivable and a $13.6 million increase in accounts payable and accrued expenses, offset by a $2.3 million increase in prepaid expense and other current assets and a $1.4 million decrease in deferred revenue. Trade accounts receivable fluctuate from period to period depending on the period to period change in revenue and the timing of collections. Accounts payable fluctuate from period to period depending on the timing of purchases and payments.

Cash Flows Used in Investing Activities

Net cash used in investing activities was $14.1 million for the year ended December 31, 2020 as compared to net cash used in investing activities of $15.2 million for the year ended December 31, 2019. The decrease in cash used in investing activities is due to decreased purchases of property and equipment of $2.3 million, offset by increased cash payments related to acquisitions in 2020 of $1.2 million.

Cash Flows (Used In) Provided by Financing Activities

For the year ended December 31, 2020, net cash used in financing activities of $18.6 million related to the payments of long-term debt of $17.0 million and capital lease obligations of $1.6 million. For the year ended December 31, 2019, net cash provided by financing activities of $43.5 million related to the net cash received in the Business

43

Combination of $186.5 million and cash received on the issuance of common stock of $0.4 million, offset by payments of long-term debt of $142.0 million and capital lease obligations of $1.4 million.

Contractual Obligations

Our operating lease obligations are disclosed below and in Note 5 to our audited consolidated financial statements included in “Item 8 – Financial Statements and Supplementary Data.” Rent expense for the years ended December 31, 2020 and 2019 was $14.1 million and $14.7 million, respectively.

The following table summarizes our contractual obligations as of December 31, 2020:

	Payments due by period
(in thousands)	Total		Less than 1 year		1 to less than 3 years		3 to less than 5 years		More than 5 years
Contractual obligations
Debt:
Principal (1)	$	566,287	$	17,000	$	272,000	$	277,287	$	—
Interest on debt (2)		154,530		47,694		76,517		30,318		—
Purchase obligations		40,922		15,264		21,594		4,064		—
Capital leases		4,966		1,313		2,932		721		—
Operating leases		40,680		9,437		17,504		11,187		2,552
Total contractual obligations	$	807,385	$	90,708	$	390,547	$	323,577	$	2,552

(1) Includes in kind interest in the Debentures.

(2) Assumed effective interest rates on our First Lien Facility and Debentures were 8.325% and 11.78%, respectively, as of December 31, 2020.

Off-Balance Sheet Financing Arrangements

We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities or purchased any nonfinancial assets.

Recent Accounting Pronouncements

See Note 1 to our consolidated financial statements included in “Item 8 – Financial Statements and Supplementary Data” for a summary of accounting standards not yet adopted.

Critical Accounting Policies and Estimates

We prepare our consolidated financial statements in accordance with U.S. GAAP. In applying accounting principles, it is often required to use estimates. These estimates consider the facts, circumstances and information available, and may be based on subjective inputs, assumptions and information known and unknown to us. Material changes in certain of the estimates that we use could potentially affect, by a material amount, our consolidated financial position and results of operations. Although results may vary, we believe our estimates are reasonable and appropriate. See Note 1 to our consolidated financial statements included in “Item 8 – Financial Statements and Supplementary Data” for a summary of our significant accounting policies. The following describes certain of our significant accounting policies that involve more subjective and complex judgments where the effect on our consolidated financial position and operating performance could be material.

44

Business combinations

We recognize all of the assets acquired, liabilities assumed, contractual contingencies and contingent consideration at their fair value on the acquisition date. Acquisition-related costs are recognized separately from the acquisition and expensed as incurred. Restructuring costs incurred in periods subsequent to the acquisition date are expensed when incurred. Subsequent changes to the purchase price, such as working capital adjustments, or other fair value adjustments determined during the measurement period are recorded as an adjustment to goodwill, with the exception of contingent consideration, which is recognized in the statement of operations in the period it is modified. All subsequent changes to a valuation allowance or uncertain tax position that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill. All other changes in valuation allowances are recognized as a reduction or increase to income tax expense or as a direct adjustment to additional paid-in capital as required.

Intangible assets and other long-lived assets

We evaluate the recoverability of our long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the difference between the fair value of the asset compared to its carrying amount.

Goodwill

Goodwill represents the excess of the total consideration paid over our identified intangible and tangible assets and our acquisitions. We test our goodwill for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. As of the testing date (October 1), we have determined there is one reporting unit.

We test goodwill resulting from acquisitions for impairment annually on October 1, or more frequently, whenever events or changes in circumstances indicate the carrying value of goodwill may be impaired.

Goodwill impairment exists when the estimated fair value of the reporting unit is less than its carrying value. If impairment exists, the carrying value of the goodwill is reduced by the excess through an impairment charge recorded in our statements of operations. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis.

The fair value of each reporting unit is estimated using a combination of a discounted cash flow (“DCF”) analysis and market-based valuation methodologies such as comparable public company trading values and values observed in recent business combinations. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analyses are based on our best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, changes in working capital, long term business plans and recent operating performance.

Accordingly, we have not identified any indicators of impairment, nor have any impairment charges been recorded related to goodwill as a result of the annual impairment test.

45

Income Taxes

Our annual tax rate is based on our income, statutory tax rates, and tax planning opportunities available in the various jurisdictions in which we operate. Significant judgment is required in determining our annual tax expense and in evaluating our tax positions.

Tax law requires certain items to be included in our tax returns at different times than when the items are reflected in the financial statements. The annual tax expense reflected in the Consolidated Statements of Income is different than that reported in our tax returns. Some of these differences are permanent (for example, expenses recorded for accounting purposes that are not deductible in the returns such as certain entertainment expenses) and some differences are temporary and reverse over time, such as depreciation expense. Temporary differences create deferred tax assets and liabilities. Deferred tax liabilities generally represent tax expense recognized in the financial statements for which payment has been deferred, or expense for which a deduction has been taken already in the tax return, but the expense has not yet been recognized in the financial statements. Deferred tax assets generally represent items that can be used as a tax deduction or credit in tax returns in future years for which a benefit has already been recorded in the financial statements, as well as tax losses that can be carried over and used in future years. Valuation allowances are established when necessary to reduce deferred income tax assets to the amounts we believe are more likely than not to be recovered. In evaluating the amount of any such valuation allowance, we consider the existence of cumulative income or losses in recent years, the reversal of existing temporary differences, the existence of taxable income in prior carry back years, available tax planning strategies and estimates of future taxable income for each of our taxable jurisdictions. The latter two factors involve the exercise of significant judgment. As of December 31, 2020, deferred tax asset valuation allowances totaled $65.2 million, primarily related to federal and state net operating losses available to carry forward to future years and, interest expense disallowance carryovers. Although realization is not assured, we believe it is more likely than not that all other deferred tax assets for which no valuation allowances have been established will be realized. This conclusion is based on our expectation that the reversal of existing taxable temporary differences will provide a source of taxable income to realize these deferred tax assets.

We determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit is recorded in our financial statements. A tax position is measured as the portion of the tax benefit that is greater than 50% likely to be realized upon settlement with a taxing authority (that has full knowledge of all relevant information). We may be required to change our provision for income taxes when the ultimate treatment of certain items is challenged or agreed to by taxing authorities, when estimates used in determining valuation allowances on deferred tax assets significantly change, or when receipt of new information indicates the need for adjustment in valuation allowances. Future events, such as changes in tax laws, tax regulations, or interpretations of such laws or regulations, could have an impact on the provision for income tax and the effective tax rate. Any such changes could significantly affect the amounts reported in the consolidated financial statements in the year these changes occur. As of December 31, 2020, unrecognized tax benefits totaled $1.0 million, related to U.S. federal and state net operating losses available to carry forward to future years. However, due to the Company’s determination that the U.S. federal and state net operating losses for the unrecognized tax benefit would likely be realized, a valuation allowance offset was recorded against the unrecognized tax benefit, resulting in no effective tax rate impact.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest rate risk

We are subject to interest rate market risk in connection with our long-term indebtedness. Our principal interest rate exposure at December 31, 2020 related to outstanding amounts under the $340 million First Lien Facility as well as the Revolving Credit Facility of $30 million. Interest rate changes generally impact the amount of our interest payments and, therefore, our future net income and cash flows, assuming other factors are held constant. Assuming the amounts outstanding at December 31, 2020 are fully drawn, each one-eighth percentage point increase or decrease in the applicable interest rates would correspondingly change our interest expense by approximately $0.4 million per year. We do not currently hedge our interest rate exposure.

46

Exchange rate risk

Results of operations for our non-U.S. subsidiaries are translated from the designated functional currency to the reporting currency of the U.S. dollar. Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive (loss) income.”

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in “Other expense” on our Consolidated Statements of Comprehensive Loss. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

During the twelve months ended December 31, 2020 and 2019, we generated the equivalent of $57.0 million and $69.4 million, respectively, of U.S. dollar-denominated revenues in non-U.S. subsidiaries. Each 100-basis point increase or decrease in the average foreign currency rate to U.S. dollar exchange rate for the year would have correspondingly changed our revenues by approximately $0.6 million for each of the years ended December 31, 2020 and 2019. We do not currently hedge our exchange rate exposure.

Item 8. Financial Statements and Supplementary Data.

47

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2020 and 2019	F-3
Consolidated Statements of Comprehensive Loss for the Years ended December 31, 2020 and 2019	F-4
Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2020 and 2019	F-5
Consolidated Statements of Cash Flows for the Years ended December 31, 2020 and 2019	F-6
Notes to Consolidated Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of KLDiscovery Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of KLDiscovery Inc. (the Company) as of December 31, 2020 and December 31, 2019, the related consolidated statements of comprehensive loss, stockholders' equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2016.

Tysons, Virginia

March 18, 2021

F-2

KLDiscovery Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	December 31, 2020			December 31, 2019
Current assets
Cash and cash equivalents	$	51,201		$	43,407
Accounts receivable, net of allowance
for doubtful accounts of $8,513 and $7,486, respectively		83,985			96,994
Prepaid expenses		7,175			7,296
Other current assets		709			556
Total current assets		143,070			148,253
Property and equipment
Computer software and hardware		72,211			72,228
Leasehold improvements		27,271			26,963
Furniture, fixtures and other equipment		3,365			3,794
Accumulated depreciation		(77,697	)		(64,682	)
Property and equipment, net		25,150			38,303
Intangible assets, net		109,733			130,568
Goodwill		399,085			395,171
Other assets		2,708			2,617
Total assets	$	679,746		$	714,912
Current liabilities
Current portion of long-term debt, net	$	10,948		$	11,689
Accounts payable and accrued expense		33,504			31,270
Current portion of contingent consideration		695			340
Deferred revenue		3,955			4,851
Total current liabilities		49,102			48,150
Long-term debt, net		472,600			468,932
Deferred tax liabilities		7,335			6,294
Other liabilities		8,488			7,771
Total liabilities		537,525			531,147
Commitments and contingencies
Stockholders' equity
Common stock
$0.0001 par value, shares authorized - 200,000,000 shares authorized    as of December 31, 2020 and December 31, 2019; 42,529,017 shares    issued and outstanding as of December 31, 2020 and    December 31, 2019		4			4
Preferred Stock
$0.0001 par value, 1,000,000 shares authorized,    zero issued and outstanding as of December 31, 2020 and    December 31, 2019		—			—
Additional paid-in capital		385,387			381,952
Accumulated deficit		(255,424	)		(205,498	)
Accumulated other comprehensive income		12,254			7,307
Total stockholders' equity		142,221			183,765
Total liabilities and stockholders' equity	$	679,746		$	714,912

The accompanying notes are an integral part of these consolidated financial statements.

F-3

KLDiscovery Inc.

Consolidated Statements of Comprehensive Loss

(in thousands, except share and per share amounts)

(in thousands)	Year ended December 31, 2020			Year ended December 31, 2019
Revenues	$	289,545		$	312,054
Cost of revenues		147,732			160,845
Gross profit		141,813			151,209
Operating expenses
General and administrative		58,509			55,005
Research and development		7,167			5,945
Sales and marketing		38,395			48,517
Depreciation and amortization		35,955			39,149
Total operating expenses		140,026			148,616
Income from operations		1,787			2,593
Other expenses
Other expense		118			308
Loss on extinguishment of debt		—			7,203
Interest expense		50,659			48,377
Loss before income taxes		(48,990	)		(53,295	)
Income tax provision		936			719
Net loss	$	(49,926	)	$	(54,014	)
Other comprehensive income, net of tax
Foreign currency translation		4,947			311
Total other comprehensive income, net of tax		4,947			311
Comprehensive loss	$	(44,979	)	$	(53,703	)
Net loss per share - basic and diluted	$	(1.17	)	$	(1.27	)
Weighted average shares outstanding - basic and diluted		42,529,017			42,425,295

The accompanying notes are an integral part of these consolidated financial statements.

F-4

KLDiscovery Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except for share amounts)

	Common Stock Issued
	Shares		Amount		Additional paid-in capital			Treasury Stock			Accumulated deficit			Accumulated other comprehensive income		Total
Balance as of December 31, 2018		42,288,870		4		372,316			(2,406	)		(147,954	)		6,996		228,956
Issuance of common stock		172,350		—		1,655			—			—			—		1,655
Recapitalization transaction		—		—		8,122			—			(3,530	)		—		4,592
Retirement of treasury stock		—		—		(2,406	)		2,406			—			—		—
Share-based compensation		67,797		—		2,265			—			—			—		2,265
Foreign exchange translation		—		—		—			—			—			311		311
Net loss		—		—		—			—			(54,014	)		—		(54,014	)
Balance as of December 31, 2019		42,529,017	$	4	$	381,952		$	-		$	(205,498	)	$	7,307	$	183,765
Share-based compensation		—		—		3,435			—			—			—		3,435
Foreign exchange translation		—		—		—			—			—			4,947		4,947
Net loss		—		—		—			—			(49,926	)		—		(49,926	)
Balance as of December 31, 2020		42,529,017	$	4	$	385,387		$	-		$	(255,424	)	$	12,254	$	142,221

The accompanying notes are an integral part of these consolidated financial statements.

F-5

KLDiscovery Inc.

Consolidated Statements of Cash Flows

(in thousands)

	Year ended December 31, 2020			Year ended December 31, 2019
Operating activities
Net loss	$	(49,926	)	$	(54,014	)
Adjustments to reconcile net loss to net cash provided by (used in) operating    activities:
Depreciation and amortization		47,762			50,407
Non-cash interest		19,450			5,320
Loss on extinguishment of debt		—			7,203
Stock-based compensation		3,435			2,265
Provision for losses on accounts receivable		4,088			3,104
Deferred income taxes		1,041			219
Change in fair value of contingent consideration		98			48
Changes in operating assets and liabilities:
Accounts receivable		10,050			(16,712	)
Prepaid expenses and other assets		87			2,404
Accounts payable and accrued expenses		4,675			(8,937	)
Deferred revenue		(984	)		396
Net cash provided by (used in) operating activities		39,776			(8,297	)
Investing activities
Acquisitions, net of cash		(3,124	)		(1,950	)
Purchases of property and equipment		(10,935	)		(13,268	)
Net cash used in investing activities		(14,059	)		(15,218	)
Financing activities
Recapitalization transaction		—			186,503
Revolving credit facility draws		29,000			54,500
Revolving credit facility repayments		(29,000	)		(54,500	)
Payments for capital lease obligations		(1,595	)		(1,427	)
Payments on long-term debt		(17,000	)		(142,000	)
Issuance of common stock		—			414
Net cash (used in) provided by financing activities		(18,595	)		43,490
Effect of foreign exchange rates		672			(7	)
Net increase in cash		7,794			19,968
Cash at beginning of period		43,407			23,439
Cash at end of period	$	51,201		$	43,407
Supplemental disclosure:
Cash paid for interest	$	32,196		$	42,693
Income taxes paid, net of refunds	$	(195	)	$	470
Significant noncash investing and financing activities
Assumption of Pivotal Debentures	$	-		$	200,000
Equity issued for acquisitions	$	-		$	1,241
Purchases of property and equipment in accounts    payable and accrued expenses on the    consolidated balance sheets	$	394		$	129

The accompanying notes are an integral part of these consolidated financial statements.

F-6

KLDiscovery Inc.

Notes to Consolidated Financial Statements

Note 1 – Organization, business and summary of significant accounting policies

Organization

KLDiscovery Inc., (the “Company”) provides technology-based litigation support solutions and services including computer e-discovery, data hosting, and managed review predominantly to top law firms, corporations and government agencies. The majority of the Company’s current business is derived from these services. The Company’s headquarters is located in McLean, Virginia and has 32 locations in 18 countries, 9 data centers and 18 data recovery labs around the globe.

The Company was originally incorporated under the name Pivotal Acquisition Corp. (“Pivotal”) as a blank check company on August 2, 2018 under the laws of the State of Delaware for the purpose of entering into a merger, capital stock exchange, stock purchase, reorganization or similar business combination with one or more businesses or entities.

On December 19, 2019, Pivotal acquired of the outstanding shares of LD Topco, Inc. via a reverse capitalization (the “Business Combination”) and was renamed KLDiscovery Inc.

Principles of consolidation

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of KLDiscovery and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation.

The Business Combination was accounted for as a reverse recapitalization (the "Recapitalization Transaction") in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations. For accounting and financial reporting purposes, LD Topco, Inc. is considered the acquirer based on facts and circumstances, including the following:

• LD Topco, Inc.’s operations comprise the ongoing operations of the combined entity;

• The officers of the newly combined company consist of LD Topco, Inc.’s executives, including the Chief Executive Officer, Chief Financial Officer and General Counsel; and,

• The former shareholders of LD Topco, Inc. own a majority voting interest in the combined entity.

As a result of LD Topco, Inc. being the accounting acquirer, the financial reports filed with the SEC by the Company subsequent to the Business Combination are prepared “as if” LD Topco, Inc. is the predecessor and legal successor to the Company. The historical operations of LD Topco, Inc. are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of LD Topco, Inc. prior to the Business Combination; (ii) the combined results of the Company and LD Topco, Inc. following the Business Combination on December 19, 2019; (iii) the assets and liabilities of LD Topco, Inc. at their historical cost; and (iv) KLDiscovery Inc.’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the purchase of LD Topco, Inc. in connection with the Business Combination is reflected retroactively to January 1, 2018 and has been utilized for calculating earnings per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Business Combination transaction consistent with the treatment of the transaction as a reverse capitalization of LD Topco, Inc.

F-7

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Although actual results could differ from those estimates, management does not believe that such differences would be material.

Significant estimates include, but are not limited to, the allowance for doubtful accounts, determining the fair values of assets acquired and liabilities assumed, the recoverability and useful lives of property and equipment, intangible assets, and other long-lived assets, the impairment of goodwill, the valuation and realization of deferred income taxes, the fair value of the Company’s common stock and stock option awards, and acquisition-related contingent consideration.

Segments, concentration of credit risk and major customers

The Company operates in one business segment, providing technology-based litigation support solutions and services.

Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company places its cash with a banking institution where the balances, at times, exceed federally insured limits. Management believes the risks associated with these deposits are limited.

With respect to accounts receivable, the Company performs ongoing evaluations of its customers, generally grants uncollateralized credit terms to its customers, and maintains an allowance for doubtful accounts based on historical experience and management’s expectations of future losses. As of and for the years ended December 31, 2020 and 2019, the Company did not have a single customer that represents more than five percent (5%) or more of its consolidated revenues or accounts receivable. The Company believes that the geographic and industry diversity of the Company’s customer base throughout the U.S. and internationally minimizes the risk of incurring material losses due to concentrations of credit risk. The Company’s foreign revenues, principally from businesses in the UK and Germany, totaled approximately $57.0 million in 2020 and $69.8 million in 2019. The Company’s long-lived assets in foreign countries, principally in the UK and Germany, totaled approximately $26.3 million at December 31, 2020 and $21.8 million at December 31, 2019.

Foreign currency

Results of operations for the Company’s non-U.S. subsidiaries are translated from the designated functional currency to the reporting currency of the U.S. dollar. Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive income.”

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in “Other expense” on the Company’s Consolidated Statements of Comprehensive Loss. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

Cash and cash equivalents

The Company considers all highly liquid financial instruments with an original maturity of three months or less when purchased to be cash equivalents.

F-8

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Accounts receivable

Accounts receivable are recorded at original invoice amount less an estimate for doubtful receivables based on a review of outstanding amounts monthly. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history. Accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received.

A rollforward of the allowance for doubtful accounts is presented below (in thousands):

Balance at December 31, 2018	$	5,564
Charged to/reversed from expense		3,104
Charged to/from other accounts		—
Deductions (write offs)		(1,182	)
Balance at December 31, 2019	$	7,486
Charged to/reversed from expense		4,088
Charged to/from other accounts		283
Deductions (write offs)		(3,344	)
Balance at December 31, 2020	$	8,513

Fixed Assets

Computer software, property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets:

Computer software and hardware	3 to 5 years
Leasehold improvements	Shorter of lease term or useful life
Furniture, fixtures and other equipment	3 to 5 years

Gains or losses on disposals are included in results of operations at amounts equal to the difference between the net book value of the disposed assets and the proceeds received upon disposal. Costs for replacements and betterments are capitalized, while the costs of maintenance and repairs are expensed as incurred. Property under capital leases are depreciated using the straight-line method over the lease term.

Depreciation expense totaled $16.9 million and $18.6 million for the years ended December 31, 2020 and 2019, respectively, and includes amortization of assets recorded under capital leases.

Internal-use software development costs

The Company capitalizes certain internal computer software costs incurred during the application development stage. The application development stage generally includes software design and configuration, coding, testing and installation activities. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditure will result in additional functionality. Capitalized software costs are depreciated over the estimated useful life of the underlying project on a straight-line basis. The Company’s estimated useful life of capitalized software costs varies between three and five years, depending on management’s expectation of the economic life of various software. Capitalized software amortization costs are recorded as a component of cost of revenue.

Capitalized software costs are reflected as part of the “Intangible assets, net line” in the Company’s Consolidated Balance Sheets and totaled $18.5 million and $13.5 million, net of accumulated amortization, as of December 31, 2020 and 2019, respectively.

F-9

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Intangible assets and other long-lived assets

The Company evaluates the recoverability of its long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the difference between the fair value of the asset compared to its carrying amount. No impairment losses were recognized in the accompanying consolidated financial statements.

Amortization expense totaled $30.9 million and $31.8 million for the years ended December 31, 2020 and 2019, respectively; $11.8 million and $11.3 million of which was classified as part of the “Cost of revenues” line in the Company’s Consolidated Statements of Comprehensive Loss.

The Company allocates the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company recognizes as goodwill the amount by which the purchase price of an acquired entity exceeds the net of the fair values assigned to the assets acquired and liabilities assumed. In determining the fair values of assets acquired and liabilities assumed, the Company uses various recognized valuation methods including the income and market approaches. Further, the Company makes assumptions within certain valuation techniques, including discount rates, royalty rates, and the amount and timing of future cash flows. The Company records the net assets and results of operations of an acquired entity in the financial statements from the acquisition date. The Company initially performs these valuations based upon preliminary estimates and assumptions by management or independent valuation specialists under its supervision, where appropriate, and make revisions as estimates and assumptions are finalized. The Company expenses acquisition-related costs as they are incurred.

Goodwill

Goodwill represents the excess of the total consideration paid over identified intangible and tangible assets of the Company and its acquisitions. The Company tests its goodwill for impairment at the reporting unit level on an annual basis on October 1, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. As of the October 1 testing date the Company determined there is one reporting unit.

Goodwill impairment exists when the estimated fair value of the reporting unit is less than its carrying value. If impairment exists, the carrying value of the goodwill is reduced by the excess through an impairment charge recorded in the Company’s statements of operations. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis.

The fair value of the Company’s reporting unit is estimated using a combination of a discounted cash flow (“DCF”) analysis and market-based valuation methodologies such as comparable public company trading values. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples. The cash flows employed in the DCF analyses are based on the Company’s best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, changes in working capital, long term business plans and recent operating performance. The carrying value of the reporting unit includes the assets and liabilities employed in its operations and goodwill.

Accordingly, the Company has not identified any indicators of impairment, nor have any impairment charges been recorded related to goodwill resulting from the annual impairment test.

F-10

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

The following table provides a rollforward of the carrying amount of goodwill (in thousands):

Balance at December 31, 2018	$	394,167
Acquisitions		263
Foreign currency translation		741
Balance at December 31, 2019		395,171
Acquisitions		1,009
Disposal		(96	)
Foreign currency translation		3,001
Balance at December 31, 2020	$	399,085

Debt issuance costs

Debt issuance costs are stated at cost, net of accumulated amortization, and are amortized over the term of the debt using both the straight-line and the effective yield methods. U.S. GAAP requires that the effective yield method be used to amortize debt acquisition costs; however, if the effect of using the straight-line method is not materially different from the results that would have been obtained under the effective yield method, the straight-line method may be used. The amortization for funded term debt is calculated according to the effective yield method and revolving and unfunded term debt is calculated according to the straight-line method. Debt issuance costs related to funded term debt is presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Debt issuance costs related to revolving and unfunded term debt is presented in the Consolidated Balance Sheets within “Other assets.”

Revenue recognition

The Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), effective January 1, 2019, utilizing the modified retrospective method. The Company’s adoption of ASC 606 did not result in material changes to the Company’s revenue recognition.

Revenues are recognized when we satisfy a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services. Performance obligations in our contracts represent distinct or separate service streams that we provide to our customers.

The Company evaluates its revenue contracts with customers based on the five-step model under ASC 606: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenues when (or as) each performance obligation is satisfied.

The following table summarizes revenue from contracts with customers for the years ended December 31, 2020 and 2019 (in thousands):

	Year Ended December 31, 2020		Year Ended December 31, 2019
eDiscovery services	$	197,300	$	215,560
Managed review		49,985		50,290
Legal technology services		247,285		265,850
Data recovery		42,260		46,204
Total revenue	$	289,545	$	312,054

F-11

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Performance Obligations and Timing of Revenue Recognition

The Company primarily sells services and products that fall into the categories discussed below. Each category contains one or more performance obligations that are either (1) capable of being distinct (i.e., the customer can benefit from the product or service on its own or together with readily available resources, including those purchased separately from us) and distinct within the context of the contract (i.e., separately identified from other promises in the contract) or (2) a series of distinct products or services that are substantially the same and have the same pattern of transfer to the customer.

(1) eDiscovery services, which provides end-to-end eDiscovery services support including collections, processing, analytics, hosting, production and professional services;

(2) Managed review services, which provides the staffing necessary to review large complex data sets; and

(3) Data recovery services, which offers data restoration, data erasure and data management.

The Company generates the majority of its revenues by providing Legal Technology services to our clients. All of our eDiscovery service contracts are time and materials types of arrangements.

Time and materials arrangements are based on units of data stored or processed. Unit-based revenues are recognized as services are provided, based on either the amount of data stored or processed, the number of concurrent users accessing the information, or the number of pages or images processed for a client, at agreed upon per unit rates. We recognize revenues for these arrangements utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date.

Certain of our eDiscovery contracts are subscription-based, fixed-fee arrangements, which have tiered pricing based on the quantity of data hosted. For a fixed monthly fee, our clients receive a variety of optional eDiscovery services, which are included in addition to the data hosting. The Company recognizes revenues for these arrangements based on predetermined monthly fees as determined in our contractual agreements, utilizing a right-to-invoice practical expedient because the Company has a right to consideration for services completed to date.

Managed review services are time and materials types of arrangements. These agreements require the client to pay us based on the number of hours worked at contractually agreed-upon rates. The Company recognizes revenues for these arrangements based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because the Company has a right to consideration for services completed to date.

Data recovery services are mainly fixed fee arrangements requiring the client to pay a pre-established fee in exchange for the successful completion of a data recovery on a predetermined device. For the recovery services performed by the Company’s technicians, the revenue is recognized at a point in time, when the recovered data is sent to the customer.

Data erasure services are fixed fee arrangements for which revenue is recognized at a point in time, when the certificate of erasure is sent to the customer.

Ontrack PowerControls, included in the data recovery revenue stream, offers term license subscriptions for customers with on-premises installations of the software pursuant to contracts that are historically one to four years in length. The term license subscriptions include maintenance, support, as well as access to future software upgrades and fixes. The license and the additional support services are deemed to be one performance obligation, and thus revenue for these arrangements is recognized ratably over the term of the agreement.

Share-based compensation

The Company measures and recognizes compensation expense for all share-based awards to employees based on estimated grant date fair values on a straight-line basis over the requisite service period. The Company uses the Black-Scholes valuation model, depending on terms, facts and circumstances of each share-based award. The expected vesting of the Company’s performance-based RSUs is based upon the probability of a liquidity event, such as a change in control as defined under the 2019 Plan. The level of achievement of the liquidity event, if any, is re-evaluated quarterly.

F-12

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Advertising

Advertising costs consist of marketing, advertising through print and other media, professional event sponsorship and public relations. These costs are expensed as incurred. Advertising costs totaled $4.5 million and $7.1 million for the years ended December 31, 2020 and 2019, respectively. Advertising costs are reflected within “Sales and marketing” in the accompanying Consolidated Statements of Comprehensive Loss.

Research and development expense

Costs incurred in the research and development of the Company’s technologies primarily consist of developer salaries. Research and development expenses were $7.2 million and $5.9 million for the years ended December 31, 2020 and 2019, respectively.

Income taxes

Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. Excess tax benefits and tax deficiencies are recognized in the income tax provision in the period in which they occur.

The Company records a valuation allowance when it determines, based on available positive and negative evidence, that it is more-likely-than-not that some portion, or all its deferred tax assets will not be realized. The Company determines the realizability of its deferred tax assets primarily based on the reversal of existing taxable temporary differences and projections of future taxable income (exclusive of reversing temporary differences and carryforwards). In evaluating such projections, the Company considers its history of profitability, the competitive environment, and general economic conditions. In addition, the Company considers the time frame over which it would take to utilize the deferred tax assets prior to their expiration.

For certain tax positions, the Company uses a more-likely-than-not threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of tax benefits determined on a cumulative probability basis, which are more-likely-than-not to be realized upon ultimate settlement in the financial statements. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.   

Net Loss per Common Share

Basic net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the year, plus the dilutive effect of common stock equivalents, including stock options and restricted shares. Common stock and common stock equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive.

On December 19, 2019, the Company completed a reverse merger with Pivotal Acquisition Corp. whereby the Company received 34,800,000 shares for its outstanding 3,707,564 shares, effecting 1-to-9.3862 stock exchange. The per share amounts have been updated to show the effect of the exchange on earnings per share as if the exchange occurred at the beginning of both years for the annual financial statements of the Company. The impact of the stock exchange is also shown on the Company’s Statements of Stockholders’ Equity.”

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement”, which amends ASC 820 to add, remove, and modify fair value measurement disclosure requirements. This standard was effective for the Company for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The adoption did not have a material impact on the Company’s current financial position and results of operations, but the financial statement disclosures were updated in accordance with the ASU.

F-13

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Accounting Standards Not Yet Adopted

In connection with the transaction with Pivotal (see Note 2), the Company elected to be an Emerging Growth Company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act and take advantage of the extended transition period of delaying the adoption of new or revised accounting standards until such time as those standards apply to private companies. This may make the comparison of the Company’s consolidated financial statements to other public companies not meaningful due to the differences in accounting standards being applied.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. This standard is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, and the Company is currently evaluating the impact that Topic 842 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. The Company is required to adopt ASC 326 effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and the Company is currently evaluating the impact that Topic 326 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption, including the adoption in any interim period, is permitted for all entities. The Company does not expect ASU 2019-12 to have a meaningful effect on the Company’s current financial position, results of operations or financial statement disclosures.

Note 2 – Acquisitions

Pivotal Acquisition Corp.

On December 19, 2019, Pivotal, the legal predecessor company, consummated the Business Combination with LD Topco, Inc. The stockholders of LD Topco, Inc. received an aggregate of 34,800,000 shares of Pivotal common stock. The former stockholders of LD Topco, Inc. also have the right to receive up to 2,200,000 shares of the Company’s common stock if (i) a change in control occurs or (ii) the reported closing sale price of the Company’s common stock exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Business Combination. The Company also assumed 29,500,000 warrants which entitles the holder to purchase shares of the Company’s common stock beginning December 18, 2019 at an exercise price of $11.50 per share as part of this transaction.

As part of the transaction, on December 19, 2019, the Company assumed 8% convertible debentures (“Debentures”) due 2024 in an aggregate principal amount of $200 million. The proceeds of the Debentures were used in part to repay the Company’s outstanding Second Lien Facility and amounts outstanding under its revolving credit facility.

The net proceeds from the Business Combination, as reported in the consolidated statements of cash flows for the year ended December 31, 2019 within the financing section are summarized below:

Gross cash received by KLDiscovery from Business    Combination	$	201,657
Less: fees to underwriters		(6,500	)
Less: other transaction costs		(8,654	)
Net cash received by KLDiscovery from Business    Combination	$	186,503

F-14

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Note 3 – Fair value measurements

The Company accounts for recurring and non-recurring fair value measurements in accordance with ASC 820, Fair Value Measurements. ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosures about fair value measurements. The ASC 820 hierarchy ranks the quality of reliability of inputs, or assumptions, used in the determination of fair value, and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

Level 1 – Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.

Level 2 – Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.

Level 3 – Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by a reporting entity – e.g., determining an appropriate adjustment to a discount factor for illiquidity associated with a given security.

The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires significant judgments to be made by the Company.

The Company believes that the fair values of its current assets and current liabilities (cash, accounts receivable, accounts payable, and other current liabilities) approximate their reported carrying amounts. The Company believes that the interest rates on its debt are current market rates.

The Company estimates the fair value of contingent purchase consideration based on the present value of the consideration expected to be paid during the remainder of the earn-out period, based on management’s assessment of the acquired operations’ forecasted earnings. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. During 2019, the Company acquired three companies for total consideration of $5.5 million, of which $2.0 million was in cash, $1.5 million was in deferred payments, $1.2 million was in stock and contingent consideration of $1.0 million, which was recorded at its estimated fair value of $0.8 million related to future earnouts. The fair value of future expected acquisition-related contingent consideration obligations was $0.9 million and $0.8 million at December 31, 2020 and 2019, respectively.

The significant unobservable inputs used in the fair value measurements of the Company’s contingent purchase consideration include its measures of the future profitability and related cash flows of the acquired business or assets, impacted by appropriate discount rates. Significant increases (decreases) in any of these individual inputs would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is indirectly proportional to the fair value of contingent purchase consideration and a change in the assumptions used for the future cash flows is directly proportional to the fair value of contingent purchase consideration. The Company, using additional information as it becomes available, reassesses the fair value of the contingent purchase consideration on an annual basis.

Any change in the fair value of contingent consideration liability results in a remeasurement gain or loss that is recorded as income or expense on the Consolidated Statements of Comprehensive Loss.

F-15

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the years ended December 31, 2020 and 2019 (in thousands):

Balance at December 31, 2018	$	—
Additions (payments) to contingent consideration		774
Change in fair value of contingent consideration		48
Balance at December 31, 2019		822
Additions (payments) to contingent consideration		—
Change in fair value of contingent consideration		98
Balance at December 31, 2020	$	920

Management estimates the carrying amount of the Company’s long-term debt approximates its fair value because the interest rates on these instruments are subject to changes in market interest rates or are consistent with prevailing interest rates.

Note 4 – Intangible assets

Intangible assets consist of the following (in thousands):

Description	Weighted Average Remaining Useful Life in Years		December 31, 2020			December 31, 2019
Trademark and tradenames		5.5	$	67,183		$	66,311
Accumulated amortization				(29,004	)		(21,504	)
Trademark and tradenames, net				38,179			44,807
Developed technology		4.2		79,796			71,327
Accumulated amortization				(49,968	)		(36,838	)
Developed technology, net				29,828			34,489
Non-compete agreements		—		1,402			1,467
Accumulated amortization				(1,402	)		(1,242	)
Non-compete agreements, net				—			225
Customer relationships		6.1		97,420			95,693
Accumulated amortization				(55,694	)		(44,646	)
Customer relationships, net				41,726			51,047
Intangible assets, net of amortization			$	109,733		$	130,568

Future amortization of intangible assets is as follows (in thousands):

December 31,	Amount
2021	$	27,398
2022		23,153
2023		17,413
2024		13,111
2025		8,718
Thereafter		15,025
In process		4,916
Total	$	109,733

F-16

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Note 5 – Accrued expenses

Accrued expenses consisted of the following (in thousands):

	December 31,
	2020		2019
Accrued expenses:
Accrued interest	$	5,041	$	7,000
Accrued salaries		11,802		9,509
Current taxes payable		519		535
Other accrued expenses		2,694		2,847
Total	$	20,056	$	19,891

Note 6 – Leasing arrangements

The Company leases office space and certain equipment under operating and capital lease agreements, expiring in various years through 2029. Certain leases contain annual rent escalation clauses.

Rent expense totaled $14.1 million and $14.7 million for the years ended December 31, 2020 and 2019, respectively. As part of an effort to optimize the Company’s real estate footprint, during 2020, the Company terminated leases in 18 locations and reduced the footprint of four locations resulting in lease termination savings of approximately $4.6 million.

The amortization expense recorded for capital leases totaled $0.5 million and $0.7 million, respectively, for the years ended December 31, 2020 and 2019.

For years subsequent to December 31, 2020, future minimum payments for all operating and capital lease obligations that have initial non-cancelable lease terms exceeding one year, net of rental income from subleases are as follows (in thousands):

December 31,	Capital Leases			Operating Leases
2021	$	1,313		$	9,437
2022		1,586			8,936
2023		1,346			8,568
2024		721			7,377
2025		—			3,810
Thereafter		—			2,552
Total	$	4,966		$	40,680
Less: interest on lease obligations		(464	)
Net amount		4,502
Less: current portion		(1,313	)
Non-current	$	3,189

F-17

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Note 7 – Long term debt

The table below summarizes the components of the Company’s long-term debt (in thousands):

	December 31,
	2020			2019
First lien facility due 2022		289,000			306,000
Convertible debenture notes due 2024		214,541			200,000
Total debt		503,541			506,000
Less: unamortized original issue discount		(16,126	)		(19,806	)
Less: unamortized debt issuance costs		(3,867	)		(5,573	)
Total debt, net		483,548			480,621
Current portion of debt		17,000			17,000
Less: current portion of unamortized original    issue discount		(4,312	)		(3,687	)
Less: current portion of unamortized debt    issuance costs		(1,740	)		(1,624	)
Total current portion of debt, net		10,948			11,689
Total long-term debt, net	$	472,600		$	468,932

On February 8, 2021 we entered into the 2021 Credit Agreement, the details of which are disclosed below in Note 17 - Subsequent Events.

2016 Credit Agreement

On December 9, 2016, KLDiscovery entered into a Credit Agreement with a group of lenders to establish term loan facilities and a revolving line of credit for borrowings by LD Intermediate, Inc. and LD Lower Holdings, Inc. (the “Initial Term Loans”). The Initial Term Loan borrowings of $340.0 million (“First Lien Facility”) and $125.0 million (“Second Lien Facility”) were to mature on December 9, 2022 and December 9, 2023, respectively. The First Lien Facility was repaid on February 8, 2021 (see Note 17) and the Second Lien Facility was repaid on December 19, 2019.

The First Lien Facility established a term loan principal payment schedule with payments due on the last day of each calendar quarter beginning on March 31, 2017 of $2.1 million. Quarterly principal payments increased to $4.3 million beginning on March 31, 2019 with a balloon payment of $259.3 million due at maturity. The interest rate for the First Lien Facility adjusted every interest rate period, which could be one, two, three or six months in duration and was decided by the Company, or to the extent consented to by all appropriate Lenders, twelve months thereafter. Interest payment dates include the last day of each interest period and any maturity dates of the facility; however, if any interest period exceeded three months, the respective dates that fall every three months after the beginning of an interest period was also an interest payment date. For each interest period, the interest rate per annum was 5.875% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate multiplied by the greatest of a) LIBOR, b) 0.00% per annum and c) solely with respect to the Initial Term Loans, 1.00% per annum. At December 31, 2020, the balance due was $289.0 million with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 1.00%. At December 31, 2019, the balance due was $306.0 million with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 2.596%.

The Second Lien Facility required a balloon payment of $125.0 million due at maturity. The interest rate for the Second Lien Facility adjusted every interest rate period, which could have been one, two, three or six months in duration and was decided by the Company, or to the extent consented to by all appropriate Lenders, twelve months thereafter. Interest payment dates included the last day of each interest period and any maturity dates of the facility; however, if any interest period exceeded three months, the respective dates that fall every three months after the beginning of an interest period was also an interest payment date. For each interest period, the interest rate per annum was 10.0% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate multiplied by the greatest of a) LIBOR, b) 0.00% per annum and c) solely with respect to the Initial Term Loans, 1.00% per annum. On December 19, 2019, the Second Lien Facility was paid off and closed. A loss on debt extinguishment was recognized related to the Second Lien Facility closing in the amount of $7.2 million in 2019 related to the write off of deferred financing costs and original issue discounts on the Second Lien Facility. At December 31, 2019 the balance due was zero.   

F-18

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

The First and Second Lien Facilities were secured by substantially all the Company’s assets and contain financial covenants. As of December 31, 2020 and 2019, the Company was in compliance with all covenants.

The 2016 Credit Agreement included a mandatory prepayment within ten days after delivery of the annual audited financial statements commencing with the year ending December 31, 2016, in an amount equal to the Excess Cash Flow Percentage of Excess Cash Flow for such Fiscal Year, as defined in the agreement. There were no mandatory prepayments with respect to 2020 and 2019.

Revolving Credit Facility

The 2016 Credit Agreement also provided for unfunded revolver commitment (the “Revolving Credit Facility”) for borrowing up to $30.0 million and was to mature on June 9, 2022. Interest was due at adjustable interest rates ranging from 5.375% to 5.875% based on the First Lien Net Leverage Ratio plus an amount equal to the LIBOR. No amounts were outstanding under the revolving loan as of December 31, 2020 and 2019. The Revolving Credit Facility was retired on February 8, 2021.

As of December 31, 2020, there was approximately $29.3 million available capacity for borrowing under the Revolving Credit Facility due to $0.7 million of letters of credit outstanding (See Note 15).

Convertible Debentures

On December 19, 2019, the Company assumed 8% convertible debentures (“Debentures”) due 2024 in an aggregate principal amount of $200 million. The proceeds of the Debentures were used in part to repay the Company’s outstanding Second Lien Facility and amounts outstanding under the Revolving Credit Facility. At December 31, 2020 and 2019, the balance due under the Convertible Debentures, including in-kind and accrued interest, was $214.5 million and $200.0 million, respectively.

The Debentures will mature on December 19, 2024 unless earlier converted, redeemed or repurchased. The Debentures will bear interest at an annual rate of 4.00% in cash, payable quarterly, and 4.00% in kind, accrued quarterly, on the last business day of March, June, September and December. In addition, on each anniversary of the Closing Date, the Company will add to the principal amount (subject to reduction for any principal amount repaid) of the Debentures an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding. The additional payment will accrue from the last payment date for the additional payment (or the Closing Date if no prior payment has been made), and will also be payable at maturity, upon conversion and upon an optional redemption.

At any time, upon notice as set forth in the Debentures, the Debentures will be redeemable at the Company’s option, in whole or in part, at a price equal to 100% of the principal amount of the Debentures redeemed, plus accrued and unpaid interest thereon.

Subject to approval to allow for the full conversion of the Debentures into common stock, the Debentures will be convertible into shares of the Company’s common stock at the option of the debenture holders at any time and from time to time at a price of $18 per share, subject to certain adjustments. However, in the event the Company elects to redeem any Debentures, the holders will have a right to purchase common stock from the Company in an amount equal to the amount redeemed at the conversion price.

The Debentures contain covenants that limit the Company’s ability to, among other things: (i) incur additional debt; (ii) create liens on assets; (iii) engage in certain transactions with affiliates; or (iv) designate the Company’s subsidiaries as unrestricted subsidiaries. The Debentures provide for customary events of default, including non-payment, failure to comply with covenants or other agreements in the Debentures and certain events of bankruptcy or insolvency. If an event of default occurs and continues, the holders of at least 25% in aggregate principal amount of the outstanding Debentures may declare the entire principal amount of all the Debentures to be due and payable immediately. As of December 31, 2020 and 2019 the Company was in compliance with all covenants.

F-19

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Future principal payments, including in kind interest, are as follows (in thousands):

December 31,	Amount
2021		17,000
2022		272,000
2023		-
2024		277,287
Thereafter		-
Total	$	566,287

The initial term loan borrowings related to the 2016 Credit Agreement were issued at an original issue discount of $11.9 million and $6.3 million for the First Lien Facility and Second Lien Facility, respectively. The Debentures were issued at an original discount of $13.7 million. The original issue discount is amortized using the effective yield method over the respective term of each facility or debenture. Accretion of the original issue discount totaled $3.7 million and $2.7 million during the years ended December 31, 2020 and 2019, respectively. Amortization is recorded as interest expense in the accompanying Consolidated Statements of Comprehensive Loss.

The Company incurred term loan facilities and revolver closing fees related to the 2016 Credit Agreement of $13.6 million. The term loan facilities and revolver closing fees were deferred on December 9, 2016, along with fees of $0.6 million related to the 2016 Credit Agreement and are amortized over their respective terms. The Company incurred closing fees related to the Debentures of $0.9 million which were deferred on December 19, 2019 and are amortized over the term of the debentures. Amortization of debt issuance costs totaled $1.6 million and $2.1 million during the years ended December 31, 2020 and 2019, respectively. Amortization is recorded as interest expense in the accompanying Consolidated Statements of Comprehensive Loss. A loss on debt extinguishment was recognized related to the closing of the Second Lien Facility in the amount of $7.2 million for deferred financing costs and original issue discounts in 2019.

The future amortization of debt issuance costs and original issue discount related to the 2016 Credit Agreement, the Revolving Credit Facility and Convertible Debentures are as follows (in thousands):

December 31,	Amount
2021	$	6,052
2022		6,453
2023		3,528
2024		3,961
Total	$	19,994

In February 2021, the Company expensed $7.2 million of these debt issuance costs in connection with the retirement of the 2016 Credit Agreement.

Note 8 – Employee benefit plan

The Company’s 401(k) plan covers employees who are at least 21 years of age, have completed one year of employment and worked a minimum of 1,000 hours. Employees may elect to defer a percentage of their salary up to the maximum allowed under the Internal Revenue Service Code. During 2019, the Company made matching contributions to its 401(k) plan equal to 100% of the first 3% of salary deferred plus 50% of the next 2% of an employee’s contribution for a total maximum Company match of 4% of the salary deferred by the employee, subject to Internal Revenue Service Code limitations. Starting in January 2020, the Company discontinued matching contributions to the 401(k) plan. Contributions to the 401(k) plan were $0.3 million and $3.7 million for the years ended December 31, 2020 and 2019, respectively.

F-20

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Note 9 – Equity incentive plan

On December 19, 2019, the Company adopted the 2019 Incentive Award Plan (the “2019 Plan”) under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options, restricted stock, restricted stock units, or other stock-based awards, including shares of common stock. As of December 31, 2020, 7,500,000 shares of Common Stock were reserved under the 2019 Plan, of which 1,948,815 shares of Common Stock remained available for issuance.

On March 29, 2016, the Company adopted the 2016 Equity Incentive Plan (as amended, the “2016 Plan”) under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options, restricted stock, restricted stock units, or other stock-based awards, including shares of common stock. The 2016 Plan was terminated on December 19, 2019 and all outstanding awards were cancelled.

Stock option activity

The following table summarizes the Company’s stock option activity under the 2019 Plan:

Description	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Options outstanding, December 31, 2018		-
Granted		514,710		$	9.90		10.0
Forfeited		-
Expired		-
Options outstanding, December 31, 2019		514,710		$	9.90		10.0
Granted		4,137,750			8.49
Forfeited		(387,186	)		8.85
Expired		(4,521	)		8.85
Options outstanding, December 31, 2020		4,260,753		$	8.46		9.0	$	54
Options vested and exercisable, December 31, 2020		1,204,863		$	8.20		9.0	$	54
Options vested and expected to vest, December 31, 2020		4,260,753		$	8.46		9.0	$	54

The following table summarizes the Company’s stock option activity under the 2016 Plan:

Description	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Options Outstanding, December 31, 2018		411,480		$	100		8.3	$	—
Granted		67,050			90
Forfeited		(32,860	)		99
Expired		(8,640	)		99
Cancelled		(437,030	)		100
Options Outstanding, December 31, 2019		-						$	—

(1) Aggregate intrinsic value (in thousands) represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.

No stock options were exercised during the years ended December 31, 2020 and 2019.

F-21

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

The following table summarizes additional information on stock option grants and vesting (in thousands):

	2016 Plan				2019 Plan
	Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2020		Year Ended December 31, 2019
Total fair value of stock options granted	$	-	$	2,492	$	9,241	$	974
Total fair value of options vested		-		1,439		2,711		-

Time-based vesting stock options

Under the 2016 Plan, time-based vesting stock options vested over a five-year period, subject to graded vesting schedules, and expired ten years from the date of grant or within 90 days of termination. The weighted-average fair value per share of time-based vesting stock options granted by the Company was $37.16 during the year ended December 31, 2019.

Under the 2016 Plan, for the year ended December 31, 2019, the Company recognized $2.3 million of stock-based compensation expense in connection with time-based stock options.

Under the 2019 Plan, time-based vesting stock options generally vest over a three-year period, are subject to graded vesting schedules, and expire ten years from the date of grant or within 90 days of termination. The weighted-average fair value per share of time-based vesting stock options granted by the Company was $2.19, and $1.89 during the years ended December 31, 2020 and 2019, respectively.

Under the 2019 Plan, for the years ended December 31, 2020 and 2019, the Company recognized $3.4 million and $0.01 million of stock-based compensation expense in connection with time-based stock options, respectively. As of December 31, 2020 and 2019, there was $6.4 million and $1.0 million of unrecognized stock-based compensation expense related to unvested time-based stock options that is expected to be recognized over a weighted-average period of three years, respectively.

Performance-based vesting stock options

Performance-based vesting stock options were issued under the 2016 Plan, which was terminated in December 2019, and generally vested upon the satisfaction of performance- and market-based criteria, based on the Principal Stockholders’ (as defined in the 2016 Plan) internal rate of return on their investment in the Company as measured following their sale of at least 70% of the Principal Stockholders total holdings in the Company, and expire ten years from the date of grant. The weighted-average fair value per share of performance-based vesting stock options granted by the Company was $37.16 during the year ended December 31, 2019.

Award Valuation

The Company used valuation models to value both time and performance-based vesting stock options granted during 2020 and 2019. The following table summarizes the assumptions used in the valuation models to determine the fair value of awards granted to employees and non-employees under both the 2019 Plan and the 2016 Plan:

	Year Ended December 31, 2020		Year Ended December 31, 2019
Expected volatility	37.63 - 41.24%		36.92 - 37.70%
Expected term (in years)		6.0	6 - 6.5
Dividend yield	0%		0%
Risk free interest rate	0.30 - 1.43%		1.79 - 2.89%

F-22

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

A discussion of management’s methodology for developing each of the assumptions used in the valuation model follows:

• Expected volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses an estimated volatility based on the historical and implied volatilities of comparable companies.

• Expected term – This is the period that the options granted are expected to remain unexercised. For options granted during the years ended December 31, 2020 and 2019, the Company derived the expected life of the option based on the average midpoint between vesting and the contractual term as there is little exercise history.

• Dividend yield – The Company has never declared or paid dividends and have no plans to do so in the foreseeable future.

• Risk-free interest rate – This is the U.S. Treasury rate for securities with similar terms that most closely resembles the expected life of the option.

Stock award activity

During the years ended December 31, 2020 and 2019, the Company granted to certain non-employee directors 136,956 and 7,223 stock awards, respectively. These stock awards were issued to non-employee directors in satisfaction of their annual retainer payments and are not subject to any vesting conditions, and thus became issued and outstanding shares on the grant date. Accordingly, the Company recognized the grant-date fair value of the stock awards of $0.4 million and $0.7 million as stock-based compensation expense concurrent with the grant date of the awards during the years ended December 31, 2020 and 2019, respectively.

Stock-based compensation expense

Stock-based compensation expense is included in the Consolidated Statements of Comprehensive Loss within the following line items (in thousands):

	December 31,
	2020		2019
Cost of revenues	$	1,336	$	573
General and administrative		1,198		1,161
Research and development		268		87
Sales and marketing		633		444
Total	$	3,435	$	2,265

Restricted stock units

Certain employees may be eligible to receive restricted stock unit (“RSU”) awards in the event of a change in control or IPO (as both terms are defined in the respective employment agreements) with a market value equal to the greater of (1) $3.5 million for two employees, or $4 million for the other referenced employee or (2) an amount determined using a formula-based model (as defined in the respective employment agreements), as of the date of such grants.

The amount and timing of the vesting of the RSUs is dependent on the type and timing of the liquidity event as it relates to the Business Combination date of December 19, 2019. Generally, a portion of the RSUs will first vest upon the occurrence of the liquidity event and the remainder will vest in installments thereafter, provided that if the liquidity event occurs after the third anniversary of the Business Combination, all RSUs will vest immediately upon the liquidity event. The vesting of the RSUs is generally subject to continued employment.

F-23

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

The following table summarizes the Company’s RSU activity under the 2019 Plan:

	RSUs
Description	Outstanding
Outstanding at December 31, 2019		-
Granted		1,402,312
Forfeited		(111,880	)
Expired		-
Outstanding at December 31, 2020		1,290,432

The Company determined that the achievement of the liquidity event was not probable and therefore no expense was recorded during the year ended December 31, 2020.

Note 10 – Equity

The Company is authorized to issue up to 200,000,000 shares of common stock, $0.0001 par value per share (the “Common Stock”) and 1,000,000 shares of preferred stock, $0.0001 par value per share. Each holder of Common Stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. The holders of the Common Stock are entitled to receive dividends out of assets legally available at the time and in the amounts as the Company’s Board of Directors may from time to time determine. In the event of any liquidation, dissolution or winding up of the Company, the assets of the Company shall be distributed ratably among the holders of the then outstanding common stock.

During 2019, the Company issued 172,350 shares of Common Stock in exchange for $1.7 million. There were no stock issuances during 2020.

Warrants

On December 19, 2019, in connection with the consummation of the Business Combination, the Company assumed 23,000,000 warrants (the “Public Warrants”), 4,585,281 warrants (the “Private Warrants”) and (iii) 1,764,719 warrants (the “Debenture Holder Warrants”). These warrants qualified for equity accounting as the warrants did not fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity. The warrants were measured at fair value at the time of issuance and classified as equity.

Each warrant entitles the holder to purchase one share of common stock for $11.50 per share. If held by the initial purchaser of the Private Warrant or certain permitted transferees, the purchase can occur on a cashless basis. The warrants will expire on December 19, 2024 or earlier upon redemption or liquidation.

If the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders, the Company may redeem all the Public Warrants at a price of $0.01 per warrant upon not less than 30 days’ prior written notice.

If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a cashless basis. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. The warrants will not be adjusted for issuance of common stock at a price below its exercise price. The Company will not be required to net cash settle the warrants.

The Private Warrants are identical to the Public Warrants except that the Private Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

F-24

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Shares Subject to Forfeiture

On December 19, 2019, in connection with the consummation of the reverse merger transaction, 550,000 shares of common stock held by Pivotal Acquisition Holdings LLC are subject to an additional lockup that will be released only if the last reported sale price of the common stock equals or exceeds $15.00 for a period of 20 consecutive trading days during the five-year period following the Closing Date. If the last reported sale price of common stock does not equal or exceed $15.00 within five years from the Closing Date, such shares will be forfeited to the Company for no consideration. These shares are reported as outstanding in our financial statements and continue to be subject to the additional lockup as of December 31, 2020.

Note 11 – Loss per share

Basic loss per common share (“EPS”) is calculated by dividing the net loss for the year by the weighted-average number of common shares outstanding during the period. Due to the Company’s net loss for the years ended December 31, 2020 and 2019, all potential common stock equivalents were anti-dilutive.

The following table summarizes basic and diluted loss per share or the years ended December 31, 2020 and 2019 (in thousands, except per share amounts):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Basic and diluted loss per share:
Net loss	$	(49,926	)	$	(54,014	)
Weighted average common shares    outstanding - basic		42,529,017			42,529,017
Dilutive effect of potentially    issuable shares		—			—
Weighted average common shares    outstanding - diluted		42,529,017			42,529,017
Basic loss per share	$	(1.17	)	$	(1.27	)
Dilutive effect of potentially    issuable shares		—			—
Diluted loss per share	$	(1.17	)	$	(1.27	)
Common share equivalents    excluded due to anti-dilutive effect		3,788,388			—

Note 12 – Foreign currency

The Company had immaterial foreign currency losses that are reflected in “Other expense” on the Company’s Consolidated Statements of Comprehensive Loss for years December 31, 2020 and 2019. Transaction gains and losses, both realized and unrealized, relate to the remeasurement or settlement of monetary assets and liabilities that are denominated in a currency other than an entity’s functional currency. These monetary assets and liabilities include cash as well as third party receivables and payables.

F-25

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

Note 13 – Income taxes

The components of income tax expense for the years ended December 31, 2020 and 2019 are presented below (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Current
Federal	$	(712	)	$	(37	)
State		73			61
Foreign		729			447
Deferred
Federal		334			332
State		806			705
Foreign		(294	)		(789	)
Total income tax provision	$	936		$	719

The actual income tax expense amounts for the years ended December 31, 2020 and 2019 differed from the expected tax amounts computed by applying the U.S. federal corporate income tax rate of 21% for 2020 and 2019 to the amounts of loss before income taxes as presented below (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Pre-tax book loss	$	(48,990	)	$	(53,295	)
Tax at Federal statutory rate of 21% in 2020 and    2019		(10,288	)		(11,192	)
State taxes		879			766
Stock based compensation		3			1,060
Foreign rate differential		(1,223	)		(871	)
Unrecognized tax benefit		549			-
Other adjustments		1,453			(1,707	)
Valuation allowance		9,563			12,663
Total income tax provision	$	936		$	719

The domestic and foreign components of loss before income taxes from continuing operations for the years ended December 31, 2020 and 2019 are as follows (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Domestic	$	(46,686	)	$	(52,438	)
Foreign		(2,304	)		(857	)
Total	$	(48,990	)	$	(53,295	)

F-26

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

The tax effects of temporary differences at December 31, 2020 and 2019 are as follows (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Net operating losses and other carryforwards	$	42,859		$	41,299
Interest expense carryforward		30,112			20,070
Property and equipment		2,448			2,221
Accrued expenses		512			82
Payroll tax deferral		1,089			-
Allowance for doubtful accounts		1,768			1,517
Stock-based compensation		878			—
Other		540			633
Deferred tax asset		80,206			65,822
Valuation allowance		(65,228	)		(51,895	)
Total deferred tax assets, net of valuation allowance		14,978			13,927
Intangible assets		(21,791	)		(20,098	)
Prepaid expenses		(107	)		(73	)
Other		(415	)		(50	)
Deferred tax liability		(22,313	)		(20,221	)
Net deferred tax liability	$	(7,335	)	$	(6,294	)

At December 31, 2020 and 2019, the Company had tax effected U.S. federal net operating loss carryforwards of approximately $32.1 million and $31.0 million, respectively, of which $7.8 million tax effected, begin to expire in 2024 but approximately $16.5 million, tax effected, begin to expire in 2035 and $7.8 million, tax effected, have no expiration. At December 31, 2020 and 2019, the Company had tax effected state net operating loss carryforwards of approximately $6.7 million and $6.5 million, respectively. The majority of the state tax losses will not begin expiring until 2035 or later. At December 31, 2020 and 2019, the Company also had U.S. tax credit carryforwards of approximately $0.9 million and $0.9 million, respectively. The tax credits will expire in 2021.

The tax effected foreign net operating loss at December 31, 2020 and 2019 is approximately $3.1 million and $2.9 million, respectively, the majority of which has an unlimited carryforward period.

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning with the year ended December 31, 2016. The Company is also subject to examination in various foreign jurisdictions. In material foreign jurisdictions, the statute of limitations ranges one – four years from the filing of a tax return.

The Company has not provided for U.S. income and foreign withholding taxes on approximately $13.5 million of certain foreign subsidiaries' undistributed earnings as of December 31, 2020, because such earnings have been retained and are intended to be indefinitely reinvested outside of the U.S. These earnings could become subject to additional tax, if they were remitted as dividends, loaned to the Company, or if the Company should sell its stock in these foreign subsidiaries.  However, it is not practicable to estimate the amount of taxes that would be payable for these earnings because such tax, if any, is dependent on circumstances existing if and when a taxable event occurs.

Valuation Allowance

As of December 31, 2020 and 2019, the Company had a valuation allowance of $65.2 million and $51.9 million, respectively, against certain deferred tax assets. The valuation allowance relates to the deferred tax assets of the Company’s U.S. entities, including federal and state tax attributes and timing differences, as well as the deferred tax assets of certain foreign subsidiaries. The increase in the valuation allowance during 2020 is primarily related to operating losses incurred during the year and the limitation on deductibility of interest expense. To the extent the Company determines that, based on the weight of available evidence, all or a portion of its valuation allowance is no

F-27

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

longer necessary, the Company will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. If management determines that, based on the weight of available evidence, it is more-likely-than-not that all or a portion of the net deferred tax assets will not be realized; the Company may recognize income tax expense in the period such determination is made to increase the valuation allowance. It is possible that such reduction of or addition to the Company’s valuation allowance may have a material impact on the Company’s results from operations. The U.S. federal and foreign changes to valuation allowance of approximately $9.6 million is presented in the effective tax rate reconciliation as part of the valuation allowance. The U.S. state changes to valuation allowance of approximately $3.8 million is presented as part of the state taxes in the effective tax rate reconciliation as part of the unrecognized tax benefit.

A summary of the deferred tax asset valuation allowance is as follows:

	Year Ended December 31, 2020			Year Ended December 31, 2019
Beginning Balance	$	51,895		$	36,595
Additions	$	14,149		$	15,622
Reductions		(816	)		(322	)
Ending Balance	$	65,228		$	51,895

Uncertain Tax Positions

As of December 31, 2020 and 2019, the total amount of unrecognized tax benefits was $1.0 million and $0 million, respectively, that would favorably impact the Company’s effective income tax rate. However, due to the Company’s determination that the deferred tax asset would not more-likely-than-not be realized, a full valuation allowance was recorded, therefore, zero net impact resulted in the Company’s effective income tax rate. The Company’s uncertain income tax position liability has been recorded to deferred income taxes to offset the tax attribute carryforward amounts. The U.S. federal and foreign changes to uncertain tax positions of approximately $0.6 million is presented in the effective tax rate reconciliation as part of the unrecognized tax benefit. The U.S. state changes to uncertain tax positions of approximately $0.4 million is presented as part of the state taxes in the effective tax rate reconciliation as part of the unrecognized tax benefit.

A summary of the unrecognized tax benefits is as follows:

	Year Ended December 31, 2020
Beginning Balance	$	-
Additions	$	1,002
Reductions		-
Ending Balance	$	1,002

Note 14 – Severance and retention

In connection with the Company’s continued integration and realignment efforts following the 2016 acquisition of Kroll Ontrack, LLC, the Company recorded severance and retention expense of $2.5 million and $1.4 million during the years ended December 31, 2020 and 2019, comprised of employee severance and other employee-related costs

F-28

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

associated with a reduction in workforce of 39 and 33 employees for 2020 and 2019, respectively. Severance and retention expense are included in the Consolidated Statements of Comprehensive Loss as follows:

	Year Ended December 31, 2020		Year Ended December 31, 2019
Costs of revenues	$	950	$	301
General and administrative		469		567
Sales and marketing		1,076		516
Research and development		8		19
Total	$	2,503	$	1,403

The activity and balance of severance-related liabilities, which are recorded within Accounts payable and accrued expense in our Consolidated Balance Sheet, are as follows (in thousands):

Balance at December 31, 2018	$	555
Payments		(1,600	)
Expense		1,403
Balance at December 31, 2019	$	358
Payments		(1,395	)
Expense		2,503
Balance at December 31, 2020	$	1,466

Note 15 – Commitments and contingencies

The Company is involved in various legal proceedings, which may arise occasionally in the normal course of business. While the ultimate results of such matters generally cannot be predicted with certainty, management does not expect such matters to have a material effect on the financial position and results of operations as of December 31, 2020. The Company has three letters of credit totaling $0.7 million as additional security for lease guarantees related to leased properties.                                                                                                         

Risks and Uncertainties

Impacts of COVID-19 pandemic on KLDiscovery’s Business

The potential impacts of the ongoing COVID-19 pandemic on the Company’s business are currently not estimable or determinable. The Company has made modifications to employee travel, work locations, and cancellation of certain events, among other modifications. During 2020, the Company implemented a salary exchange program pursuant to which certain employees took a temporary reduction in salary through December 31, 2020 that ranges from 2% to 20% in exchange for receiving 417,673 stock options and 211,207 RSUs. In December 2020, the Company extended the salary reduction program through September 20, 2021 for the named executive officers and for management positions of or higher than Vice-Presidents. The Company also initiated limited furloughs for certain employees. The Company will continue to actively monitor the situation and may take further actions that alter its business operations as may be required by federal, state or local authorities or that it determines is in the best interests of its employees, customers, partners, suppliers and stockholders.Primarily due to the impact of COVID-19, our revenues decreased by $22.5 million, or 7.2%, to $289.5 million for the year ended December 31, 2020 as compared to $312.1 million for the year ended December 31, 2019 as many clients delayed new litigation and court systems closed for a period of time and have been slow to reopen.

On March 27, 2020, the President signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, NOL carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In

F-29

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

particular, under the CARES Act, (i) for taxable years beginning before 2021, NOL carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility was increased from 30% to 50% of taxable income. As permitted under the CARES Act, the Company deferred payroll taxes due in 2020 to 2021 and 2022. The Company continues to analyze other aspects of the CARES Act as well as similar tax legislation in other countries we operate but does not believe they will have a meaningful impact to its results.

Note 16 – Related parties

On December 22, 2015, the Company entered into a consulting agreement with Carlyle Investment Management, LLC, an affiliate of Carlyle, for advisory, consulting and other services in relation to the strategic and financial management of the Company. For the year ended December 31, 2019, the Company recognized $1.0 million in management consulting fees, reflected within “General and administrative expenses” in the accompanying consolidated Statements of Comprehensive Loss. The consulting agreement was terminated on December 19, 2019.

As of December 31, 2020, $107.3 million including paid-in kind of the Company’s Debentures are owed to affiliates of MGG Investment Group, which is an affiliate of a director of the Company. For the years ended December 31, 2020 and December 31,2019, the Company recognized $12.1 million and $0.4 million in interest expense, respectively related to the amounts owned by the MGG Investment Group.

Note 17 – Subsequent events

The Company has evaluated subsequent events through the dates on which this Form 10-K was filed, the date on which these financial statements were issued, and identified the below item for discussion.

2021 Credit Agreement

On February 8, 2021, the Company entered into a new secured credit agreement (the “2021 Credit Agreement”). Proceeds were used to pay in full all outstanding loans and terminate all lending commitments under the 2016 Credit Agreement.

The 2021 Credit Agreement provides for (i) initial term loans in an aggregate principal amount of $300 million (the “Initial Term Loans”), (ii) delayed draw term loans in an aggregate principal amount of $50 million (the “Delayed Draw Term Loans”), and (iii) revolving credit loans in an aggregate principal amount of $40 million (the “Revolving Credit Loans”). The Delayed Draw Term Loans will be available to the Company at any time prior to February 8, 2023, subject to certain conditions.

The Initial Term Loans and Delayed Draw Term Loans will bear interest, at the Company’s option, at the rate of (x) with respect to Eurocurrency Rate Loans (as defined in the 2021 Credit Agreement), the Adjusted Eurocurrency Rate (as defined in the 2021 Credit Agreement) with a 1.0% floor, plus 6.50% per annum, or (y) with respect to Base Rate Loans (as defined in the 2021 Credit Agreement), the Base Rate (as defined in the 2021 Credit Agreement) plus 5.50% per annum. The Revolving Credit Loans will bear interest, at our option, at the rate of (x) with respect to Eurocurrency Rate Loans, the Adjusted Eurocurrency Rate plus 4.00% per annum, or (y) with respect to Base Rate Loans, the Base Rate plus 3.00% per annum. The Initial Term Loans and Delayed Draw Term Loans amortize at a rate of 1.00% of the aggregate principal amount of Initial Term Loans and Delayed Draw Term Loans outstanding, payable in consecutive quarterly installments, beginning on June 30, 2021.

The Initial Term Loans, Delayed Draw Term Loans and Revolving Credit Loans are each scheduled to mature on the earlier of February 16, 2026 and or six months prior to maturity of our Debentures due in December 2024. The Initial Term Loans and Delayed Draw Term Loans may be voluntarily repaid at any time, but may be subject to a prepayment premium. The Initial Term Loans and Delayed Draw Term Loans are required to be repaid under certain circumstances, including with Excess Cash Flow (as defined in the 2021 Credit Agreement), the proceeds of an Asset Sale or Casualty Event (each as defined in the 2021 Credit Agreement) and the proceeds of certain refinancing indebtedness.

F-30

KLDiscovery Inc.

Notes to Consolidated Financial Statements — Continued

The obligations under the 2021 Credit Agreement are secured by substantially all of the Company’s assets.The 2021 Credit Agreement contains customary affirmative and negative covenants as well as a financial maintenance covenant that requires the Loan Parties to maintain a First Lien Net Leverage Ratio of less than or equal to 7.00 to 1.00, tested at the end of each fiscal quarter.

The Company incurred closing fees of $8.0 million in connection with the entry into the 2021 Credit Agreement. These fees will be amortized over the full term of the 2021 Credit Agreement.

In February 2021, a loss on debt extinguishment of $7.2 million was recognized in connection with the retirement of the 2016 Credit Agreement.

Stock and option awards

On February 16, 2021, the Company issued an additional 1.1 million time-based options and 0.3 million performance/market-based restricted stock units to its employees under the 2019 Plan.

F-31

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable

Item 9A. Controls and Procedures.

Evaluation of disclosure controls and procedures

We maintain “disclosure controls and procedures,” as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act, that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act ), as of the end of the period covered by this Form 10-K. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of December 31, 2020, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in this Form 10-K was (a) reported within the time periods specified by SEC rules and regulations and (b) communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding any required disclosure.

Management’s Report on Internal Controls Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) of the Exchange Act. Our management evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and concluded that our internal control over financial reporting was effective at December 31, 2020.

Attestation of Independent Registered Public Accounting Firm

This Annual Report on Form 10-K does not include an attestation by our independent registered public accounting firm regarding our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) due to a transition period established by the rules of the SEC.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control

The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

Item 9B. Other Information.

None.

48

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Our current directors and executive officers are listed below. Also set forth below are the biographies for all our current directors and executive officers. There are no family relationships among any of our directors or executive officers.

Name	Age (1)	Position
Christopher J. Weiler	58	Chief Executive Officer and Director
Dawn Wilson	54	Chief Financial Officer
Krystina Jones	37	Executive Vice President, Global LT Sales and Marketing
Donna Morea	66	Director (Chair)
Ian Fujiyama	48	Director
Kevin Griffin	44	Director
Jonathan Ledecky	63	Director
Evan Morgan	36	Director
Lawrence Prior III	65	Director
Arjun Shah	32	Director
Lauren Tanenbaum	33	Director
Richard Williams	60	Director

(1) Ages are as of March 15, 2021.

Christopher J. Weiler co-founded KLDiscovery in 2005 and has served as its Chief Executive Officer and a director since such time. Prior to co-founding KLDiscovery, Mr. Weiler co-founded On-Site Sourcing, a litigation support and electronic discovery services company, in 1993 and served as its President and Chief Executive Officer until December 2004. From 1991 to 1992, Mr. Weiler worked for Pitney Bowes Management Services as a manager, and from 1985 to 1991, he served in the U.S. Navy as a surface warfare officer and as a Navy Senate Liaison Officer in Washington, D.C. Mr. Weiler received a B.S. in Political Science and Engineering from the U.S. Naval Academy. We believe that Mr. Weiler is qualified to serve as a member of our Board of Directors due to his knowledge of our company and his extensive experience in the electronic discovery services industry.

Dawn Wilsonhas been the Chief Financial Officer of KLDiscovery since September 2017. Ms. Wilson has over 20 years of experience in finance and accounting. After starting her career at Arthur Andersen in 1992, she has primarily been with public companies in the technology and services industry. Most recently, Ms. Wilson served as Vice President of Accounting of CoStar Group, the leading provider of commercial real estate information, analytics and online marketplaces, from July 2004 to August 2016. She received a Masters in Accounting from Virginia Polytechnic Institute and State University.

Krystina Jones joined KLDiscovery in 2006 in a sales role, where she was responsible for generating new business from Am Law 100 law firms and Fortune 500 corporations. During her tenure with KLDiscovery, Ms. Jones has consistently created opportunities, developed new clients and increased the company’s client base by delivering tailored solutions and service excellence. She is a top producing sales representative in the organization, focused on corporate accounts. Today, Ms. Jones is Executive Vice President, Global LT Sales & Marketing where she is responsible for KLDiscovery's global sales and marketing organizations for the Legal Technologies business. In this role, she is responsible for developing, implementing and executing a global sales & marketing strategy across the entire organization. Additionally, Ms. Jones is responsible for KLDiscovery's global sales operations teams who support the business development managers in delivering best-in-class service to their clients. She continues to maintain, and grow, her existing book of business. Ms. Jones has over a decade of experience in the industry at KLDiscovery, and has held a variety of leadership positions with the company throughout its eleven acquisitions and integrations. Ms. Jones holds a dual degree in Marketing Management from Virginia Polytechnic Institute and State University.

Donna S. Morea has been a member of the Board of Directors of KLDiscovery since March 2017 and she currently serves as the Chair of our Board of Directors. She is an Operating Executive of TCG focused on the technology and

49

business services sectors.  She is a board member of NetHealth, Accelerate Learning and Unison. She also currently serves on the boards of directors of Truist Financial Corporation, and Inova Health Systems, and as the Chair of the Board of Science Applications International Corporation. From 2004 to 2011 she served President of CGI Technology and Solutions, Inc. (“CGI”) where she led CGI’s software and IT services in the US, Europe and Asia-Pacific, serving commercial and government clients. Prior to that, she served in numerous executive management roles at American Management Systems, which was acquired by CGI in 2004. Previously, she has served on the board of directors of CGI and as chair of the Northern Virginia Technology Council. Ms. Morea received a M.B.A., with distinction, in Finance from the Wharton School at the University of Pennsylvania and a B.A. with high honors from Wesleyan University. We believe that Ms. Morea is qualified to serve as a member of our Board of Directors due to her broad knowledge of the information technology industry and management experience.

Ian Fujiyamahas been a member of the Board of Directors of KLDiscovery since March 2020. Mr. Fujiyama is a Managing Director for TCG, focusing on buyouts and strategic minority investments in the aerospace, defense and government services sectors. Since joining TCG in 1997, Mr. Fujiyama has led all of TCG’s recent investments in the Federal services sector, including Novetta, Booz Allen Hamilton and ARINC. Beginning in 1999, he spent two years in Hong Kong and Seoul working in TCG’s Asia Buyout fund, Carlyle Asia Partners, where he was a founding member of the team and helped lead TCG’s investment in KorAm Bank, TCG’s first investment in the financial services industry. Mr. Fujiyama was also involved in a number of successfully exited holdings, including ARINC, United Components, Inc, Lear Siegler Services, EG&G Technical Services and CPI. Prior to joining TCG, Mr. Fujiyama was an Associate at Donaldson Lufkin and Jenrette Securities Corp, with a focus on high yield and merchant banking transactions. Mr. Fujiyama received his B.S. in economics, summa cum laude, from The Wharton School of the University of Pennsylvania with a concentration in finance. Mr. Fujiyama has served on the boards of directors of ARINC, Booz Allen Hamilton, Dynamic Precision Group, CPI, Novetta and United Components. Additionally, Mr. Fujiyama served as the Chairman of TCG’s Diversity and Inclusion Committee. We believe that Mr. Fujiyama is qualified to serve as a member of our Board of Directors due to his knowledge of technology solutions and corporate finance experience.

Kevin Griffinserved as a member of the Board of Directors of Pivotal Acquisition Corp. (“Pivotal”) since September 2018, and following KLDiscovery’s business combination with Pivotal (the “Business Combination”) on December 19, 2019 (the “Closing Date”), he has remained on the Board of Directors. Mr. Griffin has been designated as a director by Pivotal Spac Funding LLC, a managing member of Pivotal Acquisition Holdings LLC (the “Founder”), pursuant to our amended and restated certificate of incorporation. During Mr. Griffin’s 20-year career, Mr. Griffin has originated and invested over $4 billion across the capital structure of middle market businesses and has also sat on numerous boards of directors. Mr. Griffin founded MGG Investment Group (“MGG”) in October 2014 and has served as its Chief Executive Officer and Chief Investment Officer since such time. Prior to launching MGG, Mr. Griffin was a Managing Director with Highbridge Principal Strategies from January 2010 to June 2014, where he was a senior member of the Specialty Lending Platform and a Member of the Highbridge Credit Committee. Prior to this, Mr. Griffin was the Head of Private Investing for Octavian Funds, a hedge fund focused on global investing across debt and equity structures, from 2007 to 2009. From 2003 to 2007, Mr. Griffin was part of Fortress Investment Group (“Fortress”) in charge of originating and underwriting investment opportunities for the Drawbridge Special Opportunities Fund. Prior to Fortress, Mr. Griffin was an investor with one of the first publicly traded business development companies, American Capital, where he was involved in numerous equity buyout and subordinated debt investments. Mr. Griffin began his career with Houlihan Lokey, Howard & Zukin’s Investment Banking Division, focusing primarily on distressed M&A and financial restructurings. The M&A Advisor in May 2015 named Mr. Griffin a winner of its 40 Under 40 Emerging Leaders Award. The Hedge Fund Journal, in association with EY, in December 2016 named Mr. Griffin one of 50 “Tomorrow’s Titans.” Mr. Griffin received a B.S.B.A. in Finance from Georgetown University. We believe that Mr. Griffin is qualified to serve as a member of our Board of Directors due to his extensive business and operational experience and contacts.

Jonathan J. Ledeckyhas served as President and Chief Operating Officer of Northern Star Acquisition Corp. since September 2020 and served as its Chief Executive Officer from July 2020 until September 2020 and has served as the President and Chief Operating Officer of Northern Star Investment Corp. II since November 2020. He has also served as Chairman of the Board of Pivotal Investment Corp. III since October 2020. Mr. Ledecky has been a co-owner of the National Hockey League’s New York Islanders franchise since October 2014. He also serves as an Alternate Governor on the Board of Governors of the NHL and as President of NY Hockey Holdings LLC. Mr. Ledecky has served as chairman of Ironbound Partners Fund LLC, a private investment management fund, since

50

March 1999. He was also the Chief Executive Officer and chairman of the board of directors of Pivotal II, a blank check company like our company that raised $230,000,000 in its initial public offering in July 2019 and consummated its initial business combination with XL, a leading provider of fleet electrification solutions for Class 2-6commercial vehicles in North America, in December 2020. Mr. Ledecky has continued to serve on the board of directors of XL following the merger. Mr. Ledecky was also Chief Executive Officer and chairman of the board of directors of Pivotal I, a blank check company like our company that raised $230,000,000 in its initial public offering in February 2019. In December 2019, Pivotal I consummated its initial business combination with KLDiscovery, a provider of software and services that help protect corporations from a range of information governance, compliance and data issues. Mr. Ledecky has also served as President and a director of Newtown Lane Holdings, Incorporated, a blank check company, since October 2015. Mr. Ledecky also served as a member of the board of directors of Propel Media, Inc., a digital media holding company, from January 2015 to January 2019. From July 2005 to December 2007, Mr. Ledecky served as president, secretary and a director of Endeavor Acquisition Corp., a blank check company that completed its initial business combination with American Apparel, Inc. From January 2007 to May 2009, he served as president, secretary and a director of Victory Acquisition Corp., a blank check company that was unable to consummate an initial business combination. He also served as president, secretary and a director of Triplecrown Acquisition Corp., a blank check company, from June 2007 until it completed its initial business combination with Cullen Agricultural Technologies, Inc. in October 2009. During 2007, he also served as president, secretary and director of Grand Slam Acquisition Corp., Performance Acquisition Corp. and Endeavour International Acquisition Corp., three similarly structured blank check companies that never completed their initial public offerings due to market conditions at the time. Mr. Ledecky founded U.S. Office Products in October 1994 and served as its chief executive officer until November 1997 and as its chairman until its sale in June 1998. U.S. Office Products was one of the fastest start-up entrants in the history of the Fortune 500 with sales in excess of $3 billion within its first three years of operation. From 1999 to 2001, Mr. Ledecky was vice chairman of Lincoln Holdings, owners of the Washington sports franchises in the NBA, NHL and WNBA. In addition to the foregoing, Mr. Ledecky served as chairman of the board and chief executive officer of Consolidation Capital Corporation from its formation in February 1997 until March 2000 when it merged with Group Maintenance America Corporation. Mr. Ledecky also has served as a trustee of George Washington University, a director of the U.S. Chamber of Commerce and a commissioner on the National Commission on Entrepreneurship and currently serves as a trustee of the U.S. Olympic and Paralympic Foundation. In 2004, Mr. Ledecky was elected the Chief Marshal of the 2004 Harvard University Commencement, an honor bestowed by his alumni peers for a 25th reunion graduate deemed to have made exceptional contributions to Harvard and the greater society while achieving outstanding professional success. Mr. Ledecky received a B.A. (cum laude) from Harvard University in 1979 and a M.B.A. from the Harvard Business School in 1983. We believe that Mr. Ledecky is qualified to serve as a member of our Board of Directors due to his public company experience, business leadership, operational experience and contacts.

Evan B. Morgan has been a member of the Board of Directors of KLDiscovery since December 2015. Mr. Morgan has served as Manager of The Radcliff Companies (“Radcliff”), a New York-based private investment partnership, since July 2016. Radcliff invests across the capital structure seeking long-term compounding at high rates of return primarily in privately held consumer and services businesses. Mr. Morgan joined Revolution Growth (“RG”), where he was a Partner, in 2011. In 2016, when he joined Radcliff, Mr. Morgan transitioned to Special Partner status with RG. From 2009 to 2011, Mr. Morgan worked for TCG. Mr. Morgan currently serves on the boards of directors of Shorecal Limited and JetLinx Global. Mr. Morgan previously served as a member of board of directors of Pivotal from December 2018 until April 2019. Mr. Morgan is a member of the board of managers of Chrome Hearts Holdings (since 2017), Cross Country Mortgage LLC (since 2019) and a Board observer of Sweetgreen and Sportradar Mr. Morgan received a B.A. from the University of Pennsylvania. We believe that Mr. Morgan is qualified to serve as a member of our Board of Directors due to his knowledge of our business and industry.

Lawrence Prior III has been a member of the Board of Directors of KLDiscovery since March 2020. Mr. Prior is an Operating Executive for The Carlyle Group (“TCG”), focused on the aerospace, defense and government services sectors. He is based in Washington, DC and serves on the board of directors of Novetta and is the Chairman of the Board Two Six Technologies. Mr. Prior was most recently President and Chief Executive Officer of CSRA, Inc., which was acquired by General Dynamics. Previously, he was Executive Vice President and General Manager of CSC’s North American Public Sector business, providing next-generation technology solutions and mission services to the U.S. Department of Defense, Intelligence Community and FedCiv sectors.  Before joining CSC, Mr. Prior held executive leadership positions at BAE Systems Inc., ManTech International, SAIC, LightPointe

51

Communications, High Technology Solutions, the County of San Diego and TRW. Earlier in his career, Mr. Prior worked as a professional staff member on the House Permanent Select Committee on Intelligence and served as an Intelligence Officer in the U.S. Marine Corps. Mr. Prior earned his B.S. degree from Loyola Marymount University and an M.A. in security studies from the Edmund A. Walsh School of Foreign Service at Georgetown University. We believe that Mr. Prior is qualified to serve as a member of our Board of Directors due to his knowledge of technology solutions and corporate finance experience.

Arjun Shah has been a member of the Board of Directors of KLDiscovery since March 16, 2021. Mr. Shah is a Vice President with TCG focused on investment opportunities in the technology, media and telecom sectors. He is based in Washington, DC. Since joining Carlyle in 2017, Mr. Shah has been actively involved with TCG’s investments in ION Group, Workforce Logiq, and KLDiscovery. Prior to joining TCG, Mr. Shah was with Tinicum Incorporated and Blackstone, both in New York. Mr. Shah received his M.B.A. with high distinction from Harvard Business School, where he was a Baker Scholar. He graduated summa cum laude from the Jerome Fisher Program in Management & Technology at University of Pennsylvania, where he received a B.S. in economics from The Wharton School and a B.S. in engineering. We believe that Mr. Shah is qualified to serve as a member of our Board of Directors due to his knowledge of technology solutions and corporate finance experience.

Lauren Tanenbaumhas been a member of the Board of Directors of KLDiscovery since February 2021. Ms. Tanenbaum is a Principal within the Global Capital Markets team at TCG. She provides financing guidance for TCG’s four U.S.-based private equity funds both at initial acquisition and on an ongoing portfolio basis. In her role in Capital Markets, Ms. Tanenbaum arranges a wide variety of financings ranging from large, broadly syndicated transactions to middle market private placements. Prior to joining TCG in 2018, Ms. Tanenbaum worked at J.P. Morgan from 2011 to 2018, most recently as a Vice President in Leveraged Finance. Additionally, she was an Investment Banker in the Public Finance department at Morgan Stanley from 2009 to 2011. Ms. Tanenbaum received a B.A. in History from the University of Pennsylvania. We believe that Ms. Tanenbaum is qualified to serve as a member of our Board of Directors due to her extensive corporate finance experience.

Richard J. Williams has been a member of the Board of Directors of KLDiscovery since February 2018. In 2004, Mr. Williams co-founded WestView Capital Partners (“WestView”), a private equity firm focused on growth-oriented companies, and he currently serves as its Manager Partner. WestView currently manages approximately $1.7 billion of capital. Prior to co-founding WestView, he was a Partner in Tudor Investment Corporation’s (“Tudor”) private equity group from 2000 to 2004. Prior to joining Tudor, Mr. Williams was a Managing Director of Triumph Capital Group, a Boston-based private equity firm which managed more than $800 million in capital. In these positions, Mr. Williams has been responsible for investments in the technology services, software, business services and healthcare sectors. Mr. Williams currently serves on the boards of directors of CloudWave Healthcare Solutions, Abacus Group, AccountabilIT, The Shelby Group and Health Monitor Network. Mr. Williams previously served on the boards of directors of numerous private and public companies, including Thorne Research and LDiscovery. Mr. Williams received a B.S. in Computer Science from Yale University and a M.B.A. from the Wharton School at the University of Pennsylvania. We believe that Mr. Williams is qualified to serve as a member of our Board of Directors due to his extensive experience with growth-oriented companies and other public companies.

Board of Directors

Our business and affairs are managed under the direction of our Board of Directors. Our Board of Directors is currently comprised of ten members, classified into three classes, each comprising as nearly as possible one-third of the directors to serve three-year terms. As Class B directors, each of Donna Morea, Jonathan J. Ledecky, Evan Morgan, and Lauren Tanenbaum will serve until the 2021 annual meeting; as Class C directors, each of Christopher J. Weiler, Ian Fujiyama, and Arjun Shah will serve until the 2022 annual meeting; and as Class A directors, each of Richard J. Williams, Kevin Griffin, and Lawrence Prior III will serve until the 2023 annual meeting, or in each case until their respective successors are duly elected and qualified.

52

Independence of Directors

As a result of our Common Stock being quoted on the OTC Pink Sheet Market, we will adhere to its rules in determining whether a director is independent. Our Board of Directors has consulted, and will consult, with its counsel to ensure that the determinations are consistent with those rules and all relevant securities and other laws and regulations regarding the independence of directors. The OTC Pink Sheet Market listing standards generally define an “independent director” as a person, other than an executive officer or employee of a company or any other individual having a relationship which, in the opinion of the issuer’s Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.

Our Board of Directors has undertaken a review of its composition, the composition of its committees and the independence of each director. Based upon information requested from and provided by each director concerning his/her background, employment and affiliations, including family relationships, our Board of Directors has determined that Donna Morea, Jonathan Ledecky, Kevin Griffin, Ian Fujiyama, Evan Morgan, Lawrence Prior III, Richard Williams, Lauren Tanenbaum, and Arjun Shah do not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and that each of these directors is considered an independent director. Our independent directors will have regularly scheduled meetings at which only independent directors are present.

Board Leadership Structure and Role in Risk Oversight

Our Board of Directors recognizes that the leadership structure and combination or separation of the Chief Executive Officer and Chair of the Board of Directors roles is driven by our needs at any point in time. As a result, no policy exists requiring combination or separation of leadership roles and our governing documents do not mandate a particular structure. This has allowed our Board of Directors the flexibility to establish the most appropriate structure for us at any given time.

Our Board of Directors will oversee the risk management activities designed and implemented by our management. Our Board of Directors will execute its oversight responsibility both directly and through its committees. Our Board of Directors will also consider specific risk topics, including risks associated with our strategic initiatives, business plans and capital structure. Our management, including our executive officers, is primarily responsible for managing the risks associated with operation and business of the Company and will provide appropriate updates to the Board of Directors and the Audit Committee. Our Board of Directors will delegate to the Audit Committee oversight of its risk management process, and our other committees will also consider risk as they perform their respective committee responsibilities. All committees will report to the Board of Directors as appropriate, including when a matter rises to the level of a material or enterprise risk.

Meetings and Committees of the Board of Directors

Our Board of Directors held four meetings in 2020. We expect our directors to attend all board meetings and any meetings of committees of which they are members and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. Each of our directors attended all of the meetings of the Board of Directors and meetings of committees of which he or she was a member. Although we do not have any formal policy regarding director attendance at stockholder meetings, we attempt to schedule meetings so that all directors can attend.

We have a separately standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Each of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee are composed solely of independent directors.

Audit Committee Information

Lawrence Prior III (chairman), Evan Morgan, Kevin Griffin and Lauren Tanenbaum currently serve as members of our Audit Committee. Each member of the Audit Committee is financially literate. Mr. Darman previously qualified as an “audit committee financial expert” as defined in applicable SEC rules, however Mr. Darman resigned from our

53

Board of Directors on March 16, 2021. As a result, we will be reviewing our board members’ qualifications to identify a suitable audit committee financial expert. The Board has determined that each of the members of the Audit Committee is an “independent director,” as defined under the OTC Pink Sheet Market listing standards. Such Audit Committee members shall also be “financially literate.” “Financially literate” generally means being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. The Audit Committee has a written charter, which is available on our Investor Relations website at https://investors.kldiscovery.com/files/doc_downloads/Audit-Committee-Charter.pdf.

The Audit Committee is responsible for:

• meeting with our independent auditor regarding, among other issues, audits and the adequacy of our accounting and control systems;

• monitoring the independence of the independent auditor;

• verifying the rotation of the lead (or coordinating) audit partner having primary responsibility for the audit and the audit partner responsible for reviewing the audit as required by law;

• inquiring and discussing with management our compliance with applicable laws and regulations;

• pre-approving all audit services and permitted non-audit services to be performed by our independent auditor, including the fees and terms of the services to be performed;

• appointing or replacing the independent auditor;

• determining the compensation and oversight of the work of the independent auditor (including resolution of disagreements between management and the independent auditor regarding financial reporting) for the purpose of preparing or issuing an audit report or related work;

• establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or reports which raise material issues regarding our financial statements or accounting policies; and

• reviewing and approving all payments made to our existing stockholders, executive officers or directors and their respective affiliates. Any payments made to members of our Audit Committee will be reviewed and approved by our Board of Directors, with the interested director or directors abstaining from such review and approval.

Our Audit Committee held four meetings in 2020. Each of our Audit Committee members attended these meetings of the Audit Committee.

Nominating and Corporate Governance Committee Information

Our Nominating and Corporate Governance Committee currently consists of Ian Fujiyama (chairman), Lawrence Prior III and Richard Williams. The Nominating and Corporate Governance Committee is responsible for overseeing the selection of persons to be nominated to serve on our Board of Directors. The Nominating and Corporate Governance Committee considers persons identified by its members, management, stockholders, investment bankers and others. The Nominating and Governance Committee has a written charter, which is available on our Investor Relations website at https://investors.kldiscovery.com/files/doc_downloads/Nominating-Committee-Charter.pdf.

Guidelines for Selecting Director Nominees

The guidelines for selecting director nominees, which are specified in the Nominating and Corporate Governance Committee Charter, generally provide that persons to be nominated should:

• have demonstrated notable or significant achievements in business, education or public service;

• possess the requisite intelligence, education and experience to make a significant contribution to the Board of Directors and bring a range of skills, diverse perspectives and backgrounds to its deliberations; and

54

• have the highest ethical standards, a strong sense of professionalism and intense dedication to serving the interests of the stockholders.

The Nominating and Corporate Governance Committee will consider a number of qualifications relating to management and leadership experience, background and integrity and professionalism in evaluating a person’s candidacy for membership on the Board of Directors. The Nominating and Corporate Governance Committee may require certain skills or attributes, such as financial or accounting experience, to meet specific board needs that arise from time to time and will also consider the overall experience and makeup of its members to obtain a broad and diverse mix of board members. The Nominating and Corporate Governance Committee does not distinguish among nominees recommended by stockholders and other persons.

Our Nominating and Corporate Governance Committee acted by unanimous written consent one time in 2020.

Compensation Committee Information

Our Compensation Committee currently consists of Donna Morea (chair) and Richard Williams. The Compensation Committee has a written charter, which is available on our Investor Relations website at https://investors.kldiscovery.com/files/doc_downloads/Compensation-Committee-Charter.pdf.

The Compensation Committee’s duties include, but are not limited to:

• reviewing and approving the corporate goals and objectives relevant to our Chief Executive Officer’s compensation, annually evaluating our Chief Executive Officer’s performance in light of such goals and objectives and determining and approving the compensation (if any) of our Chief Executive Officer based on such evaluation;

• reviewing and approving the compensation of all of our other executive officers;

• reviewing our executive compensation policies and plans;

• implementing and administering our incentive compensation and equity-based compensation plans;

• assisting management in complying with our proxy statement and annual report disclosure requirements;

• approving any employment agreements, severance arrangements and change in control agreements or provisions for our executive officers;

• if required, producing a report on executive compensation to be included in our Annual Report on Form 10-K or annual proxy statement; and

• reviewing, evaluating and recommending changes, if appropriate, to the compensation for directors.

The Compensation Committee may also, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser and will be directly responsible for the appointment, compensation and oversight of the work of any such adviser. However, before engaging or receiving advice from a compensation consultant, external legal counsel or any other adviser, the Compensation Committee will consider the independence of each such adviser, including the factors required by the SEC.

The Compensation Committee makes compensation decisions regarding all of our Named Executive Officers. Our Chief Executive Officer makes recommendations to the Compensation Committee to assist it in determining compensation levels for our other executive officers and reviews the performance of our other executive officers. While the Compensation Committee utilizes this information and values management’s observations with regard to compensation, the ultimate decisions regarding executive compensation are made by the Compensation Committee.

Additionally, the Compensation Committee may form and delegate any of its responsibilities to one or more subcommittees as it deems appropriate. Our Compensation Committee met seven times in 2020.

55

Code of Ethics

We have adopted a Code of Ethics that applies to all officers, directors and employees. The Code of Ethics codifies the business and ethical principles that govern all aspects of our business.

We will provide, without charge, upon request, copies of our Code of Ethics. Requests for copies of the Code of Ethics should be sent in writing to KLDiscovery, 8201 Greensboro Dr., Suite 300, McLean, VA 22102. It is also available on our Investor Relations website at https://investors.kldiscovery.com/files/doc_downloads/Code_of_Ethics.PDF.

Compensation Committee Interlocks and Insider Participation

None of the members of the Compensation Committee is currently, or has been at any time, one of our officers or employees. None of our executive officers currently serves, or has served during the last year, as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

Stockholder and Interested Party Communications

We have adopted a Shareholder Communications Policy. Interested parties of the Company may communicate directly with the independent members of our Board of Directors and the chair of the Board of Directors about corporate governance, corporate strategy, board-related matters or other substantive matters that our company secretary and Chair of the Board of Directors consider to be important for the director(s) to know, by addressing any communications to the intended recipient by name or position in care of: Company Secretary, 8201 Greensboro Drive, Suite 300, McLean, VA 22102 or andrew.southam@kldiscovery.com.

2020 Director Compensation

Members of our Board of Directors who are not our employees are generally eligible to participate in a compensation program, which we refer to as the Non-Employee Director Compensation Program, under which a director is eligible to receive the following amounts as compensation for his or her services on our Board of Directors:

• upon the director’s initial election or appointment to the Board of Directors that occurred after the Business Combination, a number of restricted stock units determined by dividing (A) $350,000 by (B) the closing price per share of common stock on the date of grant, rounded down to the nearest whole share;

• if the director has served on our Board of Directors for at least six months as of the date of an annual meeting of stockholders and will continue serving as a non-employee director immediately after the Company’s annual meeting of stockholders, a number of restricted stock units determined by dividing (A) $175,000 by (B) the closing price per share of Common Stock on the date of grant, rounded down to the nearest whole share;

• the chairman of our Board of Directors, an annual retainer fee of $75,000;

• for other members of the Board of Directors, an annual retainer fee of $30,000; and

• if the director serves on a committee of our Board of Directors, an additional annual fee as follows:

▪ chairman of the Audit Committee, $20,000;

▪ Audit Committee member other than the chairman, $10,000;

▪ chairman of the Compensation Committee, $14,000;

▪ Compensation Committee member other than the chairman, $7,000;

▪ chairman of the Nominating and Corporate Governance Committee, $7,500; and

▪ Nominating and Corporate Governance Committee member other than the chairman, $4,000.

56

However, for fiscal year 2020, Ian Fujiyama, William Darman and Richard Williams were not eligible to participate in the Non-Employee Director Compensation Program, and Evan Morgan was not eligible to receive an annual retainer fee under the Non-Employee Director Compensation Program, but was eligible to receive equity-based compensation under the Non-Employee Director Compensation Program. Effective as of June 17, 2020, our Non-Employee Director Compensation Program was amended to eliminate the additional $45,000 fee provided to our lead independent director and, instead, provide a $75,000 annual retainer fee for the chairman of our Board of Directors.

The restricted stock units granted upon a director’s initial election or appointment will vest as to one-third of the restricted stock units on each of the first three anniversaries of the date of grant, such that the award will be fully vested on the third anniversary of the date of grant, subject to continued service. The restricted stock units granted annually to directors will vest in a single installment on the day before the next annual meeting, subject to continued service. In addition, all unvested restricted stock units will vest in full upon the occurrence of a change in control, subject to continued service.

Director fees under the program will be payable in arrears in four equal quarterly installments not later than the fifteenth day following the final day of each calendar quarter, provided that the amount of each payment will be prorated for any portion of a quarter that a director is not serving on our Board of Directors.

Each member of our Board of Directors is entitled to be reimbursed for reasonable travel and other expenses incurred in connection with attending meetings of the Board of Directors and any committee of the Board of Directors on which he or she serves.

2020 Director Compensation Table

The table below shows all compensation to our non-employee directors for the year ended December 31, 2020.

Name	Year	Fees Earned or Paid in Cash ($)		Stock Awards ($) (4)		Total ($)
Jonathan Ledecky	2020		30,000		149,347		179,347
Kevin Griffin	2020		40,000		149,347		189,347
Daniel Akerson (1)	2020		-		-		-
Donna Morea	2020		78,750		149,347		228,097
William Darman (2)	2020		-		-		-
Richard Williams	2020		-		-		-
Evan Morgan	2020		-		149,347		149,347
Lawrence Prior III (3)	2020		41,684		343,500		385,184
Ian Fujiyama (3)	2020		-		-		-

(1) Mr. Akerson served as a director until January 21, 2020.

(2) Mr. Darman served as a director until March 16, 2021.

(3) Messrs. Prior and Fujiyama were appointed to our Board of Directors as of March 23, 2020.

(4) Amounts reflect the full grant-date fair value of stock awards granted during 2020 computed in accordance with Accounting Standards Codification Topic 718, rather than the amounts paid to or realized by the named individual. For a description of the assumptions used in valuing these awards, see Note 9 to our audited consolidated financial statements included in this annual report.   The table below shows the number of stock awards held as of December 31, 2020 by each of our non-employee directors.  None of our directors held outstanding option awards as of such date:

57

Name	Stock Awards Outstanding as of December 31, 2020 (3)
Jonathan Ledecky		21,739
Kevin Griffin		21,739
Donna Morea		21,739
Evan Morgan		21,739
Lawrence Prior III		50,000

Item 11. Executive Compensation.

Our “Named Executive Officers” for the year ended December 31, 2020 are Christopher J. Weiler, our Chief Executive Officer, Dawn M. Wilson, our Chief Financial Officer, and Krystina L. Jones, our Executive Vice President, Global Legal Technologies Sales & Marketing (collectively, the “Named Executive Officers” or “NEOs”).

This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. The compensation reported in this discussion is not necessarily indicative of how our Named Executive Officers will be compensated in the future.

2020 Summary Compensation Table

The following table presents summary information regarding the total compensation for the years ended December 31, 2020 and December 31, 2019, for the Named Executive Officers.

Name and Principal Position	Year	Salary ($)				Bonus ($)		Stock Awards ($) (2)		Option Awards ($) (2)		Non-Equity Incentive Plan Compensation ($)				All Other Compensation ($) (4)		Total ($)
Christopher J. Weiler	2020		372,692				-		274,800		-		-				13,196		660,688
Chief Executive Officer	2019		493,269				-		-		425,447		-				12,037		930,753
Dawn M. Wilson	2020		354,769						870,127		9,529		-				6,851		1,241,276
Chief Financial Officer	2019		355,769				240,000		-		1,063,599		-				7,461		1,666,829
Krystina L. Jones	2020		524,404	(1	)		-		342,662		55,695		1,865,520	(3	)		7,300		2,795,581
EVP, Global LT Sales &	2019		569,230				-		-		319,076		1,666,151				11,200		2,565,657
Marketing

(1) The amount shown includes Ms. Jones’s base salary of $374,404, and irrecoverable draw of $150,000 earned pursuant to the KLDiscovery 2019 Americas Legal Technology Sales Commission Plan (the “2019 Commission Plan”), which is described below under the heading “—Sales Commission Plan.”

(2) Amounts in this column reflect the estimated aggregate grant date fair value of stock awards and option awards granted computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. The assumptions used by the Company in calculating these amounts are included in Note 9 to our audited consolidated financial statements included in this Annual Report. With respect to the restricted stock units, the estimated per-share grant date fair value used to calculate the amounts shown was $6.87 per share, and the amounts shown assume the satisfaction of the relevant event-based vesting conditions.

(3) Amount reflects commissions earned by Ms. Jones pursuant to the KrolLDiscovery Legal Technology Sales Commission Plan, as described below under the heading “—Sales Commission Plan.”

(4) Consists of Company matching contribution payments pursuant to the Company’s 401(k) plan, Company paid insurance premiums and for Mr. Weiler, a wellness gift card of $800 in 2020.

Narrative to 2020 Summary Compensation Table

The primary elements of compensation for the Company’s Named Executive Officers were base salary, annual cash bonuses, awards of stock options, awards of RSUs and, for Ms. Jones, commissions and an irrevocable draw through our sales commission program. The Company’s Named Executive Officers are also eligible to participate in our employee benefit plans and programs, including medical and dental benefits, flexible spending accounts, long-term care benefits, and short- and long-term life insurance, to the same extent as our other full-time employees, subject to the terms and eligibility requirements of those plans.

58

Base Salaries

The Company’s Named Executive Officers receive a base salary to compensate them for services rendered to our company. The base salary payable to each Named Executive Officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities.

During 2020, the base salaries of the Company’s Named Executive Officers were modified multiple times as part of the company’s cost savings initiative in response to the COVID-19 pandemic, as described in the footnotes to the table below. In recognition for their willingness to agree to their base salary reductions and their contributions to the Company, Mses. Wilson and Jones received awards of stock options and RSUs with grant date fair values that were materially greater than the amount of their base salary reductions. These awards are described below under the heading “—Equity Compensation”.

The annual base salaries for our Named Executive Officers as of December 31, 2019 and December 31, 2020 were as follows:

Name	Annual Base Salary as of December 31, 2019 ($)		Annual Base Salary as of December 31, 2020 ($)
Christopher J. Weiler (1)		490,000		300,000
Dawn Wilson (2)		400,000		320,000
Krystina Jones (3)		575,000		490,000

(1) Effective February 24, 2020, Mr. Weiler’s annual base salary was reduced to $400,000. Effective April 21, 2020, Mr. Weiler’s annual base salary was reduced to $350,000. Effective August 1, 2020, Mr. Weiler’s annual base salary was reduced to $300,000 until December 31, 2020, and he also agreed to forgo one week’s salary in August 2020. On December 22, 2020, Mr. Weiler agreed that his annual base salary would continue to be $300,000 until September 30, 2021.

(2) Effective April 23, 2020, Ms. Wilson’s annual base salary was reduced to $320,000. On July 31, 2020, Ms. Wilson agreed that her annual base salary would continue to be $320,000 until December 31, 2020, and she also agreed to forgo one week’s salary in August 2020. On December 22, 2020, Ms. Wilson agreed that her annual base salary would continue to be $320,000 until September 30, 2021.

(3) Amounts include the $150,000 annual irrecoverable draw payable to Ms. Jones pursuant to the KrolLDiscovery 2018 Legal Technology Sales Commission Plan and the 2019 Commission Plan, as further described below under the heading “—Sales Commission Plan.” Effective April 23, 2020, Ms. Jones’s annual base salary was reduced to $460,000 and she agreed to forgo certain sales commissions amounting to $113,192. Effective August 1, 2020, Ms. Jones’s annual base salary was increased to $490,000, but she also agreed to forgo one week’s salary in August 2020. On December 22, 2020, Ms. Jones agreed that her annual base salary would continue to be $490,000 until September 30, 2021.

Annual Cash Bonuses

In addition to base salaries, Mr. Weiler and Ms. Wilson are eligible to participate in the KLDiscovery Inc. Corporate Annual Bonus Plan (the “Annual Bonus Plan”). The Annual Bonus Plan is designed to motivate our employees to achieve corporate goals and to reward our employees for their contributions towards achievement of these goals. Our Board of Directors annually approves the Company’s annual budget, which includes a discretionary bonus pool for granting awards under the Annual Bonus Plan. The extent to which the bonus pool is funded is based on the Company’s achievement of certain adjusted EBITDA goals during the plan year. After the year is completed, certain of our senior executives grant eligible employees bonuses from the bonus pool based on each employee’s role, seniority, and annual cash bonus target.

59

For 2020, the financial goals related generally to the achievement of adjusted EBITDA goals. The target ETBIDA level was $82.4 million for 2020, and the aggregate bonus pool under the Annual Bonus Plan could range between $1 million and $5 million. Disclosure for how adjusted EBITDA is calculated is calculated from our audited financial statements is provided in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations–– Key Components of our Results Of Operations–– Adjusted EBITDA.”

Mr. Weiler and Ms. Wilson’s 2020 annual cash bonus targets, expressed as a percentage of base salary, were 75% and 60%, respectively. Based on the Company’s performance during 2020, it was determined that no bonuses were to be paid to Mr. Weiler or Ms. Wilson for 2020 under the Annual Bonus Plan, as noted in the “2020 Summary Compensation Table” above.

Sales Commission Plan

Ms. Jones is eligible to earn sales commissions pursuant to the 2019 Commission Plan (together with the addendums thereunder). Under the 2019 Commission Plan, Ms. Jones is eligible to earn an annual irrevocable draw of $150,000, payable in equal monthly installments as well as additional, monthly commission that is based on invoiced revenue multiplied by specified commission rates, payable in arrears to the extent that they exceed her monthly draw. Ms. Jones’s annual irrevocable draw has not been reduced during the COVID-19 pandemic, but, on April 23, 2020, Ms. Jones agreed to forgo $113,192 in monthly commission payments.

Equity Compensation

We have granted equity awards pursuant to the KLDiscovery Inc. 2019 Incentive Award Plan (the “2019 Plan”) to our eligible employees, including our Named Executive Officers. We have historically offered stock options and RSUs as the long-term incentive component of our compensation program. The Company’s stock options generally allow employees, including our Named Executive Officers, to purchase shares of our Common Stock at a price equal to the fair market value of our Common Stock on the date of grant, as determined by the Board of Directors. The Company’s RSUs represent a contractual right to receive one share of our Common Stock for each RSU upon the settlement date, subject to certain vesting conditions.

Generally, stock options and RSUs granted under the 2019 Plan have vesting schedules that are designed to encourage continued employment. Stock options granted to our NEOs generally vest over a three-year period, subject to continued employment and generally expire ten years from the date of grant. In the event of a change in control of the Company (a “Change in Control”), the option tranche that was scheduled on the applicable vesting date immediately following the Change in Control will immediately vest, and the remainder of the option will vest in each of the subsequent anniversaries of the Change in Control.  We refer to this option vesting schedule herein as the “Standard Option Vesting Schedule.”

RSUs granted to our NEOs generally vest according to the following vesting schedule (subject to continued employment), which we refer to herein as the “Standard RSU Vesting Schedule”:

• if a Change in Control occurs prior to the listing of our Common Stock on a nationally recognized stock exchange (an “IPO”), a portion of the RSUs will vest upon the Change in Control and the remainder will vest in up to three annual installments thereafter unless the Change in Control occurs after the third anniversary of a specified vesting commencement date, in which case the RSUs will become fully vested upon the Change in Control; and

• if an IPO occurs before a Change in Control, a portion of the RSUs will vest upon the IPO (unless the IPO occurs before the first anniversary of a specified vesting commencement date), with the remainder vesting in three annual installments on the first three anniversaries of the specified vesting commencement date, and with additional accelerated vesting upon a subsequent Change in Control of the excess, if any, of 50% of the total number of RSUs over the amount of RSUs then vested.

From time to time, our Board of Directors may also construct alternate vesting schedules as it determines are appropriate to motivate particular employees.

60

In 2019, Mr. Weiler received an award of 121,110 stock options, but on August 6, 2020, he voluntarily forfeited all 121,110 such stock options. In 2020, Mr. Weiler received an award of 40,000 RSUs, but on April 23,2020, he voluntarily forfeited all 40,000 RSUs.

In 2019 and 2020, Ms. Wilson received awards of 302,770 and 5,015 stock options, respectively. In addition, in 2020, Ms. Wilson received an award of 126,656 RSUs. On April 23, 2020, Ms. Wilson voluntarily forfeited 6,667 RSUs. The outstanding stock options and RSUs vest based on the Company’s Standard Option Vesting Schedule and Standard RSU Vesting Schedule described above.

In 2019 and 2020, Ms. Jones received awards of 90,830 and 29,913 stock options, respectively. In addition, in 2020, Ms. Jones received an award of 49,878 RSUs. On April 23, 2020, Ms. Jones voluntarily forfeited 6,667 RSUs, and on May 5, 2020, Ms. Jones voluntarily forfeited 6,000 stock options and 3,000 RSUs. The outstanding stock options and RSUs vest based on the Company’s Standard Option Vesting Schedule and Standard RSU Vesting Schedule described above.

During 2020, Mr. Weiler, Ms. Wilson and Ms. Jones all agreed to these forfeitures in order to facilitate the grant of equity awards to other key employees.

Executive Employment Arrangements

The Company has entered into employment and severance arrangements with each of the Named Executive Officers. The material terms and conditions of these arrangements are described below.

Christopher J. Weiler

Mr. Weiler is party to an employment agreement, dated September 30, 2011, and which has been subsequently amended, pursuant to which he serves as the Chief Executive Officer of the Company. The current term of the employment agreement will expire on September 30, 2023, subject to automatic one-year renewals unless either party gives written notice of non-renewal at least ninety days prior to the then-scheduled expiration of the term. Pursuant to his employment agreement, Mr. Weiler is entitled to an annual base salary, and is eligible to participate in an incentive program established by the Board under which Mr. Weiler may earn a bonus based on achievement of performance metrics as determined by the Board.

Mr. Weiler has also agreed to refrain from disclosing our confidential information during or at any time following his employment with us and from competing with us or soliciting our employees or customers during his employment and for one year following termination of his employment.

In the event that Mr. Weiler’s employment is terminated either by the Company without cause (as defined in his employment agreement) or by Mr. Weiler for good reason (as defined in his employment agreement), subject to his execution and non-revocation of a general release of claims and continued compliance with his restrictive covenant obligations, as described above, Mr. Weiler would be entitled to receive (i) an amount in cash equal to the sum of (A) his base salary and (B) a pro-rated bonus for the year in which his termination occurs and (ii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to 12 months. In the event that Mr. Weiler’s employment is terminated either by the Company without cause or by Mr. Weiler for good reason, in either case, within three months prior to or twelve months following a change in control, then in lieu of the severance benefits described above, subject to his execution and non-revocation of a general release of claims and continued compliance with his restrictive covenant obligations, as described above, Mr. Weiler would be entitled to receive (i) an amount in cash equal to 1.5 times the sum of (A) his base salary plus (B) his target annual bonus for the year of termination, (ii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to 18 months and (iii) accelerated vesting of all unvested equity or equity-based awards held by him that vest solely based on the passage of time, with any such awards that vest based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement.

61

Dawn M. Wilson and Krystina L. Jones

The Company entered into an offer letter agreement with Ms. Wilson pursuant to which she serves as the Chief Financial Officer of the Company. Pursuant to her offer letter, Ms. Wilson is entitled to an annual base salary and is eligible to earn a discretionary bonus currently targeted at 60% of her annual base salary based on the achievement of key performance objectives and company performance.

Ms. Jones is party to an offer letter agreement pursuant to which Ms. Jones has been employed by the Company. Pursuant to her offer letter, Ms. Jones is entitled to an annual base salary, an irrevocable draw of $150,000, and is eligible to receive monthly commissions under the Company’s current commission plan.

The Company has entered into restrictive covenant agreements with each of Mses. Wilson and Jones pursuant to which they agree to refrain from disclosing our confidential information during or at any time following their employment with us and from competing with us or soliciting our employees or customers during their employment and for one year following termination of their employment.

The Company also entered into executive severance agreements with each of Mses. Wilson and Jones. Under these severance agreements, which became effective on June 17, 2020, in the event that Ms. Wilson or Ms. Jones’s employment is terminated by the Company without cause (as defined in the severance agreements) or by Ms. Wilson or Ms. Jones for good reason (as defined in the severance agreements), subject to her execution and non-revocation of a general release of claims, Ms. Wilson or Ms. Jones, as applicable, would be entitled to receive (i) an amount in cash equal to the sum of (A) 50% of her base salary (without regard to the base salary reductions described above under the heading “—Base Salaries”), (B) a pro-rated bonus for the year in which her termination occurs, and (C) for Ms. Jones, an amount equal to six months of her average monthly sales commissions over the prior three year period and (ii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to 6 months. In the event that Ms. Wilson’s or Ms. Jones’s employment is terminated either by the Company without cause or by Ms. Wilson or Ms. Jones, as applicable, for good reason, in either case, within three months prior to or twelve months following a change in control, then in lieu of the severance benefits described above, subject to her execution and non-revocation of a general release of claims and continued compliance with her restrictive covenant obligations, as described above, Ms. Wilson or Ms. Jones, as applicable, would be entitled to receive (i) an amount in cash equal to the sum of (A) her base salary plus (B) her target annual bonus for the year of termination and (C) for Ms. Jones, an amount equal to twelve months of her average monthly sales commissions over the prior three year period, (ii) direct payment of or reimbursement for continued medical, dental or vision coverage pursuant to COBRA for up to 12 months and (iii) accelerated vesting of all unvested equity or equity-based awards held by her that vest solely based on the passage of time, with any such awards that vest based on the attainment of performance-vesting conditions being governed by the terms of the applicable award agreement.

62

Outstanding Equity Awards at 2020 Fiscal Year End

The following table summarizes the number of shares of Common Stock underlying outstanding equity incentive plan awards for each Named Executive Officer as of December 31, 2020.

			Option Awards							Stock Awards
Name and Principal Position	Grant Date		Number of Securities Underlying Unexercised Options Exercisable (2)		Number of Securities Underlying Unexercised Options Unexercisable (2)		Option Exercise Price		Option Expiration Date	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (3)		Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (4)
Christopher J. Weiler		(1)	—		—		—		—	—		—
Chief Executive Officer			—		—		—		—	—		—
Dawn M. Wilson	4/21/2020		—			5,015	$	9.95	4/20/2030		1,656	$	13,331
Chief Financial Officer	2/17/2020		—		—		—		—		118,333	$	952,581
	12/19/2019			100,923		201,847	$	9.90	12/18/2029	—		—
Krystina L. Jones	4/21/2020		—			23,913	$	9.95	4/20/2030		6,878	$	55,367.90
EVP, Global LT Sales &	2/17/2020		—		—		—		—		33,333	$	268,330.65
Marketing	12/19/2019			30,276		60,534	$	9.90	12/18/2029	—		—

(1) As of December 31, 2020, Mr. Weiler held no stock options or RSUs due to the voluntary forfeiture of his equity awards, as described above under the heading entitled “—Equity Compensation”.

(2) The option vests in accordance with the Standard Option Vesting Schedule, as described above under the heading entitled “—Equity Compensation”.

(3) The RSUs vest in accordance with the Standard RSU Vesting Schedule described above under the heading “—Equity Compensation”.

(4) The amounts shown were determined based on the per share closing market price of our Common Stock on December 31, 2020, which was $8.05.

Retirement, Health, Welfare and Additional Benefits

Our Named Executive Officers are eligible to participate in our employee benefit plans and programs, including medical, dental and vision benefits and life insurance, to the same extent as its other full-time employees, subject to the terms and eligibility requirements of those plans. We also sponsor a 401(k) defined contribution plan in which our Named Executive Officers may participate, subject to limits imposed by the Internal Revenue Code of 1986, as amended, to the same extent as all of our other full-time employees. The plan allows for us to make discretionary employer matching contributions equal to 100% of the first 3% and 50% of the next 2% of a participant’s deferral. We did not make any employer matching contributions in 2020. These matching contributions are fully vested as of the date on which the contribution is made. We believe that providing a vehicle for tax-deferred retirement savings through our 401(k) plan adds to the overall desirability of our executive compensation package and further incentivizes our employees, including our Named Executive Officers, in accordance with our compensation policies.

63

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth information regarding the beneficial ownership of our Common Stock as of March 4, 2021 by:

• each person known by us to be the beneficial owner of more than 5% of our outstanding Common Stock (based on our review of filings with the SEC);

• each of our executive officers and directors; and

• all of our executive officers and directors as a group.

Unless otherwise noted, the amount of beneficial ownership for each individual or entity includes (i) shares of Common Stock issuable upon exercise of the Warrants, (ii) shares of Common Stock issuable upon conversion of the Debentures, as the Debentures are convertible by the holders thereof at any time at a price of $18 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions), and (iii) shares of Common Stock that may be issuable to certain of our stockholders if the reported closing sale price of our Common Stock equals or exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Business Combination (the “Contingent Shares”), as such conditions may occur within 60 days. The number of shares and percentages of beneficial ownership set forth below are based on 42,533,482 shares of our Common Stock issued and outstanding as of March 4, 2021, which does not include any shares issuable upon exercise of Warrants or conversion of Debentures or any Contingent Shares. To our knowledge, except as noted below, no person or entity is the beneficial owner of more than 5% of the voting power of the Company's voting securities.

Beneficial ownership is determined under SEC rules and regulations and generally includes voting or investment power over securities. Unless otherwise indicated, we believe that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them.

Name and Address of Beneficial Owner	Amount and Nature of Beneficial Ownership		Approximate Percentage of Outstanding Shares
Directors and Executive Officers (1)
Jonathan J. Ledecky (2)		9,655,889		20.5	%
Kevin Griffin (2)(3)		15,865,326		29.9	%
Evan Morgan (4)		40,228	*
Richard J. Williams (5)		1,607,823		3.8	%
Donna Morea (6)		55,806	*
Christopher J. Weiler (7)		1,588,803		3.7	%
Dawn Wilson (8)		100,923	*
Krystina Jones (9)		165,250	*
Arjun Shah	—		—
Lawrence Prior III		16,667	*
Ian Fujiyama	—		—
Lauren Tanenbaum	—		—
All executive officers and directors as a group (12 individuals)		29,096,715		50.1	%
Five Percent Holders
Pivotal Acquisition Holdings LLC (2)		9,655,889		20.5	%
The Carlyle Group Inc. (10)		21,250,970		48.5	%
OTPP (11)		7,416,079		15.3	%
MGG (12)		5,805,556		12.1	%
Revolution (13)		4,098,642		9.6	%
Linden Capital L.P. (14)		3,164,907		6.9	%

* Denotes less than 1%.

64

(1) Unless otherwise indicated, the business address of each of the individuals is c/o KLDiscovery Inc., 8201 Greensboro Dr., Suite 300, McLean, Virginia 22102.

(2) Represents shares held by the Founder, of which each of Ironbound Partners Fund, LLC, an affiliate of Mr. Ledecky, and Pivotal Spac Funding LLC, an affiliate of Mr. Griffin, is a managing member. Includes 4,585,281 shares of Common Stock that may be acquired upon the exercise of Private Warrants held by the Founder. The business address of the Founder is c/o Graubard Miller, The Chrysler Building, 405 Lexington Avenue, 11th Floor, New York, New York 10174.

(3) Includes (i) 250,000 shares of Common Stock held of record and (ii) 5,959,437 shares of Common Stock that may be acquired upon conversion of Debentures held by investment funds affiliated with MGG, which are controlled by Mr. Griffin, the Chief Executive Officer of MGG, and Gregory Racz, the President and Chief Legal Officer of MGG. Each of Mr. Griffin and Mr. Racz disclaims beneficial ownership of the securities held by the investment funds affiliated with MGG.

(4) Includes (i) 4,984 shares of Common Stock held by Conifer Partners, (ii) 315 Contingent Shares that may be issuable to Conifer Partners, (iii) 32,852 shares of Common Stock held by Radcliff Principal Holdings LLC and (iv) 2,077 Contingent Shares that may be issuable to Radcliff Principal Holdings LLC. Mr. Morgan has, or, in the case of the Contingent Shares, will have, voting and dispositive control over such shares of Common Stock and Contingent Shares.

(5) Includes (i) 1,512,223 shares of Common Stock held by WestView and (ii) 95,600 Contingent Shares that may be issuable to WestView. Mr. Williams is a co-managing partner of this entity and has, or, in the case of the Contingent Shares, will have, voting and dispositive control over such shares of Common Stock and Contingent Shares.

(6) Includes 52,488 shares of Common Stock held by Ms. Morea and 3,318 Contingent Shares that may be issuable to Ms. Morea.

(7) Includes 1,455,090 shares of Common Stock held by Mr. Weiler and 133,713 Contingent Shares that may be issuable to Mr. Weiler.

(8) Includes 100,923 vested options that may be issuable to Ms. Wilson.

(9) Includes 126,949 shares of Common Stock held by Ms. Jones, 8,025 Contingent Shares, and 30,276 vested options that may be issuable to Ms. Jones.

(10) Includes (i) 18,261,123 shares of Common Stock held of record by CEOF II DE I AIV, L.P., (ii) 1,154,439 Contingent Shares that may be issuable to CEOF II DE I AIV, L.P., (iii) 1,658,789 shares of Common Stock held of record by CEOF II Coinvestment (DE), L.P., (iv) 104,866 Contingent Shares that may be issuable to CEOF II Coinvestment (DE), L.P., (v) 76,892 shares of Common Stock held of record by CEOF II Coinvestment B (DE), L.P. (together with CEOF II DE I AIV, L.P. and CEOF II Coinvestment (DE), L.P., the “CEOF Funds”) and (vi) 4,861 Contingent Shares that may be issuable to CEOF II Coinvestment B (DE), L.P. Carlyle Group Management L.L.C. holds an irrevocable proxy to vote a majority of the shares of The Carlyle Group Inc., which is a publicly traded entity listed on NASDAQ. The Carlyle Group Inc. is the sole shareholder of Carlyle Holdings I GP Inc., which is the managing member of Carlyle Holdings I GP Sub L.L.C., which is the general partner of Carlyle Holdings I L.P., which, with respect to the securities reported herein, is the managing member of CG Subsidiary Holdings L.L.C., which is the managing member of TC Group, L.L.C., which is the general partner of TC Group Sub L.P., which is the sole member of CEOF II DE GP AIV, L.L.C., which is the general partner CEOF II DE AIV GP, L.P., which is the general partner of each of the CEOF Funds. Accordingly, each of the foregoing entities may be deemed to share beneficial ownership of the securities held of record by, or that may be issuable to, the CEOF Funds. The address of each of the persons or entities named in this footnote is c/o The Carlyle Group, 1001 Pennsylvania Ave. NW, Suite 220 South, Washington, D.C. 20004-2505.

(11) According to a Schedule 13D filed with the SEC on December 30, 2019, includes (i) 1,478,379 shares of Common Stock held of record directly by 1397225 Ontario Limited (“1397225”), a wholly owned subsidiary of Ontario Teachers’ Pension Plan Board (“OTPP” and, together with 1397225, the “OTPP Entities”), (ii) 1,411,775 shares of Common Stock that may be acquired upon the exercise of Debenture Holder Warrants held directly by 1397225 and (iii) 4,525,925 shares of Common Stock that may be acquired upon conversion of Debentures held directly by 1397225. The President and Chief Executive Officer of OTPP has delegated to each of Mr. Christopher Witkowski and Mr. Michael Merkoulovitch the authority to implement disposition decisions with respect to the shares of Common Stock that are held by or may be acquired by 1397225; however, approval of such decisions is made by senior personnel within the capital markets group of OTPP in accordance with internal portfolio guidelines. Voting decisions are made by personnel within the public equities group of OTPP in accordance with internal proxy voting

65

guidelines. As such, each of Messrs. Witkowski and Merkoulovitch expressly disclaims beneficial ownership of the shares of Common Stock that are held by or may be acquired by 1397225. The business address of the OTPP Entities is 5650 Yonge Street, Toronto, Ontario M2M 4H5.  

(12) According to a Schedule 13D filed with the SEC on December 23, 2019, includes (i) 250,000 shares of Common Stock and (ii) 5,555,556 shares of Common Stock that may be acquired upon conversion of Debentures held of record by certain investment funds and/or accounts (collectively, the “MGG Funds”). MGG Investment Group LP (“MGG”) is the investment advisor to the MGG Funds. Mr. Griffin is the Chief Executive Officer of MGG, and Mr. Racz is the President and Chief Legal Officer of MGG. Mr. Griffin and Mr. Racz each disclaim beneficial ownership of the securities held by the MGG Funds. The business address of the MGG Funds is One Penn Plaza, New York, New York 10119.

(13) According to a Schedule 13G filed with the SEC on February 3, 2020, includes 4,098,642 shares of Common Stock held of record by Revolution Growth III, LP and does not include 259,110 Contingent Shares that may be issuable to Revolution Growth III, LP. Steven J. Murray is the operating manager of Revolution Growth UGP III, LLC, the general partner of Revolution Growth GP III, LP, which is the general partner of Revolution Growth III, LP. Revolution Growth UGP III, LLC, Revolution Growth GP III, LP and Mr. Murray may be deemed to have voting and dispositive power with respect to these shares of Common Stock and Contingent Shares. The business address for each of the above individuals and entities is 1717 Rhode Island Avenue, NW, 10th Floor, Washington, D.C. 20036.

(14) According to a Schedule 13G filed with the SEC on February 4, 2021, includes (i) 2,823,924 shares of Common Stock that may be acquired upon the exercise of Public Warrants held of record by Linden Capital L.P. (“Linden Capital”) and (ii) 340,983 shares of Common Stock that may be acquired upon the exercise of Public Warrants held of record by separately managed accounts (collectively, the “Managed Accounts”). Linden GP LLC (“Linden GP”) is the general partner of Linden Capital. Linden Advisors LP (“Linden Advisors”) is the investment manager of Linden Capital and trading advisor or investment advisors of the Managed Accounts. Siu Min Wong is the principal owner and controlling person of Linden GP and Linden Advisors. In such capacities, Linden GP may be deemed to beneficially own the shares held of record by Linden Capital, and each of Linden Advisors and Mr. Wong may be deemed to beneficially own the shares held of record by each of Linden Capital and the Managed Accounts. The business address for Linden Capital is Victoria Place, 31 Victoria Street, Hamilton HM10, Bermuda. The business address for each of Linden Advisors, Linden GP and Mr. Wong is 590 Madison Avenue, 15th Floor, New York, New York 10022.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Related Person Policy

Our Code of Ethics requires us to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interests, except under guidelines approved by the Board of Directors (or the Audit Committee). Related party transactions are defined as transactions in which (1) the aggregate amount involved will or may be expected to exceed $120,000 in any calendar year, (2) we or any of our subsidiaries is a participant and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5% beneficial owner of our Common Stock, or (c) immediate family member of the persons referred to in clauses (a) and (b) has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 5% beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.

Our Audit Committee, pursuant to its written charter, is responsible for reviewing and approving related party transactions to the extent we enter into such transactions. The Audit Committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related party’s interest in the transaction. No director may participate in the approval of any transaction in which he is a related party, but that director is required to provide the Audit Committee with all material information concerning the transaction. Additionally, we require each of our directors and executive officers to complete an annual directors’ and officers’ questionnaire that elicits information about related party transactions.

66

These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.

Related Person Transactions

In August 2018, we issued 5,570,000 shares of Class B common stock to the Founder for $25,000 in cash, at a purchase price of approximately $0.004 per share, in connection with our organization (the “founder shares”). The Founder transferred 50,000 founder shares to each independent director in December 2018 and transferred 100,000 founder shares to Pivotal’s chief financial officer in December 2018, in each case at the same per-share purchase price paid by the Founder.

The founder shares were designated as Class B common stock and were automatically converted into shares of our single class of Common Stock on the first business day following the consummation of the Business Combination on a one-for-one basis, subject to adjustment. Notwithstanding the foregoing, this provision was not triggered in connection with the Business Combination.

The Founder and our officers and directors purchased an aggregate of 6,350,000 private warrants (for a total purchase price of $6,350,000) from us on a private placement basis simultaneously with the consummation of our initial public offering (“IPO”) (the “Private Warrants”). The Private Warrants are identical to the 23,000,000 warrants exercisable for Common Stock included in the units issued in our IPO (the “Public Warrants”) except that the Private Warrants: (i) are not redeemable by us and (ii) may be exercised for cash or on a cashless basis, as described in the prospectus for our IPO, so long as they are held by the initial purchasers or any of their permitted transferees. If the Private Warrants are held by holders other than the initial purchasers or any of their permitted transferees, they will be redeemable by us and exercisable by the holders on the same basis as the Public Warrants included in the units sold in our IPO. The initial purchasers of the Private Warrants have agreed not to transfer, assign or sell any of the Private Warrants, including the Common Stock issuable upon exercise of the Private Warrants (except to certain permitted transferees), until 30 days after the completion of the Business Combination. In connection with the Business Combination, the Founder forfeited 1,764,719 Private Warrants.

Other than as described above, no compensation of any kind was paid by us to our Founder, executive officers and directors, or any of their respective affiliates, for services rendered prior to or in connection with the completion of the Business Combination. However, these individuals were reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations.

Pivotal Spac Funding LLC, a managing member of the Founder, agreed in connection with our IPO, pursuant to the Forward Purchase Contract, to purchase, in a private placement to occur concurrently with the consummation of our initial business combination, and under certain conditions, up to $150,000,000 of our securities.

Securities Purchase Agreement

On December 16, 2019, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with Ontario Teachers’ Pension Plan, another large global financial institution and affiliates of MGG, an affiliate of Kevin Griffin (the “Purchasers”). Pursuant to the Purchase Agreement, on the Closing Date, we sold to the Purchasers an aggregate of $200 million convertible debentures in a private placement (the “Debentures”). The Debentures have a term of 5 years and will be repayable at any time prior to maturity without any prepayment penalty. However, in the event we elect to pre-pay the Debentures, the holders will have a right to purchase Common Stock from us in an amount commensurate in value to the pre-payment at a price of $18 per share, subject to adjustment (the “conversion price”). Additionally, the holders will have the option to convert the Debentures into shares of our Common Stock at the conversion price at any time. The Debentures will mature on December 19, 2024 unless earlier converted, redeemed or repurchased. The Debentures will bear interest at an annual rate of 4.00% in cash and 4.00% in kind, payable quarterly on the last business day of March, June, September and December. In addition, on each anniversary of the Closing Date, Pivotal will add to the principal amount (subject to reduction for any principal

67

amount repaid) of the Debentures an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding (the “Additional Payment”). The Additional Payment will accrue from the last payment date for the Additional Payment (or the Closing Date if no prior payment has been made), and will also be payable at maturity, upon conversion and upon an optional redemption. In connection with the issuance of the Debentures, certain of the Purchasers also purchased from us on the Closing Date an aggregate of 2,097,974 shares of our Common Stock and 1,764,719 warrants sold to the Debenture holders in a private placement that closed simultaneously with the consummation of the Business Combination (“Debenture Holder Warrants”) for the aggregate price of approximately $1.77 million.

As of December 31, 2020, $107.3 million, including payment-in kind interest, of our Debentures are held by affiliates of MGG. For the years ended December 31, 2020 and December 31,2019, we recognized $12.1 million and $0.4 million in interest expense, respectively, related to the amounts held by affiliates of MGG.

Stockholders’ Agreement

In connection with the closing of the Business Combination, we entered into a Stockholders’ Agreement(as amended on March 25, 2020 and further amended on February 2, 2021) with affiliates of TCG and RG, pursuant to which the holders of a majority of the shares of our Common Stock held by such TCG affiliates and RG have the right to designate up to six directors (or such other number as permitted pursuant to the terms of the Stockholders’ Agreement) for election to our board of directors for so long as such TCG affiliates and RG maintain collective ownership of a certain percentage interest in us.

Founder Lockup Agreement

On the Closing Date, in connection with the consummation of the Business Combination, 550,000 shares of our Common Stock held by the Founder became subject to an additional lockup that will be released only if the last reported sale price of the Common Stock equals or exceeds $15.00 for a period of 20 consecutive trading days during the five-year period following the Closing Date. If the last reported sale price of our Common Stock does not equal or exceed $15.00 within five years from the Closing Date, such shares will be forfeited to us for no consideration.

Registration Rights Agreement

In connection with the consummation with the Business Combination, we entered into a Registration Rights Agreement with the pre-Business Combination stockholders (the “LD Topco Stockholders”) of LD Topco Inc. (“LD Topco”) , the Founder, and the other holders of our Class B common stock that were issued prior to our IPO (which were converted upon consummation of the Business Combination into our single class of Common Stock on a one-for-one basis). Pursuant to the Registration Rights Agreement, the LD Topco Stockholders, the Founder and the other holders of founder shares were granted certain rights to have registered, in certain circumstances, the resale under the Securities Act of 1933, as amended (the “Securities Act”), of our securities held by such holders, subject to certain conditions set forth therein.

Indemnification of Directors and Officers

We have entered into an indemnification agreement with each of our directors and executive officers. The indemnification agreements, together with our amended and restated bylaws, provide that we will jointly and severally indemnify each indemnitee to the fullest extent permitted by the Delaware general corporation law from and against all loss and liability suffered and expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of the indemnitee in connection with any threatened, pending, or completed action, suit or proceeding that arises by reason of their status or service as executive officers or directors. Additionally, we agreed to advance to the indemnitee all out-of-pocket costs of any type or nature whatsoever incurred in connection therewith.

68

Consulting Services Agreement

On December 22, 2015, LDisc Holdings, LLC (“LDisc”), an indirect subsidiary of LD Topco, entered into a consulting services agreement (the “Consulting Services Agreement”) with Carlyle Investment Management (“CIM”), an affiliate of TCG, in connection with the acquisition of LDisc by an affiliate of CIM. In exchange for providing LDisc and its subsidiaries with certain ongoing strategic and financial advisory and consulting services pursuant to the Consulting Services Agreement, CIM was entitled to a quarterly fee, determined each calendar quarter, equal in the aggregate to the greater of (i) 0.5% of the trailing 12-month consolidated EBITDA of LDisc and its subsidiaries and (ii) $250,000. The Consulting Services Agreement was terminated in connection with the Business Combination and $3.25 million of unpaid amounts thereunder as of the consummation of the Business Combination were paid to CIM. Further, under the Consulting Services Agreement, CIM was entitled to additional fees and compensation agreed upon by the parties for any other services provided by CIM to LDisc from time to time. CIM did not provide any additional services under the Consulting Services Agreement beyond the advisory and consulting services for the year ended December 31, 2019. The Consulting Services Agreement provided that LDisc would indemnify CIM against any claims arising out of or in connection with its performance under the Consulting Services Agreement and would reimburse CIM for its reasonable out-of-pocket expenses incurred in connection with its performance of the services provided under the Consulting Services Agreement.

Transactions with portfolio companies of funds affiliated with TCG

From time to time, we may make sales to and purchases from companies that are affiliated with TCG. Such transactions have been entered into in the ordinary course of business and are not considered material.

Item 14. Principal Accounting Fees and Services.

The following table sets forth the aggregate fees and expenses billed to us by Ernst & Young LLP (“EY”), our independent registered public accounting firms for fiscal years 2019 and 2020:

	Fiscal Year Ended December 31, 2019		Fiscal Year Ended December 31, 2020
Audit Fees (1)	$	1,721,392	$	1,591,000
Tax Fees (2)		209,110		178,811
All Other Fees (3)		824,516		171,500
Total	$	2,755,018	$	1,941,311

(1) Audit Fees.Audit fees consist of fees billed for professional services rendered for the audit of our year-end financial statements and services that are normally provided by our independent registered public accounting firm in connection with statutory and regulatory filings. 2020 fees included the audit for the year ended December 31, 2019, interim audit work for the year ended December 31, 2020 and quarterly reviews for the quarters ended March 31, 2020, June 30, 2020, and September 30, 2020. 2019 fees included audits of the Company for the six-months ended June 30, 2019 and for interim audit work for the year ended December 31, 2019 and other fees billed in connection with the Business Combination.

(2) Tax Fees. Tax fees consist of fees billed for tax consultation services for the Business Combination and professional services relating to tax compliance, tax planning, and tax advice.

(3) Other Fees. Other fees consist of fees billed for advisory services. 2019 and 2020 fees were primarily related to the Business Combination.

The Audit Committee maintains policies and procedures for the pre-approval of work performed by the independent auditors and, pursuant to the Audit Committee charter, all auditor engagements must be approved in advance by the Audit Committee. All of the services provided to the Company by EY during fiscal 2020 and 2019 were pre-approved by the Audit Committee.

69

PART IV

Item 15. Exhibits, Financial Statement Schedules.

1. Financial Statements. Reference is made to the Index to Consolidated Financial Statements set forth under Item 8 to this Annual Report on Form 10-K.

2. Financial Statement Schedules – None

3. Exhibits. The following exhibits are filed, furnished or incorporated by reference as part of this Annual Report on Form 10-K.

Exhibit Index

Exhibit Number	Description
2.1+	Agreement and Plan of Merger, dated as of May 20, 2019, by and among Pivotal Acquisition Corp., Pivotal Merger Sub Corp., LD Topco, Inc., and Carlyle Equity Opportunity GP, LP (solely as representative of the stockholders of LD Topco, Inc.) (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed May 21, 2019)
2.2	Amendment to Agreement and Plan of Merger, dated as of October  30, 2019, by and among Pivotal Acquisition Corp., Pivotal Merger Sub Corp., LD Topco, Inc., and Carlyle Equity Opportunity GP, LP (solely as representative of the stockholders of LD Topco, Inc.) (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed November 1, 2019)
2.3	Amendment No. 2 to Agreement and Plan of Reorganization, dated as of October 30, 2019, as amended on October 30, 2019, by and among Pivotal Acquisition Corp., Pivotal Merger Sub Corp., LD Topco, Inc. and Carlyle Equity Opportunity GP, L.P. (solely as representative of the stockholders of LD Topco, Inc.) (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed December 17, 2019)
3.1	Second Amended and Restated Certificate of Incorporation of KLDiscovery Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed December 26, 2019)
3.2	Amended and Restated Bylaws of KLDiscovery Inc. (incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed December 26, 2019)
4.1	Specimen Common Stock Certificate of KLDiscovery Inc. (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed December 26, 2019)
4.2	Specimen Warrant Certificate of KLDiscovery Inc. (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed December 26, 2019)
4.3	Warrant Agreement between Continental Stock Transfer & Trust Company and Pivotal Acquisition Corp. (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed February 1, 2019)
4.4	Form of 8.00% Convertible Debenture due 2024 (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed December 26, 2019)
4.5	Securities Purchase Agreement, dated as of December 16. 2019, by and among Pivotal Acquisition Corp. and the Purchasers named therein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 17, 2019)
4.6	Registration Rights Agreement, dated December 19, 2019, by and among Pivotal Acquisition Corp., affiliates of Carlyle Equity Opportunity GP, L.P. and Revolution Growth III, LP and certain other signatories thereto (incorporated by reference to Exhibit 4.6 to the Current Report on Form 8-K filed December 26, 2019)
4.7*	Description of Securities
10.1	KLDiscovery Inc. 2019 Incentive Award Plan (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 26, 2019)
10.2	Employment Agreement, dated as of September 30, 2011, between LDiscovery, LLC and Christopher Weiler (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form S-4 (File No.  333-232238) filed on Form 8-K filed June 21, 2019)
10.3	Offer Letter, dated as of September 30, 2006, between LegisDiscovery, LLC and Krystina Jones (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form S-4 (File No.  333-232238) filed on Form 8-K filed June 21, 2019)

70

10.4	Offer Letter, dated as of August 25, 2017, between KrolLDiscovery and Dawn Wilson (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-4 (File No.  333-232238) filed on Form 8-K filed June 21, 2019)
10.5	First Lien Credit Agreement, dated as of December 9, 2016, among LD Intermediate Holdings, Inc. and LD Lower Holdings, Inc., as co-borrowers, LD Topco, Inc., as Holdings, Royal Bank of Canada, as administrative agent, collateral agent, swing line lender and L/C issuer, the other lenders party thereto, and RBC Capital Markets and TD Securities (USA) LLC, as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed June 21, 2019)
10.6	Second Lien Credit Agreement, dated as of December 9, 2016, among LD Intermediate Holdings, Inc. and LD Lower Holdings, Inc., as co-borrowers, LD Topco, Inc., as Holdings, Royal Bank of Canada, as administrative agent and collateral agent, the other lenders party thereto, and RBC Capital Markets, Northwestern Mutual Investment Management Company, LLC and TD Securities (USA) LLC, as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed June 21, 2019)
10.7#	Software License Agreement, dated as of January 1, 2018, between LDiscovery, LLC and Relativity ODA LLC (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-4 (File No.  333-232238) filed on Form 8-K filed July 26, 2019)
10.8	KLDiscovery Inc. 2019 Incentive Award Plan – Form of Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.16 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed September 16, 2019)
10.9	KLDiscovery Inc. 2019 Incentive Award Plan – Form of Restricted Stock Agreement (incorporated by reference to Exhibit 10.17 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed September 16, 2019)
10.10	KLDiscovery Inc. Non-Employee Director Compensation Program (incorporated by reference to Exhibit 10.18 to the Registration Statement on Form S-4 (File No. 333-232238) filed on Form 8-K filed September 16, 2019)
10.11	KLDiscovery Inc. 2019 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.12 to the Current Report on Form 8-K filed December 26, 2019)
10.12	Form of Indemnification Agreement (incorporated by reference to Exhibit 10.13 to the Current Report on Form 8-K filed December 26, 2019)
10.13	Stockholders’ Agreement, dated December 19, 2019, by and among Pivotal Acquisition Corp., affiliates of Carlyle Equity Opportunity GP, L.P. and Revolution Growth III, LP and certain other signatories thereto (incorporated by reference to Exhibit 10.14 to the Current Report on Form 8-K filed December 26, 2019)
10.14	Pay Change Letter, dated February 24, 2020, by and between KLDiscovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.15	Pay Change Letter, dated April 21, 2020, by and between KLDiscovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10Q filed August 13, 2020)
10.16	Pay Change Letter, dated April 21, 2020, by and between KLDiscovery Inc. and Dawn Wilson (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10Q filed August 13, 2020)
10.17	Pay Change Letter, dated April 21, 2020, by and between KLDiscovery Inc. and Krystina Jones (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10Q filed August 13, 2020)
10.18	Voluntary Forfeiture of RSUs Letter, dated April 23, 2020, by and between KL Discovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.19	Voluntary Forfeiture of RSUs Letter, dated April 23, 2020, by and between KL Discovery Inc. and Dawn Wilson (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.20	Voluntary Forfeiture of RSUs Letter, dated April 23, 2020, by and between KLDiscovery Inc. and Krystina Jones (incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.21	Voluntary Forfeiture of RSUs Letter, dated May 5, 2020, by and between KLDiscovery Inc. and Krystina Jones (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed August 13, 2020)

71

10.22	KLDiscovery Inc. Non-Employee Director Compensation Program (as amended and restated effective as of June 17, 2020) (incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.23	Executive Severance and Novation Agreement dated June 17, 2020 by and between KLDiscovery Inc. and Dawn Wilson (incorporated by reference to Exhibit 10.10 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.24	Executive Severance and Novation Agreement dated June 17, 2020 by and between KLDiscovery Inc. and Krystina Jones (incorporated by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q filed August 13, 2020)
10.25	Pay Change Letter, dated July 31, 2020, by and between KLDiscovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.26	Pay Change Letter, dated July 31, 2020, by and between KLDiscovery Inc. and Dawn Wilson (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.27	Pay Change Letter, dated July 31, 2020, by and between KLDiscovery Inc. and Krystina Jones (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.28	Voluntary Forfeiture of Options Letter, dated August 6, 2020, by and between KLDiscovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.29	Executive Severance and Novation Agreement, dated September 30, 2020, by and between KLDiscovery Inc. and Christopher Weiler (incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.30	Kroll Discovery 2018 Legal Technology Sales Commission Plan, by and between the Company and Krystina Jones (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.31	KLDiscovery (January-December 2018) Sales Commission Plan Sales Performance Addendum, by and between the Company and Krystina Jones (incorporated by reference to Exhibit 10.7 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.32	KLDiscovery 2020 Americas Legal Technology Sales Commission Plan, by and between the Company and Krystina Jones (incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.33	KLDiscovery 2020 Sales Commission Plan Sales Performance Addendum, by and between the Company and Krystina Jones (incorporated by reference to Exhibit 10.9 to the Quarterly Report on Form 10-Q filed November 12, 2020)
10.34	Amendment No. 1 to Credit Agreement, dated as of December 23, 2020, by and among LD Intermediate Holdings Inc. and LD Lower Holdings Inc., LD Topco Inc. the Revolving Credit Lenders party thereto and Royal Bank of Canada, as administrative agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed December 28, 2020)
10.35*#	Software License Agreement dated as of December 24, 2020 by and between LDiscovery LLC and Relativity ODA LLC
10.36	Credit Agreement, dated as of February 8, 2021, by and among LD Lower Holdings Inc., LD Topco Inc, and other guarantors party thereto, the Lenders party thereto, each L/C Issuer party thereto and Wilmington Trust National Association, as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed February 8, 2021)
10.37*	Amendment to Stockholders’ Agreement, dated March 23, 2020, by and among KLDiscovery Inc. (formerly known as Pivotal Acquisition Corp.) and CEOF II DE I AIV, LP, a partnership, and Revolution Growth III, LP, and certain other signatories thereto.
10.38*	Second Amendment to Stockholders’ Agreement, dated February 2, 2021, by and among KLDiscovery Inc. (formerly known as Pivotal Acquisition Corp.) and CEOF II DE I AIV, LP, a partnership, and Revolution Growth III, LP, and certain other signatories thereto.
16.1	Letter from Marcum LLP to the Securities and Exchange Commission (incorporated by reference to Exhibit 16.1 to the Current Report on Form 8-K filed December 26, 2019)
21.1*	List of Subsidiaries

72

23.1*	Consent of Ernst & Young LLP
31.1*	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith.

+ Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of any omitted schedule or exhibit to the SEC upon request.

# Certain confidential information contained in this agreement has been omitted because it (i) is not material and (ii) would be competitively harmful if publicly disclosed.

Item 16. Form 10-K Summary

None.

73

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 18^th day of March, 2021.

KLDiscovery Inc.
By:	/s/ Christopher J. Weiler
	Christopher J. Weiler
	Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Name	Title	Date
/s/ Christopher J. Weiler	Chief Executive Officer (Principal Executive Officer)	March 18, 2021
Christopher J. Weiler
/s/ Dawn Wilson	Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 18, 2021
Dawn Wilson
/s/ Donna Morea	Chair of the Board	March 18, 2021
Donna Morea
/s/ Ian Fujiyama	Director	March 18, 2021
Ian Fujiyama
/s/ Kevin Griffin	Director	March 18, 2021
Kevin Griffin
	Director	March 18, 2021
Jonathan J. Ledecky
/s/ Evan Morgan	Director	March 18, 2021
Evan Morgan
/s/ Lawrence Prior III	Director	March 18, 2021
Lawrence Prior III
/s/ Arjun Shah	Director	March 18, 2021
Arjun Shah
/s/ Lauren Tanenbaum	Director	March 18, 2021
Lauren Tanenbaum
/s/ Richard Williams	Director	March 18, 2021
Richard Williams

74

EX-4.7

Exhibit 4.7

DESCRIPTION OF SECURITIES

The following description of our securities is not complete and may not contain all the information you should consider before investing in our securities. This description is summarized from, and qualified in its entirety by reference to, our certificate of incorporation and bylaws, which are filed as exhibits to this Annual Report on Form 10-K and are incorporated by reference herein. The summary below is also qualified by reference to the provisions of the General Corporation Law of the State of Delaware (the “DGCL”).

General

Our charter provides for 200,000,000 authorized shares of a single class of common stock, par value $0.0001 per share (“Common Stock”), and 1,000,000 authorized shares of preferred stock.

Common Stock

The holders of Common Stock are entitled to one vote for each share held of record on all matters to be voted on by stockholders.

There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares of Common Stock voted for the election of directors can elect all of the directors.

Holders of Common Stock do not have any conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the Common Stock.

Preferred Stock

Our certificate of incorporation, as amended, authorizes the issuance of 1,000,000 shares of blank check preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors. Our board of directors will be empowered, without stockholder approval, to issue the preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights of the holders of Common Stock. In addition, the preferred stock could be utilized as a method of discouraging, delaying or preventing a change in control.

Warrants

There are currently 29,350,000 warrants to purchase our Common Stock outstanding, comprised of (i) 23,000,000 warrants (the “Public Warrants”) originally included as part of the units issued in our initial public offering (the “IPO”), (ii) 4,585,281 warrants (the “Private Warrants”) sold in a private placement that closed simultaneously with the consummation of our IPO, and (iii) 1,764,719 warrants (the “Debenture Holder Warrants” and, together with the Private Warrants, the “Founder Warrants,” and together with the Public Warrants, the “Warrants”) sold in a private placement that closed in December 2019.

Each of our outstanding Warrants enables the holder to purchase one share of Common Stock at a price of $11.50 per share (subject to cashless exercise under certain circumstances), subject to adjustment as discussed below. The Warrants will expire at 5:00 p.m., New York City time, on December 19, 2024 or earlier upon redemption or liquidation.

We may call the Warrants for redemption (excluding the Founder Warrants), in whole and not in part, at a price of $0.01 per Warrant,

• at any time while the Warrants are exercisable;

• upon not less than 30 days’ prior written notice of redemption to each Warrant holder;

• if, and only if, the reported last sale price of our Common Stock equals or exceeds $18.00 per share, for any 20 trading days within a 30-day trading period ending on the third business day prior to the notice of redemption to Warrant holders; and

• if, and only if, there is a current registration statement in effect with respect to the shares of Common Stock underlying such Warrants commencing five business days prior to the 30-day trading period and continuing each day thereafter until the date of redemption.

 The right to exercise will be forfeited unless the Warrants are exercised prior to the date specified in the notice of redemption. On and after the redemption date, a record holder of a Warrant will have no further rights

1

except to receive the redemption price for such holder’s Warrant upon surrender of such Warrant.

If we call the Warrants for redemption as described above, our management will have the option to require all holders that wish to exercise Warrants to do so on a “cashless basis.” In such event, each holder would pay the exercise price by surrendering the Warrants for that number of shares of Common Stock equal to the quotient obtained by dividing (x) the product of the number of shares of our Common Stock underlying the Warrants, multiplied by the difference between the exercise price of the Warrants and the “fair market value” (defined below) by (y) the fair market value. In this case, the “fair market value” shall mean the average reported last sale price of the shares of our Common Stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of Warrants. Whether we will exercise our option to require all holders to exercise their Warrants on a “cashless basis” will depend on a variety of factors including the price of shares of our Common Stock at the time the Warrants are called for redemption, our cash needs at such time and concerns regarding dilutive stock issuances.

The exercise price and number of shares of Common Stock issuable on exercise of the Warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation. However, the Warrants will not be adjusted for issuances of shares of Common Stock at a price below their respective exercise prices.

The Warrants may be exercised upon surrender of the Warrant certificate on or prior to the expiration date at the offices of the warrant agent, with the exercise form on the reverse side of the Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price, by certified or official bank check payable to us, for the number of Warrants being exercised. The Warrant holders do not have the rights or privileges of holders of shares of our Common Stock or any voting rights unless and until they exercise their Warrants and receive shares of Common Stock. After the issuance of shares of Common Stock upon exercise of the Warrants, each holder will be entitled to one vote for each share of Common Stock held of record on all matters to be voted on by stockholders.

Warrant holders may elect to be subject to a restriction on the exercise of their Warrants such that an electing Warrant holder would not be able to exercise their Warrants to the extent that, after giving effect to such exercise, such holder would beneficially own in excess of 4.9% or 9.8% (as specified by the holder) of the shares of our Common Stock outstanding immediately after giving effect to such exercise.

If the number of outstanding shares of Common Stock is increased by a share dividend payable in shares of Common Stock, or by a split-up of shares of Common Stock or other similar event, then, on the effective date of such share dividend, split-up or similar event, the number of shares of Common Stock issuable on exercise of each Warrant will be increased in proportion to such increase in the outstanding Common Stock. A rights offering to holders of Common Stock entitling holders to purchase shares of Common Stock at a price less than the fair market value will be deemed a stock dividend of a number of shares of Common Stock equal to the product of (i) the number of shares of Common Stock actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Common Stock) and (ii) one (1) minus the quotient of (x) the price per share of Common Stock paid in such rights offering divided by (y) the fair market value. For these purposes (i) if the rights offering is for securities convertible into or exercisable for Common Stock, in determining the price payable for Common Stock, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) fair market value means the volume weighted average price of Common Stock as reported during the ten (10) trading day period ending on the trading day prior to the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive such rights.

In addition, if we, at any time while the Warrants are outstanding and unexpired, pay a dividend or make a distribution in cash, securities or other assets to the holders of Common Stock on account of such Common Stock (or other securities into which the Warrants are convertible), other than (a) as described above, (b) certain ordinary cash dividends, which are dividends of $0.50 or less in any fiscal year (subject to adjustments), or (c) to satisfy the conversion rights of the holders of Common Stock in connection with a proposed initial business combination, then the Warrant exercise price will be decreased, effective immediately after the effective date of such event, by the amount of cash and/or the fair market value of any securities or other assets paid on each share of Common Stock in respect of such event.

If the number of outstanding shares of Common Stock is decreased by a consolidation, combination, reverse stock split or reclassification of Common Stock or other similar event, then, on the effective date of such consolidation, combination, reverse stock split, reclassification or similar event, the number of shares of Common Stock issuable on exercise of each Warrant will be decreased in proportion to such decrease in outstanding shares of Common Stock. We will not be required to make adjustments to the exercise price for any other events including the issuance of additional shares of Common Stock other than dividends paid in Common Stock as described above.

2

Whenever the number of shares of Common Stock purchasable upon the exercise of the Warrants is adjusted, as described above, the Warrant exercise price will be adjusted by multiplying the Warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of shares of Common Stock purchasable upon the exercise of the Warrants immediately prior to such adjustment and (y) the denominator of which will be the number of shares of Common Stock so purchasable immediately thereafter.

In the case of any reclassification or reorganization of the outstanding Common Stock (other than those described above or that solely affects the par value of such Common Stock), or in the case of any merger or consolidation of us with or into another corporation (other than a consolidation or merger in which we are the continuing corporation and that does not result in any reclassification or reorganization of our outstanding Common Stock), or in the case of any sale or conveyance to another corporation or entity of the assets or other property of ours as an entirety or substantially as an entirety in connection with which we are dissolved, the holders of the Warrants will thereafter have the right to purchase and receive, upon the basis and upon the terms and conditions specified in the Warrants and in lieu of the Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented thereby, the kind and amount of Common Stock or other securities or property (including cash) receivable upon such reclassification, reorganization, merger or consolidation, or upon a dissolution following any such sale or transfer, that the holder of the Warrants would have received if such holder had exercised their Warrants immediately prior to such event. If less than 70% of the consideration receivable by the holders of Common Stock in such a transaction is payable in the form of Common Stock in the successor entity that is listed for trading on a national securities exchange or is quoted in an established over-the-counter market, or is to be so listed for trading or quoted immediately following such event, and if the registered holder of the Warrant properly exercises the Warrant within thirty days following public disclosure of such transaction, the Warrant exercise price will be reduced as specified in the Warrant Agreement based on the Black-Scholes value (as defined in the Warrant Agreement) of the Warrant. The purpose of such exercise price reduction is to provide additional value to holders of the Warrants when an extraordinary transaction occurs during the exercise period of the Warrants pursuant to which the holders of the Warrants otherwise do not receive the full potential value of the Warrants in order to determine and realize the option value component of the Warrant. This formula is to compensate the Warrant holder for the loss of the option value portion of the Warrant due to the requirement that the Warrant holder exercise the Warrant within 30 days of the event. The Black-Scholes model is an accepted pricing model for estimating fair market value where no quoted market price for an instrument is available.

No fractional shares of Common Stock will be issued upon exercise of the Warrants. If, upon exercise of the Warrants, a holder would be entitled to receive a fractional interest in a share of Common Stock, we will, upon exercise, follow the requirements of the DGCL.

The Founder Warrants are identical to the Public Warrants included in the units sold in our IPO except that the Founder Warrants: (i) are not redeemable by us and (ii) may be exercised for cash or on a cashless basis, as described in the prospectus related to our IPO, so long as they are held by the initial purchasers or any of their permitted transferees. If the Founder Warrants are held by holders other than the initial purchasers or any of their permitted transferees, they will be redeemable by us and exercisable by the holders on the same basis as the Public Warrants included in the units sold in our IPO.

Certain Anti-Takeover Provisions of Delaware Law and Our Second Amended and Restated Certificate of Incorporation

We have certain anti-takeover provisions in place as follows:

Staggered board of directors

Our second amended and restated certificate of incorporation provides that our board of directors be classified into three classes of directors of approximately equal size. As a result, in most circumstances, a person can gain control of our board of directors only by successfully engaging in a proxy contest at two or more annual or special meetings. Furthermore, because the board of directors will be classified, directors may be removed only with cause by a majority of our outstanding shares.

3

Special meeting of stockholders

Our bylaws provide that special meetings of stockholders may be called only by a majority vote of our board of directors.

Advance notice requirements for stockholder proposals and director nominations

Our bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice of their intent in writing. To be timely, a stockholder’s notice will need to be received by the company secretary at our principal executive offices not later than the close of business on the 90th day nor earlier than the open of business on the 120th day prior to the anniversary date of the immediately preceding annual meeting of stockholders. Pursuant to Rule 14a-8 of the Exchange Act, proposals seeking inclusion in our annual proxy statement must comply with the notice periods contained therein. Our bylaws also specify certain requirements as to the form and content of a stockholders’ meeting. These provisions may preclude our stockholders from bringing matters before the annual meeting of stockholders or from making nominations for directors at our annual meeting of stockholders.

Authorized but unissued shares

Our authorized but unissued Common Stock and preferred stock is available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved Common Stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.

Stockholder action by written consent

Our second amended and restated certificate of incorporation and bylaws provide that any action required or permitted to be a taken by stockholders must be effected at an annual or special meeting, and may not be taken by written consent.

Exclusive forum selection

Our second amended and restated certificate of incorporation require, to the fullest extent permitted by law, that derivative actions brought in our name, actions against directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service of process on such stockholder’s counsel. This exclusive forum provision will apply to state and federal law claims brought by stockholders. The enforceability of similar choice of forum provisions in other companies’ organizational documents has been challenged in legal proceedings, and it is possible that, in connection with claims arising under federal securities laws, a court could find the choice of forum provisions contained in our second amended and restated certificate of incorporation to be inapplicable or unenforceable. If that were the case, because stockholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder, it would allow stockholders to bring claims for breach of these provisions in any appropriate forum. Although we believe this provision benefits the company by providing increased consistency in the application of Delaware law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.

Notwithstanding the foregoing, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.

Section 203 of the Delaware General Corporation Law

We are not subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. This statute prevents certain Delaware corporations, under certain circumstances, from engaging in a “business combination” with:

• a stockholder who owns 15% or more of our outstanding voting stock (otherwise known as an “interested stockholder”);

4

• an affiliate of an interested stockholder; or

• an associate of an interested stockholder, for three years following the date that the stockholder became an interested stockholder.

A “business combination” includes a merger or sale of more than 10% of our assets. However, the above provisions of Section 203 will not apply to us.

Limitation on Liability and Indemnification of Directors and Officers

Our second amended and restated certificate of incorporation provides that directors and officers will be indemnified by us to the fullest extent authorized by Delaware law as it now exists or may in the future be amended.

Our bylaws also permit us to secure insurance on behalf of any officer, director or employee for any liability arising out of his or her actions, regardless of whether Delaware law would permit indemnification. We have purchased a policy of directors’ and officers’ liability insurance that insures our directors and officers against the cost of defense, settlement or payment of a judgment in some circumstances and insures Pivotal against its obligations to indemnify the directors and officers.

These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions also may have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder’s investment may be adversely affected to the extent Pivotal pays the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the insurance and the indemnity agreements are necessary to attract and retain talented and experienced directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Market Price of Common Stock and Public Warrants

Our Common Stock and Public Warrants are quoted on the OTC Pink Sheet Market under the symbols KLDI and KLDIW, respectively. Any over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Holders

As of March 4, 2021, there were approximately 56 holders of record of our Common Stock and approximately 9 holders of record of our Warrants.

Dividends

We have not paid any cash dividends on shares of Common Stock to date. The payment of cash dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. It is the present intention of our board of directors to retain all earnings, if any, for use in business operations and, accordingly, the board does not anticipate declaring any dividends in the foreseeable future.

Transfer Agent and Warrant Agent

The transfer agent for our shares of Common Stock and warrant agent for our Warrants is Continental Stock Transfer & Trust Company, 1 State Street, 30th Floor, New York, New York 10004.

5

EX-10.35

Exhibit 10.35

Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.

SOFTWARE LICENSE AGREEMENT

THIS SOFTWARE LICENSE AGREEMENT (“Agreement”) is made and entered into as of December 24, 2020, for reference purposes (“Reference Date”), but shall become effective on January 1, 2021 (“Effective Date”), by and between Relativity ODA LLC (“Relativity”), a Delaware limited liability company, with its principal place of business for notices set forth in Section 12, and LDiscovery, LLC (“Client”),a Delaware limited liability company,with its principal place of business for notices set forth in Section 12.

BACKGROUND

A.Relativity and Client are parties to that certain Software License Agreement dated January 1, 2018, as amended from time to time (collectively, the “Prior License Agreement”);

B.Relativity and Client mutually desire to: (i) enter into this Agreement on the terms contained herein; (ii) concurrently supersede and terminate the Prior License Agreement; and (iii) provide for the transfer of the Software under the Prior License Agreement to this Agreement.

AGREEMENT

In consideration of the foregoing background statements and the mutual provisions herein, the parties agree as follows:

1. Termination of Prior License Agreement and Transfer of Software under Prior License Agreement; Grant of Software License; Client Affiliates.

a.Commencing on the Effective Date of this Agreement: (i) this Agreement will supersede and replace the Prior License Agreement referred to above, and the Prior License Agreement shall be deemed to have expired; (ii) the Software licensed under the Prior License Agreement will be transferred to this Agreement; and (iii) any failure to make timely payment or performance of any such obligations under the Prior License Agreement shall be a violation of this Agreement.  For the sake of clarity,all payments and obligations under the Prior License Agreement accruing or arising prior to the Effective Date hereof shall be made and performed in accordance with the Prior License Agreement and each obligation under the Prior License Agreement which expressly or by reasonable implication is intended to survive termination or expiration shall so survive.

b.Relativity grants Client, and Client accepts, a non-exclusive, non-transferable, non-sublicensable, license (“License”) to use the Software products identified on Exhibit A commencing on the Effective Date of this Agreement and during the Term in Exhibit A or until any earlier termination as provided in this Agreement, all on and subject to all terms of this Agreement. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Exhibit B.

c.Notwithstanding the foregoing, Client may provide access to, and use of, the Software to each Client Affiliate as defined herein and its end users; provided: (i) such access to the Software shall be provided by Client only on a hosted basis, (ii) such Client Affiliates’ end users shall be counted as Server Users under Exhibit A to the extent they are granted access to the Software as further described in the definition of Server Users in Exhibit B, (iii) Client shall cause all such Client Affiliates to comply with all provisions of this Agreement applicable to Client (except this provision does not require that Client Affiliates pay any amounts to Relativity if Client is paying the amounts required under this Agreement); and (iv) Client will be liable for any failure by any such Client Affiliates to comply with this Agreement.  “Client Affiliate” means any company that directly or indirectly: (1) owns or controls Client, (2) is owned or controlled by Client; or (3) is under common ownership or control with Client.

1

2. Payments.  In consideration of the License, Client shall pay Relativity the amounts under Exhibit A and as described further in Exhibit B.  All dollar amounts under this Agreement shall be paid in US dollars without adjustment for changes in exchange rates, except as may be expressly provided in Exhibit A.  Relativity may apply payments to any Client obligations that are already due or past due, and may reallocate payments previously applied to earlier invoices so those payments apply to current invoices for other amounts that are already due or past due without regard to obligations or invoices Client designates.

3. Services and Updates.  This Agreement includes, without additional charge, customer support services as provided in Exhibit C, and Relativity may provide other services that Client requests from time to time (collectively, “Services”).  This Agreement also includes, without additional charges, Critical Patch Releases, Minor Updates, Minor Releases and Major Releases, but does not include Add-Ons, as further described in Exhibit C.

4.Money Back Warranty of Performance and Services

a.Performance and Services.  Subject to the other provisions of this Agreement: (i) Relativity warrants to Client that the Software will perform substantially in conformance with Relativity’s written functionality description (“Specifications”) contained in Relativity’s user Documentation for the Software for three years (“Warranty Period”) following the Effective Date, and (ii) in addition, Relativity will provide the Services substantially in conformance with the provisions of this Agreement.  

b.Warranty and Continuing Support Services.  If at any time during the Warranty Period, Client notifies Relativity and demonstrates that the Software does not perform substantially in conformance with the Specifications in violation of this warranty, Relativity shall use commercially reasonable efforts to materially cure such non-conformance, as promptly as commercially practicable and at Relativity’s expense (including parts and labor), whether by repairing or replacing the Software or any of its parts and components, subject to the provisions below.  Both during the Warranty Period and thereafter while this Agreement is in effect, Client may notify Relativity of service problems and Relativity will use commercially reasonable efforts to provide Services substantially in accordance with the Exhibits.

c.Limitations.  Client is not authorized to, and shall not, make any warranty, guarantee or representation on behalf of Relativity or its vendors respecting the Software or Services to Client’s end users.  The warranties and Services herein: (i) are limited to the Software alone; (ii) do not apply in case of any problems arising from any combination or operation of the Software with other software, components, or equipment not provided by Relativity; and (iii) shall be void if non-conformance or problems result from accident, abuse, misapplication, modifications to the Software not made or authorized in writing by Relativity, or any use other than the specific purpose for which the Software is designed.  Relativity does not warrant that the Software, its functions, or results of using the Software, will be suitable for Client’s intended use, or that the operation of the Software will be uninterrupted or Error-free, or that the Software will be secure from unauthorized access or hacking.  The express warranties made herein are in lieu of, and to the exclusion of, all other warranties, conditions or representations of any kind, express or implied, statutory or otherwise, relating to the Software or Services.  WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, RELATIVITY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS OF THE SOFTWARE FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT (INFRINGEMENT BEING COVERED BY THE EXPRESS PROVISIONS OF SECTION 9), AND ANY IMPLIED WARRANTIES OR OTHER OBLIGATIONS ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING OR USAGE OF TRADE, AND ALL SUCH WARRANTIES, CONDITIONS AND REPRESENTATIONS ARE EXCLUDED FROM THIS AGREEMENT AND WAIVED TO THE FULLEST EXTENT NOT PROHIBITED BY LAW.  

d.Termination and Refund.  If Relativity fails to cure a breach of the warranty provided in this Section, or fails to provide the Services as required under this Agreement, or determines that the cure or Services are impractical or unreasonable to provide in Relativity’s opinion (whether technically or economically), Client may terminate this Agreement in whole (or in part with respect to any Software product or Service which is the subject of the failure and for which there are separate fees under this Agreement).  In such case, Relativity will promptly refund any fees paid by Client for the Software (or

2

Software product or Service which is being terminated), in a prorated amount reflecting: (i) any portion of such fees reasonably allocable to any period of the Term when Client was not able to use, and did not use, the Software (or Software product or Service which is the subject of the failure and for which there are separate fees under this Agreement) due to the breach of the warranty under this Section; and (ii) any portion of such fees that Client pre-paid for any period of the Term following such early termination.  This Section 4 contains the only liability and obligations of Relativity, and the only remedies of Client, for Relativity's breach of the warranties in this Section 4 and/or failure to provide Services in accordance with this Agreement.  

5.Confidentiality

a.Confidential Information.  In connection with this Agreement, each party may receive materials or learn information which is confidential and/or proprietary to the other party.  Such materials or information shall be deemed “Confidential Information” for purposes of this Agreement if such materials or information are: (i) marked or identified as “Confidential”; or (ii) of a nature, whether oral or written, that a reasonable business person or information technology worker would know or suspect it to be confidential or proprietary, or would know or suspect that there may be a detrimental effect on the other party's competitive position if generally known and/or known by other customers or a competitor.  Confidential Information hereunder includes information relating to a party’s business practices, products, product development, research, business operations (e.g. business direction, technology initiatives or marketing plans, customer information, source and object code, financial information and pricing rates and methods), whether or not such information is identified as “Confidential” at the time of disclosure.  In addition, Relativity’s Confidential Information includes the Software, all Documentation pertaining to the Software, and terms of this Agreement.  

b.Obligations.  Each party receiving or learning Confidential Information of the other party shall maintain all such Confidential Information in strict confidence.  Each party shall: (i) not use any of the Confidential Information of the other party, except to the extent required for the performance of this Agreement; and (ii) not disclose Confidential Information of the other party to any person or party during the Term of this Agreement and thereafter, except as expressly permitted herein.  Each party further agrees to protect the Confidential Information of the other party with the same degree of care as it uses to protect its own Confidential Information of like importance, but in no event less than reasonable care. The receiving party may only disclose Confidential Information to its employees, contractors, attorneys and financial advisors (“Representatives”) having a “need-to-know” to carry out the obligations under this Agreement.  Each party will: (1) notify and inform its Representatives of such party’s obligations regarding Confidential Information; (2) obtain agreements from its Representatives requiring them to comply with such obligations; and (3) be responsible for any breach of the confidentiality obligations in this Section by such party’s Representatives.  In no event will the receiving party use Confidential Information of the other party, directly or indirectly, in the conduct, or for the advancement, of the receiving party’s own business or in any way that is detrimental to the other party.  Each party will notify the other party immediately after learning of, or having reason to suspect, a breach of any confidentiality obligations in this Section.

c.Exceptions.  Confidential Information shall not include information and materials that are posted on the public areas of the parties’ web-sites or that the receiving party can demonstrate: (i) were generally available to or known by the public at the time of disclosure or subsequent to disclosure (other than through unauthorized disclosure by the receiving party or its Representatives); or (ii) were received on a non-confidential basis from a third party who, to the receiving party’s knowledge, is not under an obligation to maintain the confidentiality thereof, provided, this exemption shall not apply unless the receiving party obtains a written representation and warranty from the third party stating that such information and materials are not subject to an obligation to maintain confidentiality; or (iii) were known by the receiving party on the Effective Date, provided, this exemption shall not apply unless the receiving party has obtained such information and materials pursuant to sub-clauses (i) or (ii) or otherwise obtained written confirmation from the disclosing party that such information and materials qualify for exemption from Confidential Information in connection with entering into this Agreement.  The confidentiality obligations of this Section shall not prohibit disclosure of Confidential Information: (1) as required by applicable disclosure Laws (but the receiving party shall, at the disclosing party’s expense, seek confidential treatment of such

3

Confidential Information to the maximum extent permitted by Laws); or (2) in connection with a court order or legal process requiring disclosure, in which case the party under order or process must, to the extent allowed by Laws, provide prompt notice of such order or process to the other party and reasonably cooperate, at the other party’s expense, in any attempt to quash or limit such order or process.

6.Proprietary Rights.  RELATIVITY AND ITS THIRD PARTY VENDORS OWN AND SHALL CONTINUE TO OWN THE ENTIRE TITLE AND INTEREST IN AND TO ALL INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS RELATED TO THE SOFTWARE, AND ALL MODIFICATIONS, ENHANCEMENTS, UPDATES, AND DERIVATIVE WORKS, and any suggestions, ideas, enhancement request, feedback, recommendations or other information provided by Client or any other party relating to the Software.  Client shall not directly or indirectly infringe any Intellectual Property Rights or misappropriate any IP of Relativity or its third party vendors.  Nothing in this Agreement, or the negotiation or performance thereof, shall be construed as transferring to Client or any other party any IP or other proprietary rights of Relativity or its third party vendors.  This Agreement is not intended to, and does not, convey any license, by implication, estoppel or otherwise, under any patent, copyright or other Intellectual Property not expressly granted hereunder.  All rights not expressly granted to Client under this Agreement are reserved by Relativity.  CLIENT SHALL RETAIN, PRESERVE, AND NOT COVER-UP OR OBSCURE, ANY TRADEMARK, TRADE NAME, COPYRIGHT NOTICE OR OTHER PROPRIETARY NOTICE ON ANY TRAINING MANUALS OR OTHER DOCUMENTATION PROVIDED BY RELATIVITY AND ON ANY COPY OR PORTION OF THE SOFTWARE, INCLUDING, BUT NOT LIMITED TO, SOFTWARE MERGED INTO ANOTHER PROGRAM (PROVIDED, NO SUCH MERGER IS PERMITTED UNLESS EXPRESSLY ALLOWED UNDER THIS AGREEMENT).  THE LICENSE IS LIMITED TO THE INSTALLATION AND EXECUTION OF OBJECT CODE COPIES OF THE SOFTWARE.  THIS LICENSE DOES NOT INCLUDE SOURCE CODE.

7.Restrictions On Software Use, Transfers, and Other Matters. Except as expressly permitted in this Agreement, Client: (i) shall only provide access to the Software to end users on a hosted basis from Client’s own servers; and (ii) shall not, directly or indirectly (through any other party), during the Term or thereafter, engage or permit any other person or party to engage in any of the following actions:

a.Sell, license, sublicense, rent, lease, timeshare, assign, mortgage, pledge, encumber, or otherwise transfer the Software, the License, this Agreement, or any right or interest in any of the foregoing items, by operation of Law or otherwise, to any other person or party, except for approved Transfers pursuant to Section 15.c.  b.Use or access the Software or make copies, except as expressly permitted in this Agreement; frame, mirror or copy any of Relativity’s web-sites or any portions thereof or content thereon; publish or distribute any computer image or other content that suggests an inaccurate association with Relativity or its products or an unauthorized endorsement by Relativity of any product or service.

c.Take any technological actions to circumvent standard security practices for using the Software and/or to avoid paying the full amounts under this Agreement, including: (i) circumventing or automating the standard practice of having Designated Application Support Administrators enable each Server User manually; (ii) circumventing the features in the Software for tracking and reporting data usage or the number of individual Server Users; or (iii) multiplexing or sharing individuals' access to and/or use of the Software through middleware, transaction servers, multi-tiered architectures, or other methods.  For the sake of clarity, Licenses granted under this Agreement do not permit any sharing of user names or other means of user enablement or log-in credentials between unique individuals, regardless of whether the sharing occurs at the same or different times; the user name of each Server User must be a unique working email address.

d.Reverse engineer, decompile, disassemble, modify, or translate the Software, or attempt to: (i) discover the source code of, or create Derivative Works from, the Software; (ii) build a competitive product or component using similar features, functions or graphics, unless Client builds or enhances such product or component (1) without violating the foregoing restrictions and the other sub-clauses and sections of this Agreement (including restrictions on accessing, copying and reverse engineering the Relativity software code), and (2) without infringing any Intellectual Property Rights or misappropriating any IP of Relativity or its third party vendors; or (iii) substantially copy any particular

4

features, functions or graphics.  “Derivative Works” means every translation, portation, modification, correction, addition, extension, upgrade, improvement, compilation, abridgment or other form in which an existing work may be recast, transformed or adapted.  “Derivative Works” also includes any software, technology, methods or processes that a person skilled in the arts would consider to be derived from the Software or from any Relativity technology, methods or processes protected by copyright, patent and/or trade secret laws.  If Client or anyone else makes any modification to the Software, whether authorized or unauthorized, such modification shall be considered Derivative Works and owned by Relativity.

e.Host the Software, administer the Software, or provide any services or functions respecting or using any aspect of the Software, on behalf of any other party (“Other Vendor”) under any white label or private label re-hosting arrangement.  Accordingly, Client shall at all times: (i) prominently display Client’s name and logo on all landing pages and log-in screens for the Software; (ii) not use any Other Vendor’s name in any URL used, directly or indirectly, to access the landing pages or log-in screens for the Software; and (iii) not permit any Other Vendor’s website to provide a link to any instances of the Software.  Relativity has no obligation under this Agreement to accept or respond to service calls or other communications from any Other Vendor or its customers.  Client must not provide any of Relativity’s materials or other property to any Other Vendor, and Client must immediately terminate Client’s arrangement with any Other Vendor at Relativity’s written request if, without express authorization in a written agreement between the Other Vendor and Relativity: (1) the Other Vendor’s web-site provides, directly or indirectly, any link to any instances of the Software; or (2) the Other Vendor uses Relativity’s materials, or name or logo, the Software name or logo, or other names, logos or means of identifying Relativity or any products of Relativity or otherwise violates Relativity’s IP rights.

8.Non-Solicitation. Each party agrees not to solicit, directly or indirectly, any of the other party’s Workers to become a Worker for the soliciting party, without the other party’s written consent, during the Term and for the next twelve (12) months after the Term.  “Worker” herein means a person who is at the time of the solicitation, or was during the preceding twelve (12) months: (a) employed by, or engaged as an independent contractor in providing services to, the subject party at least twenty (20) hours per week on average; or (b) employed by, or engaged as an independent contractor in providing services to, a third party and assigned to work on behalf of the subject party at least twenty (20) hours per week on average.  This Section shall: (i) prevent a party from indirectly soliciting the other party’s Workers by requesting that a recruiting firm or other third party contact such Workers; and (ii) not apply when a party’s Worker initiates contact with the other party or a recruiting firm and/or responds to a job posting of the other party or a recruiting firm.

9.IP Infringement Claims

a.Indemnity.  Subject to the other provisions of this Agreement, if any third party makes a claim against Client that Client’s use of Relativity’s Software during the Term in accordance with this Agreement infringes on any U.S. Patent or other Intellectual Property Rights of such third party which are valid and legally enforceable in the United States ("Claim"), Relativity shall, at Relativity’s sole expense: (i) defend or settle the Claim; and (ii) indemnify and hold Client harmless from and against any losses, damages, and expenses (including reasonable attorneys’ fees) that are directly attributable to such Claim; provided that: (1) Client delivers written notice of the Claim to Relativity promptly and in no event later than fourteen (14) days after Client first knows of the Claim (including knowledge based on any informal or preliminary allegations); (2) Relativity is given the sole authority to defend or settle the Claim; (3) Client does not compromise or settle the Claim or any aspect or portion thereof, or make any admission or substantive response relating to the Claim, without Relativity’s prior written agreement; (4) Client takes commercially reasonable steps to mitigate any damage or loss; and (5) Client cooperates fully with all reasonable requests of Relativity in connection with defending and settling any such Claim.

b.Limitations.  Relativity’s obligations under this Section do not apply to any Claim based on any: (i) use of the Software not in accordance with this Agreement; (ii) modification of theSoftware by any party other than Relativity; (iii) continued use of the Software after the Term;(iv) prior Release of the Software, to the extent the Claim could have been avoided by using the most current Release; or (v) combination or operation of Relativity’s Software with other software, components, data, or equipment not

5

created by Relativity, to the extent the Claim could have been avoided in the absence of such combination or operation.

c.Mitigation; Termination and Refund.  Notwithstanding the foregoing, to mitigate exposure in connection with any Claim, or if Relativity believes a Claim may be made, Relativity may, at Relativity’s option and sole expense: (i) obtain for Client a license to continue using Relativity’s Software in its existing form for the remainder of the Term free from the Claim; (ii) modify Relativity’s Software for Client in an effort to avoid or minimize the Claim, without materially affecting the functionality of Relativity’s Software; (iii) obtain for Client a license to use other software which is marketed to compete with Relativity’s Software (which may be a product made or marketed by the third party making the Claim); or (iv) terminate this Agreement and refund fees paid by Client for the Software in a prorated amount reflecting: (1) any portion of such fees applicable to any period of the Term when Client was not able to use, and did not use, the Software due to the Claim; and (2) any portion of such fees that were pre-paid for any period of the Term following such early termination.  This Section contains the only liability and obligations of Relativity, and the only remedies of Client, for any Claims as described herein.  THE EXPRESS PROVISIONS OF THIS SECTION ARE IN LIEU OF, AND TO THE EXCLUSION OF, ALL OTHER INDEMNITY AND CONTRIBUTION OBLIGATIONS OF ANY KIND, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, RELATING TO THE CLAIMS, AND ALL SUCH INDEMNITY AND CONTRIBUTION OBLIGATIONS ARE EXCLUDED FROM THIS AGREEMENT AND WAIVED TO THE FULLEST EXTENT NOT PROHIBITED BY LAW.

10.Termination and Remedies.This Agreement shall automatically expire and terminate at the end of the Term.  The parties further agree as follows:

a.Violation of Confidentiality.  If either party violates the provisions of this Agreement respecting the other party’s Confidential Information, the other party may terminate this Agreement immediately upon notice to the violating party.

b.Violation of IP or Certain Other Provisions.  Relativity may terminate this Agreement immediately upon notice to Client if Client violates Section 6 respecting IP or other rights, the restrictions set forth in Section 7, or the restrictions set forth in section 15.c.

c.Failure to Pay.  Payments under this Agreement are due thirty (30) days after billed.  If a payment is not made within thirty (30) days after the payment is due (i.e., sixty (60) days after billed), Relativity may terminate this Agreement by written notice, unless Client pays the full amount claimed within fifteen (15) days after Relativity delivers such notice.

d.Other Violations.  If either party violates any provision of this Agreement other than as provided above, the non-defaulting party may terminate this Agreement effective fifteen (15) days after providing notice of the default to the defaulting party, unless such party remedies such default within such time period.

e.Other Remedies.  Termination of this Agreement shall not be in limitation of any other remedies, subject to Section 13 and the other express provisions of this Agreement.  If Client fails to pay any amount when due under this Agreement, Relativity may charge interest of one percent (1%) per month (or any lower rate required by Laws) on the unpaid amount and suspend any Services or the License, decline to provide Updates or Add-Ons, and/or decline to permit Client to add Additional Server Users until payment is made, without limiting other rights and remedies.  Termination, arbitration, and remedies at law will be inadequate in the following cases, and therefore the parties agree that: (i) each party shall be entitled to seek and obtain immediate injunctive relief if the other party violates or appears likely to violate the provisions of this Agreement respecting Confidential Information or the provisions in Section 8, and (ii) Relativity shall be entitled to seek and obtain immediate injunctive relief if Client violates or appears likely to violate this Agreement respecting IP or other rights, or the restrictions set forth in Section 7.  

11.Other Termination Rights; Actions Upon Termination.  Upon termination of this Agreement for any reason: (a) all Licenses shall thereupon terminate; (b) Client will immediately discontinue access to, and use of, the Software; (c) Client shall certify to Relativity in writing within fourteen (14) days

6

the permanent destruction of all Software and all Relativity Confidential Information; and (d) Relativity may require that Client apply a “kill code” to each instance of the Software and send Relativity a screen shot evidencing the application of the kill code.  No refund of any payment will be made to Client upon early termination, except as expressly provided in this Agreement.  

12.Notices

a.Every notice purporting to terminate, exercise any legal right under, or assert any legal claim under, this Agreement shall only be effective if: (i) such notice is in writing and reasonably refers to this Agreement; and (ii) such notice is delivered in person by a worker or representative of the sending party or local courier service, or sent by a leading overnight delivery service or email as a pdf attachment, to the other party at the address below (or such other address or contact person as either party may designate by notice as required herein).

Client:	LDiscovery, LLC Attn: Chris Weiler 8201 Greensboro Drive, Suite 300 McLean, VA 22102-3810 Email: Chris.Weiler@kldiscovery.com
Relativity:	Relativity ODA LLC Attn:  General Counsel 231 South LaSalle St., 8th Floor Chicago, Illinois  60604 Email: legal@relativity.com

b.Each notice shall be deemed delivered: (i) immediately upon delivery in person by a worker or representative of the sending party or by local courier service; (ii) on the next business day in the recipient’s area if sent by a leading overnight delivery service; or (iii) if made by email, at the time receipt thereof has been acknowledged by electronic confirmation or otherwise.  Written notices which reasonably refer to this Agreement, but are not given pursuant to the other requirements, shall be effective when received by the proper party at the required address.  Written notices which are not given pursuant to the requirements in this Section shall be effective if and when specifically acknowledged by the other party in writing.

13.Laws and Dispute Resolution.  

a.Laws.  Each party shall comply with all federal, state, and local laws, statutes, ordinances, rules, regulations, codes, and other governmental requirements, and applicable court and administrative decisions, orders and decrees (“Laws”)applicable to such party’s business operations and activities under or in connection with this Agreement.  This Agreement shall be governed by, and interpreted in accordance with, the Laws of the State of Illinois, without regard to any choice of law or conflicts of laws provisions.  To the extent that this Agreement permits Client to locate and use any of the Software outside the United States, such permission is subject to Client procuring any applicable governmental approvals and licenses and complying with any other governmental requirements and procedures, including but not limited to governmental restrictions on data encryption and the export of technical data.  Without limiting the generality of the foregoing provisions, Client shall comply with all export, re-export, and import laws of the United States and any other applicable countries, obtain all applicable export, re-export, and import licenses, and pay all tariffs, import duties, export fees, and any other levies, imposts, charges, taxes, and assessments of any kind and nature.  Client shall not permit access to the Software or transfer, export or re-export of the Software, or the underlying information or technology, by or to any person or party who is a national or resident of, or located in, any country on the United States Department of Treasury's List of Specially Designated Nationals or the U.S. Department of Commerce's Table of Denial Orders, or any other country which is subject to restrictions imposed by governmental authority.  

b.Arbitration.  Any claim of damages of any kind by one party against the other party arising out of or relating to this Agreement, and any dispute or controversy arising out of or relating to such

7

claim or the breach, interpretation or validity of this Agreement or any provision thereof in relation to such claim, shall be determined by binding arbitration in Chicago, Illinois, before one arbitrator.  The arbitration shall be administered by JAMS, The Resolution Experts, pursuant to its Streamlined Arbitration Rules and Procedures in effect at the time; provided, the arbitrator shall grant reasonable extensions of time if requested.  The Award shall be reasoned and in writing.Judgment on the Award may be entered and enforced in any court having jurisdiction.  The parties shall bear their own costs, fees and expenses in arbitrating any dispute, and shall share equally the fees and costs of JAMS and the arbitrator.  This clause shall not preclude the parties from seeking provisional remedies in aid of arbitration.  No demand for arbitration may be made more than one (1) year after the event giving rise to the claim occurred or when sooner barred by the applicable statute of limitations or repose.  In no event shall any arbitrator have any authority to modify this Agreement, award any types of damages which the parties have waived, released, or agreed not to assert, under this Agreement, or award any amount which exceeds any limitations contained in this Agreement. The arbitration procedure herein is fully binding, final, and non-appealable, and constitutes the parties’ only recourse for any claim of damages.

c.Related Provisions.  Notwithstanding anything to the contrary contained in this Agreement, arbitration shall not be required in order for either party to exercise any specific remedies contained in this Agreement based on a violation by the other party, and either party may pursue court remedies for claims which do not seek to recover damages from the other party, without submitting such claims to arbitration, and without notice except as required by court procedures.  By way of examples, and without limiting the generality of the foregoing statement, either party may: (i) exercise any express right to terminate this Agreement without being required to arbitrate any dispute or controversy arising out of or relating to such termination; and (ii) pursue actions in court seeking to obtain and enforce declaratory, injunctive or other equitable relief,and judgments for unpaid fees under this Agreement, or the refund of fees under this Agreement.  All claims that are not subject to the above arbitration provisions (including claims that an arbitrator has exceeded his or her authority and claims involving the determination of the scope or applicability of the foregoing arbitration provisions), shall be litigated exclusively in a federal or state court sitting in Cook County, Illinois; the parties hereby agree that such courts are convenient forums and submit to the jurisdiction and venue of such courts.  The prevailing party in any such litigation shall be entitled to recover its reasonable legal fees and costs from the other party.  IN THE INTEREST OF SAVING TIME AND RESOURCES, THE PARTIES HEREBY MUTUALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY COURT ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER ARISING OUT OF OR RELATING TO THIS AGREEMENT.  Although such jury waiver is intended to be self-operative and irrevocable, the parties each further agree, if requested, to confirm such waivers in writing at the time of commencement of any such action, proceeding or counterclaim.  This Section shall survive termination of this Agreement.

14.Limitation of Liability. As a material inducement for Relativity to enter into this Agreement, Client agrees, to the fullest extent not prohibited by applicable Laws, as follows:

a.Client agrees: (i) that Relativity is not an insurance company; (ii) that business interruption insurance, IP infringement insurance, and other coverages are available; (iii) that Relativity’s fees for the Software would be substantially higher if Relativity were to agree to undertake additional obligations and liabilities than Relativity has expressly undertaken in this Agreement; and (iv) that Client will look solely to its insurance or self-insurance programs to the extent that any losses, costs, judgments or expenses are not covered by Relativity’s express obligations and liabilities contained in this Agreement; and Client waives all rights of subrogation of its insurers against Relativity and its affiliates, vendors, and their respective personnel.

b.IN NO EVENT WILL RELATIVITY OR CLIENT, RELATIVITY’S SUPPLIERS OR LICENSORS BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE, EXEMPLARY OR OTHER DAMAGES OR LOSSES (INCLUDING, BUT NOT LIMITED TO, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF BUSINESS INFORMATION, DATA, GOODWILL OR OTHER PECUNIARY LOSS) ARISING OUT OF THE USE OR INABILITY TO USE THE SOFTWARE, PROBLEMS WITH THE SOFTWARE, UNAUTHORIZED ACCESS OR HACKING INTO THE SOFTWARE, OR ANY BREACH OF RELATIVITY OR CLIENT’S WARRANTIES

8

OR OBLIGATIONS, EVEN IF SUCH DAMAGES OR LOSSES WERE FORESEEABLE OR RELATIVITY OR CLIENT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR LOSSES, AND CLIENT AND RELATIVITY WAIVES, RELEASES AND AGREES NOT TO ASSERT ALL SUCH CLAIMS.

c.IN ANY EVENT, EACH PARTY’S RESPECTIVE AGGREGATE TOTAL MONETARY LIABILITY UNDER ALL CAUSES OF ACTION AND ALL THEORIES OF LIABILITY (INCLUDING BUT NOT LIMITED TO STATUTORY, TORT, STRICT LIABILITY, WARRANTY, INDEMNITY, CONTRIBUTION, AND CONTRACT THEORIES) WILL BE LIMITED TO AN AMOUNT EQUAL TO THE ANNUAL FEES PAID AND PAYABLE BY CLIENT TO RELATIVITY UNDER THIS AGREEMENT FOR THE FIRST YEAR OF THE TERM (OR SUCH HIGHER AMOUNT AS MAY BE IN EFFECT FOR ANY SUBSEQUENT YEAR OF THE TERM, PROVIDED THAT THE TOTAL CAP FOR ALL SUCH CLAIMS IN THE AGGREGATE DURING THE TERM SHALL NOT EXCEED ONE YEAR OF FEES AT THE HIGHEST ANNUALIZED AMOUNT IN EFFECT UNDER THIS AGREEMENT); PROVIDED, THE FOREGOING LIMITATION WILL NOT APPLY TO: (i) EITHER PARTY’S VIOLATIONS OF SECTION 5; (ii) CLIENT’S OBLIGATIONS UNDER SECTIONS 6 OR 7; (iii) RELATIVITY’S OBLIGATIONS UNDER SECTION 9; OR (iv) FRAUD OR WILLFUL MISCONDUCT.  IN ADDITION, CLIENT’S OBLIGATIONS TO PAY FEES UNDER THIS AGREEMENT ARE NOT SUBJECT TO THIS PROVISION AND WILL NOT BE COUNTED TOWARDS THE CAPPED LIABILITY OF CLIENT UNDER THIS PROVISION.

15.General Provisions

a.Publicity; Trademarks.  Neither party shall use the name, logo or trademark of the other party (or of its third party vendors) in any press release, advertising or other publicly disseminated document or materials without the written consent of the other party.  Each party may list on its web-site, in a professional and reasonable manner, the other party’s name, logo and trademark while this Agreement is in effect; provided, the listing party shall: (i) comply with all of the other party’s guidelines and requirements for such matters; and (ii) remove the other party’s name, logo and trademark immediately upon such party’s request.

b.Permitted Government Use. If Client’s customers for the Software include any agency or department of the United States Federal Government (“Government"), the parties agree that this paragraph will apply to the Software and Documentation, and Client agrees to include provisions corresponding to this paragraph in its agreements with the Government.  All Software and Documentation that are provided to the Government are provided with restricted rights as contained in this Agreement. All use, duplication and/or disclosure by the Government of such Software and Documentation is subject to FAR 52.227-19, "Commercial Computer Software - Restricted Rights", or DFAR 227.7202-3, "Rights in Commercial Computer Software or Commercial Computer Software Documentation", as applicable.  Notwithstanding anything to the contrary in FAR 52.227-19, DFAR 227.7202-3 or any other such provision, the Government MAY NOT in any fashion modify, combine with other software products, reproduce and/or distribute, other than as specifically permitted by this License, any Software or Documentation.  The Software and Documentation are “commercial items” as that term is defined in 48 C.F.R. 2.101 (October 1995) consisting of “commercial computer software” and “commercial computer software documentation” as such terms are used in 48 C.F.R. 12.212 (September 1995).  Consistent with 48 C.F.R. 12.212 and 48 C.F.R. 227.7202-1, 227.7202-3 and 227.7202-4 (June 1995), Client or its customer or end user is the Government, the Software and Documentation are licensed hereunder (i) only as a commercial item, and (ii) with only those rights as are granted pursuant to the terms and conditions of this Agreement.

c.Successors and Assigns.  As provided in Sections 1 and 7, the License is not transferable, is not sub-licensable, and is subject to other restrictions.  Without limitation as to such provisions, Client shall not, without the prior written consent of Relativity (which Relativity will not unreasonably withhold, condition or delay), directly or indirectly: (i) assign, mortgage, pledge, encumber, or otherwise transfer, this Agreement, the License, or any interest hereunder, by operation of Law or otherwise; or (ii) grant any sub-license under the License (all of the foregoing are herein referred to collectively as "Transfers" and any party to whom any Transfer is made or sought to be made is herein referred to as a "Transferee").  A "Transfer" shall also include: (1) dissolution of Client; (2) merger or consolidation of Client with another party; (3) withdrawal or change of a majority of the partners or members, or a transfer of a majority of partnership or membership interests, of Client or any parent company in a

9

twelve month period; or (4) the sale or other transfer of more than an aggregate of 50% of the voting shares or net assets of Client or any parent company in a twelve month period.  Subject to the provisions in this Agreement, this Agreement shall be binding on and inure to the benefit of the parties’ successors and assigns.

d.Authority; Actions of Representatives.  Client and all persons signing for Client below, and Relativity and all persons signing for Relativity below, hereby represent that this Agreement has been fully authorized and no further approvals are required.  Each party shall be liable for breach of this Agreement by such party’s Representatives (as defined in Section 5).

e.Severability.  If this Agreement or any phrase or portion of this Agreement is held void, unenforceable, or prohibited by Law, then this Agreement and any such phrase or portion shall be reasonably reformed (by modifying, adding, or deleting text) to the minimum extent required to carry out the parties’ mutual intent that this Agreement and all phrases and provisions shall be valid and enforceable to the fullest extent permitted by Law.  

f.Third Party Beneficiaries.  EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, THE PARTIES HEREBY EXPRESSLY DISCLAIM ANY INTENTION TO CREATE ANY THIRD PARTY BENEFICIARIES OF THIS AGREEMENT.

g.No Partnership; Relationship of Parties. The parties are only acting as independent contractors under and in connection with this Agreement.  Neither this Agreement nor the actions of any party, nor any statements regarding “partners” or a “partnership” on Relativity’s web-site, in its marketing materials or other Documentation, or made in any communications between the parties shall be interpreted as creating an actual or implied partnership, joint venture, agency or other relationship.

h.Force Majeure.  If the performance of any part of this Agreement by a party (except Client’s payment obligations) is prevented, hindered, delayed or otherwise made impracticable by conduct of the other party or by terrorism, riot, judicial or governmental action, labor disputes, act of God or any other causes beyond the reasonable control of the affected party, the affected party shall be excused from such performance, but only to the extent that, and only so long as, it is actually prevented, hindered or delayed by such causes.

i.No Waiver or Estoppel.  No waiver by, or estoppel of, either party respecting any right or provision in this Agreement, including this no waiver or estoppel paragraph, shall be effective unless expressly set forth in writing and signed by an authorized representative of such party.  Without limiting the generality of the foregoing: (i) no act, failure to act, payment, acceptance of payment, or course of dealing, including any failure or delay in billing Client for taxes or any other amounts that Client is required to pay, shall create a waiver or estoppel, regardless of how long it continues; and (ii) no failure to exercise, nor any delay in exercising, on the part of either party, any right or remedy hereunder shall operate as a waiver of, or estoppel to assert, such right or remedy, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy.  Any waiver or estoppel respecting any right or provision on any occasion or occasions shall not be a waiver or estoppel respecting such right or provision on any future occasion.

j.Survival and Acceleration.Termination of this Agreement shall not relieve either party from liability for any violation occurring prior to such termination, subject to the other provisions of this Agreement.  ANY PAYMENT OBLIGATION THAT WOULD OTHERWISE ACCRUE AFTER TERMINATION OF THIS AGREEMENT BY RELATIVITY BASED ON A CLIENT DEFAULT SHALL BECOME DUE AND PAYABLE UPON SUCH TERMINATION.  Any provisions of this Agreement that expressly provide, or by reasonable implication are intended, for survival after termination shall remain in effect in accordance with their terms.  

k.Interpretation; Language Choice.  Unless the context of this Agreement clearly requires otherwise:  (i) the word “party” shall include individuals, corporations, partnerships, limited liability companies, and other entities; (ii) the singular shall include the plural, and the plural shall include the singular; (iii) the words “includes” and “including” shall mean “including without limitation;” (iv) the word “or”

10

shall mean “and/or;” and (v) words such as “hereof,” “herein,” “hereunder,” and similar words refer to this Agreement as a whole and not any particular section in which such words appear.  In interpreting any vagueness or ambiguity, captions shall not be used and no presumption shall apply against the party preparing this Agreement.  Under no circumstances will the “Uniform Computer Information Transactions Act,” the American Law Institute's "Principles of the Law of Software Contracts," as model laws or as adopted in any jurisdiction, or the United Nations Convention on Contracts for the International Sale of Goods, or similar acts, laws and conventions have any bearing on the interpretation or enforcement of this Agreement and the parties hereby elect to opt out of all such acts, laws and conventions.  The parties hereby confirm that they have requested that this Agreement and all related documents be drafted in English. Les parties ont exigé que le présent contrat et tous les documents connexes soient rédigés en anglais.

l.Whole Binding Agreement; Amendments; Counterparts; Electronic Delivery.  THIS AGREEMENT: (i) SHALL BE BINDING, AND MAY BE AMENDED, ONLY IF AND WHEN A FORMAL AMENDMENT IS SIGNED AND DELIVERED BY BOTH PARTIES IN THE MANNER PERMITTED HEREIN, AND (ii) MAY NOT BE AMENDED ORALLY OR BY COURSE OF CONDUCT OR DEALING.  If Client issues any purchase order, receipt or other documentation, such items shall be deemed to be solely for the administrative convenience of Client and shall not be binding or serve to modify or supplement this Agreement, even if signed or processed by Relativity. This Agreement and the Exhibits constitute the entire agreement between the parties and supersede all other written and oral representations, proposals, communications and agreements, if any, relative to the subject matter hereof.  Any facts or matters thought by either party to be material to the performance of or inducement into this Agreement are contained herein.  The parties may sign and deliver this Agreement or any amendment as complete documents or in separate counterparts (which shall constitute one agreement), and either party may deliver the same as a pdf by email.  Either party delivering by email shall also deliver an ink-signed original promptly upon request; provided, any failure to deliver an ink-signed original shall not affect the validity of this Agreement or give rise to any remedy except specific performance of such delivery requirement.

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective duly authorized officers or representatives, as of the Effective Date.

Relativity ODA LLC		LDiscovery, LLC
By:	/S/ keith lieberman	By:	/s/ andrew southam
Name:	Keith Lieberman	Name:	andrew southam
Title:	cfo	Title:	general counsel

11

EXHIBIT A

SUMMARY OF INITIAL BUSINESS TERMS

This Exhibit A contains a summary of key business terms of this Agreement which are further explained in Exhibit B.  This Exhibit A should be read with the other Exhibits and other portions of this Agreement.  All Exhibits are cumulative with, and supplement, each other and the other provisions of this Agreement.  However, in case of express conflict, this Exhibit A governs over the other Exhibits, and all Exhibits govern over the other portions of this Agreement.

Term: Forty-two (42) months commencing on the Effective Date at the beginning of this Agreement.  The initial period of the Term shall commence on the Effective Date and conclude on June 30, 2021 (“Initial Period”).  The subsequent periods of the Term shall: (i) commence on July 1, 2021 and conclude on June 30, 2022 (“Second Period”); (ii) commence July 1, 2022 and conclude on June 30, 2023 (“Third Period”); and (iii) commence July 1, 2023 and conclude on June 30, 2024 (“Fourth Period”).

Relativity Review & Production - Relativity Analytics Licensed Separately

Server User Cap: [****] Server Users

Relativity Review Annual Fee: $[****]

Extra Server User Fee $[****] per month per Extra Server User in excess of the Server User Cap:

Future increase in the Annual Fee to add a [****} pack of Additional Server Users: $[****]

Relativity Analytics – Separate from Relativity Review

Analytics Volume Based Subscription Level (GB): [****]

Analytics Annual Subscription Fee: $[****]

Analytics Burst Fee:  $[****]/GB

Pay As You Go Fee: $[****]/GB

Relativity Processing

Number of Processing Workers included with the Relativity Review Annual Fee (No Separate Additional Charge): [****]

Number of Extra Processing Workers (for Extra Processing Worker Annual Fee): [****]

Total Extra Processing Worker Annual Fee based on Extra Processing Workers licensed above: [****]

Future increase in the Extra Processing Worker Annual Fee to add Extra Processing Workers: $[****]

Relativity Data Grid  

Number of Data Grid Nodes included with the Relativity Review Annual Fee: [****]

Number of Extra Data Grid Nodes (for Extra Data Grid Annual Fee): [****]

Extra Data Grid Annual Fee for the Extra Data Grid Nodes licensed above: [****]

Future increase in the Annual Fee to add Extra Data Grid Nodes:$[****] per Data Grid Node per Year

Exhibit A – Page 1

Relativity Legal Hold

Active Custodian Cap: [****] Active Custodians

Legal Hold Workspaces:[****]

Legal Hold Annual Fee: $[****]

Production Instances:

Number of Production Instances included with Relativity Review Annual Fee: [****]

Number of Free Extra Production Instances: [****]

Number of Extra Production Instances (for Extra Production Instance Annual Fee): [****]

Extra Production Instance Annual Fee for the Extra Production Instances licensed above: [****]

One Year Production Instances

[****]

Temporary Production Instances

Number of Temporary Production Instances:  [****]

Temporary Production Instance Monthly Fee for the Temporary Production Instances licensed above: $[****] per calendar month (fees not included in the Total Initial Annual Fees below)

Temporary Production Instance Server User Fee: $[****] per Server User per Temporary Production Instance in any given month (See Exhibit B); however, such Temporary Production Instance Server User Fee shall be increased to $[****] on[****].

Relativity Client Domains

Number of Client Domain Tenant Accounts (for Client Domain Annual Fee): [****]

▪ Client Tenant Account 1: [****]

▪ Client Tenant Account 2:[****]

Client Domain Annual Fee for the Client Domain Tenant Accounts granted to Client above: $[****]

TOTAL INITIAL ANNUAL FEES PER ABOVE: $[****]

ANNUAL PAYMENT DATES:

The above Annual Fees for the Initial Period of the Term are due on the Effective Date in the beginning of this Agreement.  The subsequent Annual Fees are due on: (a) July 1, 2021 for the Second Period of the Term; (b) July 1, 2022 for the Third Period of the Term; (c) July 1, 2023 for the Fourth Period of the Term; however, such amounts shall be payable in accordance with the Installment Payments Schedule below. For any amount due under this Agreement: (i) Relativity will use reasonable efforts to deliver an invoice between thirty (30) and sixty (60) days in advance; and (ii) in no event will the Annual Fee be due sooner than thirty (30) days after Relativity delivers the invoice.

Exhibit A – Page 2

Client Billing Contact and Cycle.  Unless Client directs otherwise, Relativity will send bills to:

LDiscovery, LLC

Attn: Dawn Wilson, CFO

8201 Greensboro Drive, Suite 300

McLean, VA 22102-3810

Email: dawn.wilson@krolldiscovery.com

For any amounts payable by Client for which the timing of the payment is not otherwise specified in this Agreement, Relativity will generally bill Client at about the close of each month, and payment is due thirty (30) days after the amount is billed.  Relativity may send bills via email.

Taxes.  All amounts under this Agreement are exclusive of any applicable Taxes.  Except for taxes based on Relativity’s net income, Client shall pay all applicable sales, use, excise, valued-added or other tax, fee, tariff or duty levied by any international bodies, or country, federal, state and local governments or agencies in connection with this Agreement, the License or Services and/or any payment made by Client hereunder (“Taxes”).  Relativity will bill Client for applicable Taxes to the extent that applicable laws impose collection obligations on Relativity as the licensor of commercial software (which is delivered over the Internet and deployed by Client behind its firewall) and as the provider of related software support Services.  Relativity reserves discretion to defer any remittance, and any invoicing of Client, of any Taxes so long as Relativity believes there may be a lawful basis to dispute or contest such Taxes.  If Relativity does so, and if Relativity eventually determines that it needs to pay such Taxes, Relativity may invoice the deferred amounts and Client shall pay such invoices; provided, Relativity will not invoice Client for, and agrees to indemnify and hold Client harmless from and against, any penalties and interest assessed based upon Relativity’s failure to remit, or delay in remitting, Taxes in accordance with this Section.  Notwithstanding the foregoing, if Client is responsible for withholding and remitting Taxes from all amounts payable under this Agreement, Relativity shall gross-up each applicable invoice so that such invoice includes the total amount due plus any applicable withholding.

SPECIAL TERMS

Installment Payment Terms.

•Installment Payment Schedule.  Commencing as of July 1, 2021, Client has elected to pay all remaining Annual Fees in installment payments (each an “Installment Payment”) for the remainder of the Term in accordance with the following “Installment Payment Schedule”.  [***]:

Installment Payment Schedule
Period	Installment Payment	Payment Due Date	Payment Amount	Installment Premium Fee	Total Amount Due
Second Period	1	07/01/2021	$[****]	[****]	$[****]
	2	01/01/2022	$[****]	[****]	$[****]
Third Period	1	07/01/2022	$[****]	[****]	$[****]
	2	01/01/2023	$[****]	[****]	$[****]
Fourth Period	1	07/01/2023	$[****]	[****]	$[****]
	2	01/01/2024	$[****]	[****]	$[****]

•Additional Installment Payment Terms.  If Relativity permits Client to pay any annual amount in Installment Payments: (a) Client will pay Relativity an additional “Installment Premium Fee” with each

Exhibit A – Page 3

Installment Payment equal to [****] of the payment amount, as further described in the Installment Payment Schedule; (b) Client is still required to pay the full Annual Fees and all such additional Installment Premium Fees even if the Client does not use the applicable product to the full extent permitted by the Annual Fee; (c) if this Agreement or the License expires or is terminated when there are any remaining Installment Payments, those Installment Payments are due at that time (however, the additional Installment Premium Fees on those payments will be waived if those payment are made on time); (d) Relativity may require that Client sign and return a confirmatory amendment or other such document setting forth the payment dates and amounts and/or Relativity may rely on Client’s email request to pay an Annual Feein Installment Payments as a basis to invoice Client for such Annual Fee, plus the additional Installment Premium Fee, biannually in accordance with the Installment Payment Schedule above; (e) Relativity may rely on Client’s request for installment invoicing respecting a given Annual Fee as a basis to provide installment invoices for other products that otherwise require Annual Fees and/or to continue the Installment Payments subsequent period of the Term; (f) Client may discontinue installment invoicing with respect to any subsequent period by providing at least sixty (60) days advance notice to Relativity; (g) unless Relativity receives Client’s timely notice electing not to continue installment invoicing for a subsequent period as provided in the preceding clause, Relativity reserves the right to continue invoicing the Annual Feesin accordance with the Installment Payment Schedule above; and (h) Relativity reserves the right to decline to permit Installment Payments for any subsequent period or other product.  In any event, if Client fails to pay any amount when due under this Agreement, any remaining Installment Payments of Annual Fees will thereupon become due, Relativity may decline to permit Client to pay any other annual amounts in Installment Payments.  For the sake of clarity, Temporary Production Instance Monthly Fees and Temporary Production Instance Server User Fees shall remain due and payable in accordance with the terms set forth in Exhibit B.

Production Instance Fees.  As a special business consideration to Client, Relativity has agreed to provide Client with its legacy pricing for all Production Instances (including Extra Production Instances, One Year Production Instances, and Temporary Production Instances) licensed during the initial Term of this Agreement.  The breakdown of the fees for each such Production Instance are as follows:

• Extra Production Instances: $[***] Extra Production Instance Annual Fee per Extra Production Instance per year.

• One Year Production Instances: $[****] One Year Production Instance Fee per One Year Production Instance.

• Temporary Production Instances: $[****]Temporary Production Instance Monthly Fee per Temporary Production Instance per month plus the applicable Temporary Production Instance Server User Fee set forth above.

Exhibit A – Page 4

EXHIBIT B

ADDITIONAL LICENSING PROVISIONS AND RELATED TERMS

DEFINITIONS. The following terms shall have the meanings ascribed thereto when used as capitalized terms in the other provisions of this Agreement and Exhibits:

"Documentation" means printed material associated with, provided with, or provided by the Software, including the description of the principles of operation.

“Intellectual Property Rights” or “IP” means any and all rights arising from or under any of the following, whether protected, created or arising under the laws of the United States of America or any other jurisdiction: patents (including, but not limited to, any applications, extensions, divisions, continuations, continuations-in-part, reexaminations, reissues, and renewals related thereto), copyrights (including, but not limited to, any applications, registrations and renewals related thereto), trademarks and service marks (including, but not limited to, applications, registrations, and renewals related thereto), trade dress, trade names, trade secret and know-how and any other intellectual property or proprietary rights of any nature, by whatever name or term known or however designated.

"Software"means the software programs created by Relativity and supplied under this Agreement or any subsequent amendment or order, all Updates and any Add-Ons (if Client pays for an Add-On) supplied by Relativity to Client under this Agreement.  Software may include embedded third party programs which shall be subject to the provisions of this Agreement.

“Update” means any modification, revision, or other enhancement, to the Software created by Relativity during the Term of this Agreement, other than Add-Ons (unless Client pays for an Add-On), but including Corrections, Critical Patch Releases, Minor Updates, Minor Releases, and Major Releases, as such terms are defined in Exhibit C to this Agreement.  Relativity may, at its option, include in any Update any item that was previously available as an Add-On.

SOFTWARE USE AS HOSTED SERVICE. Client shall only use and permit the Software to be used by Client’s customers on a hosted basis as part of Client’s e-discovery litigation support services.

USAGE REPORTING. Client’s billing and usage data will be delivered to Relativity through the Software in accordance with the applicable Documentation.  Relativity has provided an optional feature in the Software by which Client may choose to obfuscate case names and/or the client or matter names and/or the personal name portion of the email address used for Server User log-ins.  If Client uses that obfuscation feature and is licensing more than one Production Instance of the Software, Relativity may require that Client consistently uses the obfuscation feature in all Production Instances in order to handle billing determinations consistently.  In such cases, Client shall provide such additional information, upon request, as may be necessary for Relativity’s billing and auditing purposes.  Upon Relativity’s requests from time to time, Client shall also cooperate in: (a) applying, running and providing the results of special usage and billing scripts for given products; (b) providing Relativity and its representatives with certifications respecting Server Users and usage metrics, and (c) granting remote supervised secure access to the Software for Relativity to verify billing and usage information.

SOFTWARE EXCLUSIONS. This Agreement does not include any other licenses that are required to run the Software, including Microsoft Windows Server, Microsoft’s SQL Server database server, and any other third party products that may otherwise be system requirements.

RELATIVITY REVIEW & PRODUCTION

Relativity Review & Production - Overview and Deployment Limitations:

•“Relativity Review & Production” is sometimes referred to as “Relativity Review” for short.  Relativity Review includes highly scalable document review capabilities, document production functions, and numerous additional features and functions described further on the Relativity website.

Exhibit B – Page 1

•“Relativity Server Software” is the main component of Relativity Review which Client may install on an unlimited number of Network Server Computers in Client’s Computer Network, provided Client shall only deploy the Relativity Server Software behind Client’s firewall at Client’s site or in a cloud data center or collocation facility of a third party.

•“Relativity Web Client” is any ancillary required component that Client may deploy on an unlimited number of computers in Client’s Computer Network and any end users’ computers at the sites of Client, Client’s bona fide direct customers for e-discovery litigation support services, and Client’s consultants in support of Client’s business operations (and Client may permit such end users to use the Software for such purposes as permitted under this Agreement).  With Relativity 9.3 and higher, the Client Software is not required for ordinary use of the Software, but instead contains miscellaneous additional administrative tools, such as Relativity Desktop Client (RDC) and Database Management Tool (DBMT), and the optional use of Native Document Viewer.

•“Client’s Computer Network” means any combination of two or more terminals or computers that are electronically linked and capable of sharing the use of a single software program and that are owned and operated by Client.  Client’s Computer Network includes remote terminal access by Client’s end users as permitted herein.

•“Network Server Computer(s)” means any server(s) in Client’s Computer Network.

SERVER USER CAP; MONTHLY EXTRA SERVER USERS; ADDING USER PACKS

Server User Cap.  Client’s License for the Relativity Review Software is limited to the number of Server Users in the Server User Cap set forth in Exhibit A.  Relativity will bill Client the amount of the Extra Server Users Fee set forth in Exhibit A times the number of Extra Server Users in any month.  

“Extra Server Users” means, in any month, the total number of Server Users minus the Server User Cap, as set forth in Exhibit A. “Server Users” means the number of individuals (including Client’s systems and support administrators) who are given access (also called “enabled”) to use the Software within the month in question, regardless of any actual use, or duration or frequency of use, and regardless of whether any such individual’s access is terminated (also called “disabled”) before the month ends.

Additional Server Users and Fees.  Client may, by written agreement with Relativity, add “Additional Server Users” in 25-user increments to the Sever User Cap (each a “25-Pack”).  The price for each 25-Pack varies depending on the applicable period of the Term: (a) during the Initial Period of the Term, the annualized cost of each 25-Pack added to the Server User Cap is $[****]; and (b) commencing on July 1, 2021, the annualized cost of each 25-Pack previously added to the Server User Cap (or subsequently added to the Server User Cap) shall be increased to $[****], subject to the terms below.  For 25-Packs added part way through a year of the Term, Relativity will prorate the annualized payment for the added 25-Pack(s) for the partial year as of the first day of the month in which the addition is made, and will bill the amount when the confirmatory amendment respecting such addition is signed.  Thereafter, Client will pay the applicable additional increased amount for the 25-Pack each year in advance as an increase in the Relativity Review Annual Fee.  Notwithstanding the foregoing, 25-Packs cannot be added when there are fewer than twelve (12) months remaining in the Term..

Aggregating Server Users.  If Client is ever licensing more than one Production Instance under this Agreement, the number of Server Users for each Production Instance shall be aggregated and counted together for purposes of billing Extra Server User Fees for any Extra Server Users, excluding any Production Instance which is not licensed co-terminously with the Term of this Agreement (unless the licensing provisions for such non-coterminous Production Instance specifically provide for aggregating the Server Users with the Server Users of other Production Instances under this Agreement).  However, this Section is not intended to require that the same individual who is enabled to use more than one such Production Instance during a given calendar month be counted more than once in determining Extra Server Users.  Relativity will use reasonable efforts to aggregate and de-duplicate Server Users across the Production Instances and then bill Client only based on the unique Server Users.  If Client determines that Relativity double-charged for Extra Server Users, e.g. as a result of one or more Server Users being

Exhibit B – Page 2

counted in more than one Production Instance during the same month, Client may bring such charges to Relativity’s attention promptly in writing.  In such case, Relativity shall reasonably review such charges and applicable supporting data or information, and provide appropriate credits.

RELATIVITY ANALYTICS

Relativity Analytics - Functions Overview

•Relativity Analytics includes various functions that involve building a data index, including functions for clustering, concept searching, keyword expansion, and similar document detection.  

•Relativity Analytics includes other functions that use structured data analytics tools, including functions for email threading, textual near duplicate identification, and language identification.

•Relativity Analytics can also be used with Relativity Assisted Review, which is a technology-assisted review program (sometimes referred to as TAR or predictive coding).

Relativity Analytics - Fees Overview

•Relativity Review with Unlimited Relativity Analytics.  If Exhibit A includes Relativity Review with Unlimited Relativity Analytics, the included Relativity Review Annual Fee includes and permits an unlimited amount of Relativity Analytics use by Client, subject to the applicable terms of this Agreement.

•Relativity Analytics Volume Based Subscription Level (GB). If Exhibit A includes a Relativity Analytics Volume Based Subscription Level (GB), a Client will initially pay the Analytics Annual Subscription Fee in Exhibit A, and then make elections and pay as provided below.

•Relativity Analytics Pay-As-You-Go. If at any point Client does not have a Relativity Analytics Volume Based Subscription Level or a license to use an unlimited amount of Relativity Analytics, Client may use Relativity Analytics by paying Relativity Analytics Pay As You Go Fees with usage billed at the end of each month at the rate in Exhibit A and as described below.  In addition, Client may obtain a Relativity Analytics Volume Based Subscription Level (GB) by signing Relativity’s confirmatory amendment or other such document and paying the applicable Analytics Annual Subscription Fee.

Relativity Analytics - Volume Based Subscription Fees

•Relativity Analytics annual subscriptions have a data usage threshold.  The annual fee covers all data usage up to the threshold during the annual period.  Usage is measured based on the total size of the native files evaluated by Relativity Analytics.  Documents are evaluated by Relativity Analytics, when a search is created, and the results of that search are added to a Relativity Analytics index or otherwise have a Relativity Analytics feature run against them. 

•If the data threshold is surpassed during the annual period, monthly burst fees apply based on an amount per GB until the end of the 12-month period per the schedule below.  There is no carryover of any unused portion of the threshold once the annual period expires, at which point a new annual subscription can be purchased if the license agreement is still in effect.

•Relativity Analytics subscriptions are available in different pricing packages based on the amount of data usage as set forth in the schedule below.  During any period when Client does not have a Relativity Analytics subscription in effect under this Agreement, Relativity may use Relativity’s then current Relativity Analytics standard subscription fee schedule if Client desires to add an analytics subscription.

Exhibit B – Page 3

Annual Subscription	Data Threshold	Analytics Burst Fee
$[****]	500 GB	$[****]/GB
$[****]	1,000 GB	$[****]/GB
$[****]	4,000 GB	$[****]/GB
$[****]	15,000 GB	$[****]/GB
$[****]	30,000 GB	$[****]/GB
$[****]	50,000 GB	$[****]/GB

Relativity Analytics - Measuring Data Usage

•All Analytics pricing schedules measure usage based on the total size of the native files evaluated by Relativity Analytics.  Documents are evaluated by Relativity Analytics when a search is created and the results of that search are added to a Relativity Analytics index or a Structured Analytics Set, or the search results are otherwise submitted to a Relativity Analytics feature.  The size of the native file is measured for billing if a document has a native file link.  If a document does not have a native file link, the document count is converted to a per GB measurement for billing, as follows:

➣If a document doesn’t have a native file or a TIFF link (e.g. text only), the document count is converted to GB at   [****] docs / GB.  For example if you use any feature of Relativity Analytics to evaluate 80,000 documents that had neither a native file link or an image link, your usage level would be calculated as [****] GB: [****] text only documents / [****] docs / GB].

➣If a document doesn’t have a native file link, but has a TIFF link, the document count is converted to GB at [****] docs / GB.  For example if you use any feature of Relativity Analytics to evaluate a total of [****] GB of native files and [****] non-native documents with images only in Analytics, your usage level would be calculated as [****]GBs: [****] GB native + ([****] non-native documents / [****])].

•If Client ever has a Relativity license for more than one Production Instance of the Relativity Software, and also has an annual Relativity Analytics subscription, the Relativity Analytics data usage is aggregated across the Production Instances (including Temporary Production Instances), unless Client elects to pay for separate Relativity Analytics subscriptions for each Production Instance or elects “Pay As You Go” pricing for other Production Instances.

RELATIVITY PROCESSING

Relativity Processing - FunctionsOverview

•Relativity Processing converts many native file types into formats for review in Relativity Review.  Features include metadata and container extraction, domain parsing, and native application imaging.

•An inventory stage provides quick insight into processing sets and allows the user to filter out junk before fully processing files.  

•Relativity Processing is powered by Relativity’s “Invariant” software engine.  More details are described on the Relativity website and in the Documentation.

Relativity Processing – Fees Overview:  Included with Relativity Review Annual Fee and Extra Processing Workers

Exhibit B – Page 4

•Processing Workers included with Relativity Review.  By specifying a number ofProcessing Workers that are included in the Relativity Review Annual Fee, Client is licensed to use up to that number of Processing Workers at any time without additional fees for such Processing Workers.

•Extra Processing Workers.  To the extent that Exhibit A specifies that Client is licensing and paying for a stated number of Processing Workers apart from any Processing Workers included with Relativity Review (or if Client hereafter adds more Processing Workers), Client will pay the applicable Extra Processing Worker Annual Fees as set forth in Exhibit A.  The license and payment requirements for each licensed Extra Processing Worker will remain in effect for the remaining Term of this Agreement.

Relativity Processing – Annual Fees for Extra Processing Workers

•Client may periodically add licenses for Extra Processing Workers.  To do so: (a) a Client Designated Support Administrator must deliver an email to sales@relativity.com stating the number of Extra Processing Workers and date for adding the Extra Processing Workers, and (b) Client will sign Relativity’s confirmatory amendment or other such document if Extra Processing Worker Annual Fees are required. Separate Relativity license keys may be required to enable or increase the total number of licensed Processing Workers.

•The Extra Processing Worker Annual Fee is due and payable each year in advance on the same date when the Relativity Review Annual Fee is due under this Agreement.  If Client adds an Extra Processing Worker other than on the regular due date for Relativity Review Annual Fee under this Agreement, Client will pay Relativity, when the Extra Processing Worker is added, a prorated Extra Processing Annual Fee for the period from that date to the next Relativity Review Annual Fee due date.

•If Client is ever licensing more than one (1) Production Instance of the Relativity Software under this Agreement, the number of licensed Processing Workers will apply in the aggregate across Production Instances, excluding any temporary Production Instance, i.e. which is not licensed co-terminously with the Term of the Agreement and which shall exclude Relativity Processing (unless the agreement licensing such temporary Production Instance expressly provides to the contrary).

RELATIVITY DATA GRID

Relativity Data Grid - FunctionsOverview

•Data Grid is a NoSQL product that helps index and organize data such as extracted text and audit records.  Data Grid can display a comprehensive, interactive audit history.

•Data Grid is optional and not required to use other components of the Software.  The longer term anticipated benefits of using Data Grid may include a reduction in SQL Server database sizes and reduced memory requirements.  Not all Relativity Software functions are integrated with Relativity Data Grid at this time, and some functions may require some use of SQL Server indefinitely.  

•Although the Data Grid Documentation will provide more information concerning infrastructure and system requirements, Client acknowledges that Client will promptly need to upgrade at least to Relativity 9.5, and apply all subsequent Critical Patch Releases, in order to use Relativity Data Grid.

•Once Client enables a field's access to Data Grid, Client cannot disable it, so it is important to understand the benefits and limitations of allowing fields to access Data Grid in new workspaces.  Reviewing and understanding all Documentation and training materials is critical.

Relativity Data Grid – Fees Overview:  Included with Relativity Review Annual Fee and Extra Relativity Data Grid Nodes

•Relativity Data Grid Nodes included with Relativity Review.  By specifying a number of Data Grid Nodes that are included in the Relativity Review Annual Fee, Client is licensed to use up to that number of Data Grid Nodes at any given time without additional fees for such Data Grid Nodes.

Exhibit B – Page 5

•Extra Relativity Data Grid Nodes.  To the extent that Exhibit A specifies that Client is licensing and paying for a stated number of Data Grid Nodes apart from any Data Grid Nodes included with Relativity Review (or if Client hereafter adds more Data Grid Nodes), Client will pay each year in advance the applicable Relativity Data Grid Node Annual Fees if set forth in Exhibit A or otherwise based on Relativity’s standard charges for comparable customers at the time.  The license and payment requirements for each licensed Data Grid Node will remain in effect for the remaining Term of this Agreement. IF CLIENT ADDS A DATA GRID NODE WITHOUT CONTACTING RELATIVITY AS OUTLINED BELOW, CLIENT SHALL BE DEEMED TO HAVE LICENSED SUCH NODE(S) AND WILL BE OBLIGATED TO PAY: (i) A PRORATED PORTION OF THE APPLICABLE EXTRA DATA GRID ANNUAL FEE FOR THE EXTRA DATA GRID NODE(S), PRORATED FROM THE END OF THE MONTH IN WHICH CLIENT ADDS THE NODE(S) TO THE NEXT ANNUAL PAYMENT DATE; AND (ii) THE FULL EXTRA DATA GRID ANNUAL FEE FOR THE NODE(S) FOR THE REMAINDER OF THE TERM OF THIS AGREEMENT.

Relativity Data Grid – Other Provisions

•Client can configure Data Grid with various types of nodes, including data nodes, master nodes and client nodes.  By default, each node is considered to be a data node, unless Client turns off the data function.  Relativity uses the term “Data Grid Node” in this Agreement to mean data nodes.  

•Client may periodically add licenses for additional Data Grid Nodes.  To do so: (a) a Client Designated Support Administrator must deliver an email to sales@relativity.com stating the number of additional Data Grid Nodes and date for adding the Nodes, and (b) Client will sign Relativity’s confirmatory amendment or other such document if Extra Data Grid Node Annual Fees are required.  The license and payment requirements for Data Grid Nodes will remain in effect for the remaining Term of this Agreement.

•The Extra Data Grid Node Annual Fee is due and payable each year in advance on the same date when the Relativity Review Annual Fee is due under this Agreement.  If Client adds an Extra Data Grid Node other than on the regular due date for Relativity Review Annual Fee under this Agreement, Client will pay Relativity, when the Extra Data Grid Node is added, a prorated Extra Data Grid Node Annual Fee for the period from that date to the next Relativity Review Annual Fee due date.

•If Client is ever licensing more than one (1) Production Instance of Relativity’s Relativity Software under this Agreement, the number of licensed Data Grid Nodes will apply in the aggregate across the Production Instances, unless Relativity and Client enter into an amendment or other documentation allocating Data Grid Nodes to one or more particular Production Instances and requiring Extra Data Grid Node Annual Fees for the deployment of Data Grid Nodes in other Production Instances.

•Relativity Data Grid is powered by Elasticsearch open source technology as its underlying architecture.  Relativity may include with Relativity Data Grid, or otherwise provide access to, one or more proprietary products created by Elasticsearch, Inc. (“Elasticsearch Proprietary Products”), including products known as Marvel and Shield.  Relativity reserves the right to discontinue its inclusion, use of, or access to, any or all Elasticsearch Proprietary Products at any time.  Client may be able to license Elasticsearch Proprietary Products directly from Elasticsearch, Inc. or its successor, and may be able to obtain other open source and proprietary add-on products from other vendors.  If Client incurs costs to obtain Elasticsearch Proprietary Products or any other products directly from Elasticsearch or any other vendor, Client will still be required to pay Relativity all fees incurred under this Agreement.

Exhibit B – Page 6

RELATIVITY LEGAL HOLD

Relativity Legal Hold – Functions Overview

•Legal Hold provides an automated system to create and track litigation hold notices, Custodian survey questions and Custodian responses, from a library of templates that Client can create and customize.  Client may set up reminder notices to go out automatically on a scheduled basis.

•Legal Hold can be integrated with MS Exchange servers to import Client’s personnel efficiently. Built-in reports and dashboards show the status of Legal Holds at a glance, allowing Client to track and analyze responses, and help Client ensure compliance.

Relativity Legal Hold – Licensing and Fees

•If Exhibit A includes a License to use “Relativity Legal Hold,” the License shall permit Client to access and use the Legal Hold application in the number of workspaces (each a “Legal Hold Workspace”) set forth in Exhibit A and Client will pay the corresponding “Legal Hold Annual Fee” each year in in advance on the same date as the other Annual Fees.  If Exhibit A does not include a License to use Legal Hold, Client may add Legal Hold by signing Relativity’s confirmatory amendment and paying Relativity’s standard Legal Hold Annual Fee then in effect.  The license and payment requirements for Legal Hold will remain in effect through the Term of this Agreement.

•Client may populate Legal Hold with the email addresses and other information for an unlimited number of persons whom Client may need to assign as custodians (each a “Custodian”) for one or more holds, matters, or other projects (each a “Legal Hold”).  Each unique person who is populated in Legal Hold and is eligible to be assigned to one or more Legal Holds, will be counted as a Custodian for each Legal Hold.

•Each person who is assigned to be a Custodian for a Legal Hold will be considered an active Custodian (each an “Active Custodian”) until such Legal Hold is closed, regardless of how long such person remains an Active Custodian, whether the person is sent a notice, questionnaire or other communication, and whether, when, or how the person responds.  

•The Legal Hold Annual Fee allows Client to have a total aggregate number of Active Custodians at any point during the Term up to the number Active Custodians in the Active Custodian Cap, as set forth in Exhibit A.  If Client exceeds the Active Custodian Cap at any point during the Term, Client will be obligated to pay for the next higher tier of subscribed Active Custodians at Relativity’s then current standard pricing (or if Client already licenses Relativity’s highest tier of subscribed Active Custodians, Client will be obligated to add additional Active Custodians in 10,000 Active Custodian increments at Relativity’s then current standard pricing).

•Notwithstanding the foregoing, this Section not intended to require that the same individual who is assigned to more than one Legal Hold during a given calendar month be counted more than once when determining the total number of Active Custodians in such calendar month.  Relativity will use reasonable efforts to aggregate and de-duplicate Active Custodians across all Legal Holds and then count only the unique Active Custodians.  If Client determines that Relativity double-counted Active Custodians, e.g. as a result of one or more Active Custodians being counted in more than one Legal Hold during the same calendar month, Client shall notify Relativity promptly in writing.

•If Client elects to close a Legal Hold (“Closed Hold”), the Custodian will no longer be considered an Active Custodian and Relativity will not count any Custodians assigned to the Closed Hold towards the Active Custodian Cap.

•Each person who is enabled to use Legal Hold will be counted as a Server User (in accordance with the definition of Server User above), regardless of the duration or frequency of use during a given month; however, Custodians and Active Custodians will not count as Server Users.

Exhibit B – Page 7

SOFTWARE PRODUCTION, TEST, AND BACK-UP INSTANCES

Production Instances

•A “Production Instance” is an instance of the Software that: (a) may be used for active cases and investigations, and (b) may consist of any number of physical and virtual server components that all link back to one set of the Server Software files located on one server.

•Instance Settings.  Every Production Instance of the Software is automatically configured to reflect Relativity’s recommended Production Instance settings (“Instance Settings”); however, Relativity may provide Client with the ability to modify certain Instance Settings.  Notwithstanding the foregoing, there are several Instance Setting entries that should never be modified in Client’s Production Instance (“Restricted Instance Settings”), which Relativity identifies by including a “Do not modify” statement at the beginning of the Instance Setting Description in the Documentation.  Relativity strongly discourages the modification of the Restricted Instance Settings due to elevated security risks, among other things, associated therewith.  If Client modifies any of the Restricted Instance Settings, Client (a) may create a security vulnerability in the applicable Production Instance of the Software or otherwise interfere with the Software’s proper functioning, and (b) will automatically void any applicable warranties offered by Relativity to the extent that Client’s modification of any Restricted Instance Settings causes such warranties to be breached or inaccurate.  Furthermore, Relativity will not be obligated to provide the Maintenance Support Services described in Exhibit C if Relativity reasonably determines that the issue is attributable to the modification of one or more Restricted Instance Settings.

•The License under this Agreement allows Client to deploy and use on Client’s Computer Network the number of Production Instances set forth in Exhibit A.  Client may add one or more Extra Production Instances of the Relativity Software by paying Relativity’s applicable fees and signing Relativity’s standard amendment. Any other instances are subject to such additional agreements and fees as the parties agree upon in writing.

•Notwithstanding anything to the contrary herein that prohibits the deployment of the Relativity Server Software to any Network Server Computer not located behind Client’s firewall at Client’s site or in a cloud data center or collocation facility of a third party, Relativity hereby agrees that Client may deploy the Relativity Server Software for any Extra Production Instance as a series of individual temporary mobile deployments behind the firewalls of Client’s customers for use as part of Client’s e-discovery services (“Mobile Instance Use”), subject to the following provisions:

oThe Server Software for Mobile Instance Use must be: (i) deployed on a server that Client owns and temporarily locates behind its customer’s firewall (rather than, for example, on hardware that Client’s customer owns); and (ii) restricted to Client’s use in providing e-discovery services to such customer on whose premises such server is located.

oMobile Instance Use must be project specific and temporary, which means that each deployment will be limited to one case.

oMobile Instance Use is limited to Client’s bona fide direct corporate customers which require that a temporary instance of the Software be deployed behind their firewalls for security reasons (or to use Relativity Processing if Client is licensing such Software product under this Agreement).  The Extra Production Instance shall not be deployed on the premises of any law firm or other litigation services company.

oFor Mobile Instance Use, the Designated Application Support Administrators must be limited to Client’s own well-qualified employees who are the Designated Application Support Administrators under this Agreement (and shall not, for example, include any of Client’s customers’ personnel).

Exhibit B – Page 8

One Year Production Instances

•A “One Year Production Instance” is a Production Instance of the Software, and related deployments of the Web Client Software, that may be deployed for a period of twelve (12) months.

•The License under this Agreement allows Client to deploy and use on Client’s Computer Network the number of One Year Production Instances set forth in Exhibit A.  Client may add one or more additional One Year Production Instances, by paying Relativity’s applicable fees and signing Relativity’s standard amendment. Any other One Year Production Instances are subject to such additional agreements and fees as the parties agree upon in writing.

•When the license for a One Year Production Instance expires or is terminated (unless the parties mutually extend the license for a One Year Production Instance by a further written amendment): (a) Client will immediately discontinue using and accessing the One Year Production Instance; and (b) within the following ten (10) days, Client will certify to Relativity in writing that Client has completely and permanently uninstalled and permanently discontinued using and accessing the One Year Production Instance, has not made any copies of the Software used therein, and has permanently destroyed the Software used therein so it cannot be reinstalled or re-used.

Temporary Production Instances

•A “Temporary Production Instance” is a Production Instance of the Software, and related deployments of the Web Client Software, that may be deployed on a calendar month-to-month basis.  The License under this Agreement permits Client to deploy and use the number of Temporary Production Instances set forth in Exhibit A.  

•If Exhibit A permits Client to deploy one or more Temporary Production Instance(s), Client will pay: (a) the Temporary Production Instance Monthly Fee set forth in Exhibit A, in advance, upon execution of the applicable confirmatory amendment; plus(b) the Temporary Production Instance Server User Fee set forth in Exhibit A for each Server User who is enabled to use the Temporary Production Instance during each subject month, in arrears within thirty (30) days after Relativity invoices such amount following the end of each calendar month.  Notwithstanding anything to the contrary herein, Relativity will not be required to de-duplicate Server Users for any Temporary Production Instance who are also Server Users in any other Production Instance.

•The license for the Temporary Production Instance(s) will remain in effect on a calendar month-to-month basis until the earlier to occur of: (a) termination of this Agreement; or (b) the last day of any calendar month in which Client delivers notice to Relativity (no later than the last day of such month) electing to terminate the license for the Temporary Production Instance on such last day and certifying that Client has permanently de-installed, destroyed and discontinued the Temporary Production Instance as further described below.

•During each calendar month that a Temporary Production Instance is in effect: (i) Client’s system administrators who log into the Temporary Production Instance will see an alert advising that a new license key is required to keep using the Temporary Production Instance; (ii) if Client does not request and apply the new license key, the license for the Temporary Production Instance will terminate at the end of such calendar month; and (iii) if Client requests and applies the new license key, the license for the Temporary Production Instance will be extended on a month-to-month basis, subject to any earlier termination as described above, and subject to any further extensions periods.

•When the license for a Temporary Production Instance, or any extension thereof, ends or is terminated: (1) the license for the Temporary Production Instance shall expire and Client shall immediately discontinue using and accessing the Temporary Production Instance; and (2) within the following ten (10) days, Client shall certify to Relativity in writing that Client has completely and permanently uninstalled and permanently discontinued using and accessing the Temporary Production Instance, has not made any copies of the Software used therein, and has permanently destroyed the Software used therein so it cannot be reinstalled or re-used.

Exhibit B – Page 9

•Client may add one or more additional Temporary Production Instances, by paying Relativity’s applicable fees and signing a confirmatory amendment respecting such Temporary Production Instance.  Any other Temporary Production Instances are subject to such additional agreements and fees (except as otherwise provided in Exhibit A) as the parties agree upon in writing.

Free Test and Back-Up Instances

•General Parameters.  Each licensed Production Instance automatically includes a license to deploy and use on the same Client Computer Network: (a) one (1) related instance of the Software for testing purposes only (“Test Instance”), and (b) one (1) related instance of the Software for back-up and disaster recovery purposes only (“DR Instance”).  In addition, upon Client’s written request, Relativity will provide Client with a license key for one (1) additional Test Instance dedicated to testing any additional Relativity product that Client is then licensing on a fee-paying basis under this Agreement or any amendment hereto.  Each Test Instance is subject to the additional restrictions contained herein: (a) no more than  [****] Server Users may be enabled to access each Test Instance in any given calendar month, unless Relativity grants written consent to a higher number for such month; (b) Test Instance(s) shall only be used to test patch releases and / or other new releases of the applicable Software, and shall not be used for training purposes or to demonstrate the Software to customers or prospects; and (c) for the avoidance of doubt, no Test Instance may contain any data from any active case or investigation or be used for any production or other purposes respecting any active case or investigation whatsoever. Additional Test Instance restrictions may apply in the license sections respecting specific products, e.g. respecting the number of Processing Workers in a Test Instance.  

•Processing Test Instance Restrictions.  As described above, Relativity may provide Client with a license key for [****] additional Test Instance dedicated to testing Relativity Processing.  In such case, Client may deploy - [****] Processing Worker in such additional Processing Test Instance for every [****] Processing Workers that Client is licensed to deploy in Production Instances under this Agreement.  For example, if Client has licensed between [****] and [****] Processing Workers to deploy within Production Instances, Client will receive a license to deploy [****] Processing Worker within the Processing Test Instance.  As another example, if Client has licensed between [****] and [****] Processing Workers to deploy within Production Instances, Client will receive a license to deploy [****] Processing Workers within Client’s Processing Test Instance.

•Related Provisions.  If Client complies with the restrictions respecting Test Instances and DR Instances, Client will not be required to pay additional fees for deploying or using such Test Instances and DR Instances, and the Server Users of such Test Instances and DR Instances will not be counted under this Agreement for purposes of determining Extra Server User Fees.  Within a reasonable time after Relativity requests periodically, Client shall cause a knowledgeable officer or manager to review, fill out, and sign reasonable self-certifications respecting Client’s usage of the Software in the Test Instances and DR Instances that are relevant to determining compliance with the Agreement.  Client shall also cooperate in providing Relativity and its representatives with information and monitored remote access to the Software in the Test Instances and DR Instances to review or audit compliance with the Agreement.  Upon Relativity’s request, Client will provide billing and usage data reports generated through the Relativity Software in the Test Instances and DR Instances. The license to deploy and use Test Instances and DR Instances in this Section is subject to all terms and conditions applicable to the Software contained in the Agreement, except as provided to the contrary in this Section.

RELATIVITY CASE DYNAMICS

Relativity Case Dynamics assists in organizing and analyzing case details such as facts, issues, organizations, people, interview questions, and documents. This analysis helps identify strengths and weaknesses in litigation strategy, and leads to better preparation for depositions, interviews, and trial.  

RELATIVITY CLIENT DOMAINS

Relativity Client Domains - Functions Overview.

Exhibit B – Page 10

•Relativity Client Domains provides a method for Client to enable its customers to access and use certain administrative functions of the Software, e.g. to enable and disable users, groups, and workspaces within their accounts, without needing to go through Client.

•Client may create Client Domain accounts (each a “Tenant Account”) in any of Client’s licensed Production Instance of the Software, excluding any One Year Production Instances and any Temporary Production Instances.

Relativity Client Domains – Licensing and Fees

•If Exhibit A includes [****] or more Client Domains, Client will pay the Client Domain Annual Fee for the designated Client Domain tenants (each a “Tenant”) in Exhibit A.  The license and payment requirements for any Client Domain Tenant Accounts will remain in effect through the Term of this Agreement. The Client Domain Annual Fee is due and payable each year in advance on the same date when the Relativity Review Annual Fee is due.

•If Client begins a Client Domain Tenant Account on any day that is not the same date when the Relativity Review Annual Fee is due, Client will pay a prorated amount of the Client Domain Annual Fee for a partial annual period to make the Client Domain Tenant Account run to the date when the Relativity Review Annual Fee is due.

Relativity Client Domains – Other Provisions

•If Client deletes the Client Domain Tenant Account for a designated tenant (“Prior Client Domain Tenant”), Client may create a new Client Domain Tenant Account for another Qualified Party as a replacement Client Domain Tenant (“Replacement Client Domain Tenant”), without incurring duplicative Client Domain Annual Fees, as provided below.  However, Client must continue to pay the Client Domain Annual Fees as set forth in Exhibit A, regardless of whether Client procures another Qualified Party as a Replacement Client Domain Tenant.

•To be a “Qualified Party,” the Replacement Client Domain Tenant must be a bona fide licensed practicing law firm, corporate law department, or government entity or agency (and must in no event be another litigation support vendor or e-discovery service provider).  To create a Replacement Client Domain Tenant Account, Client may send a “Replacement Activation Request Key” to support@relativity.com which: (i) refers to this Agreement; (ii) identifies the Prior Client Domain Tenant, the full legal name of the Replacement Client Domain Tenant, and such party’s website; (iii) certifies that Client has deleted the Client Domain Tenant Account for the Prior Client Domain Tenant and that the Replacement Client Domain Tenant is a Qualified Party, and (iv) explains that Client desires a new Client Domain Activation Key to replace the Prior Client Domain Tenant with the Replacement Client Domain Tenant.

•Promptly after Relativity receives such a Replacement Activation Request Key and confirms that the Replacement Client Domain Tenant is a Qualified Party as described above, Relativity will provide Client with an “Activation Key” to enable the Client Domain for the Replacement Client Domain Tenant.  If Client subsequently deletes the Client Domain Tenant Account for the Replacement Client Domain Tenant, Client may then seek to substitute a subsequent Replacement Client Domain Tenant in the same manner as provided herein.

•By following the above process for Replacement Client Domain Tenants, Client may continue to pay the single annual Client Domain Annual Fee under this Agreement (rather than incurring duplicative Client Domain Annual Fees respecting each sequential Client Domain Replacement Tenant).  For clarity, however, any delay in procuring a Client Domain Replacement Tenant will not excuse Client from paying Client Domain Annual Fees under this Agreement on a timely basis.  

•If Client desires to add more Client Domain Licenses with respect to one or more additional Client Domain Tenants (rather than as Replacement Client Domain Tenants), the parties shall enter into additional amendments identifying the Client Domain Tenants and requiring additional Client Domain Annual Fees.

Exhibit B – Page 11

RELATIVITY PLATFORM: APPLICATION PROGRAMMING INTERFACES.

•Products:  Relativity’s Application Programming Interfaces and Relativity Application Framework (collectively, the “APIs”), related documentation, and any code samples and other materials and information, that Relativity makes available to Client for the purposes herein, all as modified or superseded by Relativity from time to time (collectively, the “Package”).  

License:  The Relativity product licensed under this Section is the Package described above.  There are no royalties or other fees for the license under this Section.  The Package may only be used in conjunction with Client’s licensed use of the Relativity Software under this Agreement and is subject to the other terms herein.

Purpose

•The license granted herein only permits Client to use the Package for the purposes of: (a) customizing Client’s deployment of the Relativity Software and seeking to provide functional interoperability between the Relativity Software and other products developed by Client or Client’s vendors Relativity Software (“Other Products”); and (b) creating objects, extensions, applications, and other custom features and functions (“Custom Features”) which enhance, modify, or add to, existing features and functionality in the Relativity Software.  Other Products are subject to the following restrictions: (i) the Other Products must be high quality, well-tested products which enhance the Relativity Software user experience by adding new or alternative complementary functionality as software plug-ins; (ii) such interoperability shall be limited to importing and/or exporting data between such Other Products and the Relativity Software; (iii) the Other Products must be developed outside of the Relativity Software and without using the Package or any components thereof, or other components of the Relativity Software provided by Relativity from time to time under this Agreement, except to the extent required in order to create, and test, functional interoperability between the Other Products and the Relativity Software; and (iv) Client shall comply with all restrictions and other provisions herein.  

•If Relativity provides administrative or other assistance to Client respecting Custom Features or Other Products, such assistance shall not be interpreted as a certification or guaranty that such Custom Features or Other Products will be free of defects or other problems, and Relativity shall have no liability for such defects or other problems.

Certain Restrictions and Terms

•Client shall comply with all guidelines, requirements, restrictions, and other provisions in the Package, including Relativity’s Documentation respecting the APIs.  This Section does not give any rights other than those specifically granted herein, and specifically does not grant Client or any other party any rights to: (i) execute any software interface definition language (IDL) compiler; (ii) develop and link programs with the Package or Relativity Software libraries independently of the libraries or classes of the Other Products and Custom Features; (iii) read and use any header files independently of interfaces and/or header files of the Other Products or Custom Features; (iv) copy, incorporate or embed the Package or any information contained therein, the Relativity Software, or any portion or feature thereof, in any Other Product or Feature; (v) enable the Package, the Relativity Software, or any portion or feature thereof, to be launched or linked from any Other Product or Features; or (vi) view, copy or use any third parties’ APIs or other software which is included in the Relativity Software or the Package.

•Relativity’s design documentation, source code for the Relativity Software, and any other source code included with the Package (other than included header files and sample code in the Package) are confidential and proprietary information and trade secrets of Relativity and its vendors and are under no circumstances licensed to Client.Relativity may enhance, update or otherwise modify, and replace or otherwise supersede, the Package and/or the Relativity Software or any portion, and may make such items available to Relativity’s customers and/or Client from time to time in Relativity’s discretion.  Relativity does not guaranty or warrant that compatibility will occur and shall have no liability for any lack of backward compatibility.  Client shall test for continuing compatibility and shall resolve any resulting compatibility issues.  Relativity may require that Client obtain and use the most recent corrections, updates or releases of the Relativity Software and/or the Package or components for Client to seek functionality and interoperability of the Relativity Software and/or the Package with Other Products and

Exhibit B – Page 12

Custom Features or to minimize requests for Maintenance Support Services, as further described in Exhibit C.

• Proprietary Rights Clarifications.

oOther Products.  Client (or its vendors as applicable) shall own the entire title and interest in and to all intellectual property and other proprietary rights related to the Other Products, to the extent that the Other Products do not contain or reference any portion of the Relativity Software or the Package, and all modifications, enhancements, updates, and derivative works thereof created by Client (or its vendors as applicable), including all copyrights, trademarks, trade secrets and patents appurtenant thereto, and shall have a non-exclusive license to use and exploit any feedback, suggestions, ideas, enhancement requests, recommendations or other information provided by Relativity relating to the Other Products or any portion thereof.

•Customer Features.  For purposes of this Agreement, all Custom Features shall be deemed Derivative Works of Relativity’s Relativity Software, and in any event all IP thereto is hereby assigned and shall belong to Relativity; however: (a) Relativity grants Client a non-exclusive, royalty-free, license to use Client’s Custom Features as provided herein; and (b) Client has no obligation to disclose or provide Client’s Custom Features to Relativity.  For the avoidance of doubt, to the extent that Client writes any scripts or source code outside of and independent of the Package or the Relativity Software, Client shall own such scripts or source code.  Client may apply to Relativity for special recognition on Relativity’s web-site based on Client’s Custom Features from time to time, subject to Relativity’s sole discretion.

oPackage and Relativity Software.  Relativity (or its vendors as applicable) shall own and shall continue to own the entire title and interest in and to all intellectual property and other proprietary rights related to the Package and the other Relativity Software under this Agreement, including all enhancements, updates and other modifications, and new releases and Derivative Works thereof, and including all copyrights, trademarks, trade secrets and patents appurtenant thereto, and shall have a non-exclusive license to use and exploit any feedback, suggestions, ideas, enhancement requests, recommendations or other information provided by Client relating to the Package or any portion thereof.  For the avoidance of doubt, to the extent that Client writes any scripts or source code that modify the Package or the Relativity Software, such scripts or source code shall be deemed Derivative Works of Relativity’s Relativity Software, and Relativity will own such Derivative Works of Relativity’s Relativity Software (while Client will have a non-exclusive license to use them subject to the applicable terms of the Agreement).

Certain Risks.  The Package is optional and not required in order to use the Relativity Software for the basic purposes for which the Relativity Software was designed.  Instead, Relativity makes the Package available as an optional, free, extra tool set.  Accordingly, Client’s decision to use the Package shall be at Client’s sole risk, without any representations, warranties or agreements of any kind by Relativity or any other party whatsoever.  Relativity does not warrant that the Package, or any interoperability or integration with Other Products and Custom Features, or their respective functions or results of use, will be as expected, or be accurate or reliable, or be suitable for Client’s or its customers’ intended uses, or that the operation thereof will be timely, uninterrupted, secure or error-free, or that known or discovered errors will be able to be corrected or circumvented.

Other Terms.  Relativity is licensing the Package to Client as permitted above, without any additional fee or charge, and without any obligation to provide Updates, support or other Services.  Relativity may at its option provide Updates, support or other Services without charge or for such charges as Relativity determines.  In any event, all restrictions on Client’s actions respecting the Relativity Software and all disclaimers and limitations respecting representations, warranties and liability of Relativity under this Agreement, shall apply to the Package and any updates, support or other Services Relativity provides (cumulatively and in addition to the disclaimers and limitations respecting representations, warranties and liability of Relativity under this Section).

RELATIVITY FACT MANAGER

Relativity Fact Manager assists in organizing and analyzing case details such as facts, issues, organizations, people, interview questions, and documents. This analysis helps identify strengths and weaknesses in litigation strategy, and leads to better preparation for depositions, interviews, and trial.  If

Exhibit B – Page 13

Relativity makes Relativity Fact Manager available to Client without additional fees, Relativity nevertheless reserves the right to notify Client that additional fees will be required for future use of the product.

OTHER RELATIVITY PRODUCTS

Relativity may include with the Software, or otherwise make available, other software products to use with the Software, either without additional fees or as Add-Ons for additional fees.  All such products are subject to the terms of this Agreement respecting Relativity Review, except to the extent provided to the contrary in the license documentation or product Documentation for such products.

SPECIAL SERVICES

•Custom Development.  Relativity may provide custom development services.  If Client desires such services, Client will pay Relativity’s then applicable standard fees.  Each project requires that the parties enter into a mutually acceptable scope of work agreement with applicable terms and fees.

•Non-Standard Maintenance and Support.  Relativity may provide maintenance, support, training, set-up, installation or other services that Client requests beyond the standard support services under Exhibit C.  If Relativity provides such services, Client will pay Relativity’s then applicable standard fees.

•Solutions Team and Technology Assisted Review.Relativity may provide the services of the Relativity Solutions Team of Relativity Software administrative professionals to provide commonly requested advice for using certain advanced features of the Software, upon requests by clients, subject to availability, either without charge or for Relativity’s then applicable standard fees. These services may include training on Relativity Assisted Review (RAR), which is a computer-learning “predictive coding” solution, and related technology assisted functions, such as email threading and de-duping, conceptual search and clustering.  RAR can be used either (1) in a statistically supported manner through a series of random sample set rounds as described in the relevant Documentation and white papers until human “overturns” of machine coded documents have been reduced to an acceptable confidence level, or (2) by having a “subject matter expert” “SME” or “Guru” develop a non-random seed set of responsive documents to train the system to find other responsive documents, and then apply some quality control checks of the results.  THE SECOND APPROACH MAY ENHANCE EFFICIENCY, BUT MAY RELY MORE ON JUDGMENTS OF THE SUBJECT MATTER EXPERT THAN STATISTICALLY SUPPORTED RESULTS.THE RELATIVITY SOLUTIONS TEAM CAN HELP PROVIDE SUGGESTIONS, BUT THE CLIENT SHOULD NEVER VIEW THE RELATIVITY SOLUTIONS TEAM AS AN ACTUAL SME OR GURU IN ANY GIVEN CASE. Relativity Solutions Team is not qualified, licensed or authorized to provide legal services or to interpret or provide guidance on discovery orders. Rather, Client, its counsel, and its choice of outside litigation support services vendor, are solely responsible for deciding whether and how to use Relativity Analytics and RAR, and should always consider using the random sample statistically valid approach.  UNDER NO CIRCUMSTANCES WILL RELATIVITY HAVE ANY LIABILITY FOR ANY DAMAGES ARISING FROM ANY DECISION TO USE THE SME / GURU APPROACH RATHER THAN THE RANDOM SAMPLE STATISTICALLY SUPPORTED APPROACH, EVEN IF THE RELATIVITY SOLUTIONS TEAM PROVIDED ASSISTANCE WITH THE SME / GURU APPROACH. Relativity reserves the right to modify or discontinue the Relativity Solutions Team service or applicable fees. Relativity will notify Client when Client requests to the Solutions Team or to Relativity involve fee based professional consulting or custom development services.  

Exhibit B – Page 14

EXHIBIT C

SOFTWARE MAINTENANCE AND SUPPORT

1.Free Maintenance Support Services. There are no additional fees for the services that are included under this Exhibit (“Maintenance Support Services”) unless the parties expressly agree otherwise in writing.

2.Applying Updates Promptly.  In order for Client to obtain the benefit of Corrections and enhancements on a timely basis, Client agrees to apply any Updates to Client’s supported Software within a reasonable time after they become available and Client has had a reasonable time to test them.

3.Maintenance Support Services Overview.  Relativity provides Client’s Designated Application Support Administrators with the following Maintenance Support Services in accordance with this Agreement:

•“Standard Technical Support” as further described below

•“Product Updates and Releases” as further described and limited below

•Applicable Product Release Notes, product announcements and company information

•Electronic-based Documentation for Client to install and use the Software

4.Client’s Designated Application Support Administrators. The Agreement allows Client to designate up to [****] Designated Application Support Administrators as points of contact for maintenance and support; the initial contacts are set forth above.  Client may update the contacts as needed by sending an email to support@relativity.com.  Client must use reasonable efforts to (a) escalate support issues within Client’s Designated Application Support Administrators, and (b) minimize uncoordinated support requests by different Designated Application Support Administrators regarding the same issue.  Client may also add additional Designated Application Support Administrators, provided:

a.All additional Designated Application Support Administrators shall first successfully participate in Relativity’s applicable two (2) day Relativity Administrative training program (https://relativity.com/ediscovery-training/);

b.If Client exceeds [****] Designated Application Support Administrators, Client shall always include and maintain at least [****]  full time employee who is a Relativity Certified Administrator (“RCA”), i.e. the person must have successfully passed Relativity’s applicable Relativity Certified Administrator exam, each time Client begins the new level of [****]  additional Designated Application Support Administrators (beginning when the first such Designated Application Support Administrator is added within such level).

c.For example, if Client has [****] to [****]  Designated Application Support Administrators, at least [****] must be a full time employee who is an RCA.  As another example, if Client has [****] to [****]  Designated Application Support Administrators, at least [****] must be full time employees who are RCAs.  

5.End User Callsand Emails.  Client will route all end-user calls and emails seeking support or maintenance through Client’s Designated Application Support Administrators to Relativity’s Support team for resolution.

6.Contacting Relativity Support.  The telephone numbers for the Relativity Customer Support Team are located on the Relativity website (https://www.relativity.com/support/).  Alternatively, Client may send an e-mail to support@relativity.com.  All maintenance support calls and emails are entered into Relativity’s Client Support tracking system.  The following information is typically logged for all calls received:

•    Date/Time Call Received •    Contact Name •    Contact Company •    Contact Email Address •    Contact Phone Number •    Software Application / Program and Version •    Description of Inquiry •    Severity

Client will receive a “Case Number” from the Relativity Client Support Team representative. Client should reference this number when requesting any update on the status.

7. Standard Technical Support.  

a.Support Hours.  Relativity will have support personnel available for Standard Technical Support 24/7.

b.Covered Support.Relativity Standard Technical Support covered by this agreement includes: (i) assisting Client in diagnosing Errors in the Software; and (ii) providing technical services to Client and/or taking other actions to attempt to provide Corrections of diagnosed Errors.  For the purposes of this Agreement: (1) “Error” means an error, defect, or malfunction in the Software or a mistake in the Documentation that prevents one or more material functions of the Software or the end user’s use thereof from functioning in substantial conformance to the Documentation; and (2) "Correction" means a change or enhancement respecting such functions of the Software or the Documentation that reestablishes or maintains substantial conformity between the Software and the Documentation.

c.Support Period.Relativity will provide Standard Technical Support for the Term of the Agreement (“Support Period”) respecting the Software subject to the following provisions.  Each time Relativity issues a new Release, Relativity will continue to provide Standard Technical Support for the superseded Release for a period of at least eighteen (18) months (“Sunset Support Period”) from the date when the superseded Release originally became generally available, except as otherwise provided herein.  The word “Release” in this Exhibit means a Major Release or a Minor Release, whichever is later.  Relativity will also provide Standard Technical Support for Minor Updates issued under the latest Release; however, issuing Minor Updates does not start a new Sunset Support Period for those Minor Updates.  If Relativity issues Releases for different Software products (including Add-Ons) on different schedules, then Relativity may apply the term “Release” herein on a product-by-product basis.  In such case, Relativity may modify the existing Sunset Support Period and start a new Sunset Support Period beginning with a new Release of such product to maintain compatibility with Relativity Review and/or align with the Relativity Review Release cycle.

8.Severity Levels And Response Times.  This section provides guidelines that the Relativity Support Team uses to assign a severity level to Client’s problem.  Relativity will assign Severity Levels to issues as they are received, but reserves the right to reclassify the Severity Level at its reasonable discretion.

a.Severity 1 – Catastrophic.  System is not operational and no work can take place in the production environment.  Catastrophic Severity will be assigned when a production failure results in a debilitating impact to business operations.  With all Catastrophic issues, an initial response can be expected as provided in Section 9 and will include the original support requestor, as well as the appropriate account and Client support leads.  Client’s technical staff and Relativity will dedicate staff to work on the problem until resolved.  Continual status updates will be provided until the issue has been resolved.

b.Severity 2 – Critical.System is operational; at least one mission critical function or one entire case is not operational.  Critical Severity will be assigned when a critical service interruption or degradation is encountered which creates difficulty but not total impairment in business operations.  For Critical Severity issues, an initial response can be expected as provided in Section 9 and will include the original support requestor, as well as the appropriate account and Client support leads.  Client’s technical staff and Relativity will work continually on the problem during normal business hours unless otherwise agreed upon to resolve the issue.  Continual status updates will be provided until the issue has been resolved.

c.Severity 3 – Serious.System is operational; at least one non-mission critical function is not operational.  Serious Severity will be assigned when some functionality is impaired, but

Exhibit C – Page 1

overall Client operations continue to function.  For Serious Severity issues, an initial response can be expected as provided in Section 9 and will include the original support requestor.  Relativity will address Serious Severity cases during normal business hours.  Status updates will be provided daily until the issue has been resolved.

d.Severity 4 – Minor.All functions are operational; nature of request is cosmetic, a product enhancement, or a general question.  Minor Severity will be assigned to all cosmetic defects, enhancement requests regarding the product, or general questions.  For Minor Severity issues, an initial response can be expected as provided in Section 9 and will include the original support requestor.  Relativity will address Minor Severity cases during normal business hours.  Status updates will be provided when necessary.

9.Initial Response Times.Relativity will initially respond to issues based on severity level, as defined above, and time of request.  An initial response may be by phone or email.  An initial response will contain the defined severity of the request, initial questions to begin troubleshooting or a potential resolution.  Relativity will use commercially reasonable efforts to comply with the Maximum Initial Response Times in the table below (potentially subject to one additional relay hour if the support request is applicable to “on call” personnel on a national holiday).

Severity Level	Maximum Initial Response Time
Severity 1	1 Hour
Severity 2	2 Hours
Severity 3	4 Hour
Severity 4	24 Hours, if response required

10.System Access.  Relativity has no independent means to access Client’s deployment of the Software.

11.Escalating Issues.  If Client believes the severity level of Client’s problem is insufficient, contact Relativity Client Support and request that the severity level be upgraded.  If Client feels that a Severity 1 problem is not being adequately addressed, the Client should contact Relativity Vice President of Customer Success and Support at +1 (312) 676-5065.  

12.Electronic Based Documentation. Relativity will make electronic documentation available to Client’s Designated Application Administrators via the Relativity website at https://relativity.com/support/.  Call or email the Relativity Support Team if Client’s Designated Application Administrators do not already have the required information to access this element of the Relativity website.

13.Product Updates and Releases.  Relativity may issue Minor Updates, Minor Releases, Major Releases, Critical Patches and Add-Ons, as described herein and otherwise on such schedule as Relativity determines from time to time.  As noted above, the word “Release” in this Exhibit can refer to either a Major Release or a Minor Release, whichever is later.  In connection with each Release, Relativity will seek to provide written release highlights that describe or highlight the enhancements or other changes.  Relativity may also provide new user guides and/or technical reference manuals..

a.Minor Updates / Monthly Updates.  “Minor Updates” are modified versions of the Software that are issued on a more frequent regular basis than Minor Releases, and include minor enhancements and/or corrections of defects. If Relativity issues Minor Updates on a regular monthly basis, Relativity may call them “Monthly Updates.” Relativity may limit Minor Updates to modifying the latest Major or Minor Release. A Minor Update can be distinguished by having a third digit or longer string of digits in the release number (e.g. Version 9.2.2 or 9.3.237.3).

b.Minor Releases.  “Minor Releases” are scheduled releases of modified versions of the Software created to correct defects and/or provide improvements in existing architectural and business features.  Relativity may limit Minor Releases to modifying the latest Release of the Software.  New Minor Releases are only included as part of the annual fee pricing during the initial three (3) year term

Exhibit C – Page 2

of this Agreement (and during any new three (3) year renewal term if the parties enter into a mutually satisfactory formal written amendment for a renewal term, unless such amendment provides otherwise).  A Minor Release can be distinguished by having two digits in the release number (e.g. Version 9.1).  

c.Major Releases.  “Major Releases” are less frequently scheduled releases of modified versions of the Software that include upgrades, new application functionality, and/or significant technological advancements compared to the last Major Release.  Relativity may consider cumulative improvements provided in Minor Releases since the last Major Release in determining whether the overall upgrades, new application functionalities, and/or significant technological advancements justify designation of a new Major Release.  New Major Releases are only included as part of the annual fee pricing during the initial three (3) year term of this Agreement (and during any new three (3) year renewal term if the parties enter into a mutually satisfactory formal written amendment for a renewal term, unless such amendment provides otherwise).  A Major Release can be distinguished by having one primary digit in the release number (e.g. Version 9.0).

d.Critical Patches.  “Critical Patches” are unscheduled releases of changes to the Software that Relativity will provide, if necessary, to address security issues or catastrophic or mission critical defects (Severity Level 1 or 2).  Each time Relativity issues a new Release, Relativity will continue to provide Critical Patches for the superseded Release for a period of at least eighteen (18) months from the date when the superseded Release originally became generally available, except as otherwise provided herein.  A Critical Patch can be distinguished by having a third digit or longer string of digits in the release number (e.g. Version 9.2.2 or 9.3.237.3).

e.Add-Ons.  Relativity may make available suites or products of separate functionality that Client may license as an “Add-On” option to Client’s existing Software.  Add-ons are not included as a part of the pricing under this Agreement unless they are expressly licensed in the Exhibits.  Add-ons can be distinguished by the addition of a separate product name or a release number that is independent of this Software.

14.Excluded Support.  Examples of services not covered by this Agreement (but which may be available for additional fees as described in Exhibit B payable within thirty (30) days after billed) include:

•    Administrator or end user training •    Client requested enhancements and features •    Software installation or onsite support •    Environment configuration •    Translations from English to other languages •    Environment trouble shooting issues not associated with Relativity’s Software •    Trouble shooting problems with data not formatted per Relativity’s standard load file specifications •    Database/case migration to or from the Software

Exhibit C – Page 3

EX-10.37

Exhibit 10.37

AMENDMENT TO

STOCKHOLDERS’ AGREEMENT

This Amendment (this “Amendment”) to the Stockholders’ Agreement, dated as of December 19, 2019 (the “Agreement”), by and among KLDiscovery Inc. (formerly known as Pivotal Acquisition Corp.), a Delaware corporation (the “Company”), CEOF II DE I AIV, L.P., a Delaware limited partnership (“CEOF AIV”), CEOF II Coinvestment (DE), L.P., a Delaware limited partnership (“CEOF Coinvest”), CEOF II Coinvestment B (DE), L.P., a Delaware limited partnership (“CEOF Coinvest B”), and Revolution Growth III, LP, a Delaware limited partnership (“Revolution” and, together with CEOF AIV, CEOF Coinvest and CEOF Coinvest B, the “LD Topco Holders”), is entered into as of March 23, 2020 (the “Amendment Date”), by and among the Company and the LD Topco Holders.  All capitalized terms used in this Amendment and not otherwise defined herein shall have the respective meanings given to such terms in the Agreement.

RECITALS

WHEREAS, the parties to the Agreement desire to amend the Agreement as expressly provided in this Amendment pursuant to Section 16 of the Agreement.

NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows;

1.Amendment to Section 1(b).  Section 1(b) of the Agreement is hereby amended and restated in its entirety and replaced for all purposes of the Agreement with the following (with deletions to the prior text shown in strikethrough, and additions shown with bold underline):

The Company shall take all necessary and desirable actions within its controlhas taken actions such that, as of the Effective Timeas of the Amendment Date: (i) the size of the Board shall beis set at eightnine members; and (ii) the following persons shall form the composition of the Board: (A) Richard J. Williams, Lawrence Prior and Kevin Griffin shall be appointedare serving as Class A Directors with terms ending at the Company’s 2020 Annual Meeting; (B) Donna Morea, Jonathan J. Ledecky and Evan Morgan shall be appointedare serving as Class B Directors with terms ending at the Company’s 2021 Annual Meeting; and (C) Christopher J. Weiler, Daniel F. AkersonIan Fujiyama and William Darman shall be appointedare serving as Class C Directors with terms ending at the Company’s 2022 Annual Meeting.

2.Amendment to Section 1(c).  Section 1(c) of the Agreement is hereby amended and restated in its entirety and replaced for all purposes of the Agreement with the following (with deletions to the prior text shown in strikethrough, and additions shown with bold underline):

(c) Subject to the terms and conditions of this Agreement, from and after the Effective Time and until a Termination Event shall have occurred, the Company shall, as promptly as practicable, take all necessary and desirable actions within its control (including, without limitation, calling special meetings of the Board and the shareholders and recommending, supporting and soliciting proxies), so that:

1

(i) for so long as the LD Topco Holders (together with their Affiliates) Beneficially Own a number of shares of Common Stock equal to or greater than 65% of the total number of shares of Common Stock acquired by the LD Topco Holders on the date hereof, the LD Topco Holders holding a majority of the LD Topco Shares shall have the right to nominate, in the aggregate, a number of Nominees equal to six (less the number of LD Topco Directors who are not up for election), and the size of the Board shall be set at eightnine members;

(ii) for so long as the LD Topco Holders (together with their Affiliates) Beneficially Own a number of shares of Common Stock equal to or greater than 35% of the total number of shares of Common Stock acquired by the LD Topco Holders on the date hereof, but less than 65% of the total number of shares of Common Stock acquired by the LD Topco Holders on the date hereof, the LD Topco Holders holding a majority of the LD Topco Shares shall have the right to nominate, in the aggregate, a number of Nominees equal to three (less the number of LD Topco Directors who are then serving but not up for election), and the size of the Board shall be set at eightnine members; and

(iii) for so long as the LD Topco Holders (together with their Affiliates) Beneficially Own a number of shares of Common Stock equal to or greater than 10% of the total number of shares of Common Stock acquired by the LD Topco Holders on the date hereof but less than 35% of the total number of shares of Common Stock acquired by the LD Topco Holders on the date hereof, the LD Topco Holders holding a majority of the LD Topco Shares shall have the right to nominate, in the aggregate, a number of Nominees equal to one (less the number of LD Topco Directors who are then serving but not up for election), and the size of the Board shall be set at eightnine members;

provided, that, no reduction in the number of shares of Common Stock over which the LD Topco Holders and their Affiliates retain voting control shall shorten the term of any incumbent Director.

3.LD Topco Holders Approval.  The LD Topco Holders hereby consent to the actions taken by the Company to increase the size of the Board as contemplated in this Amendment.  For the avoidance of doubt, as of the Amendment Date, (a) the LD Topco Holders have not designated any Nominee in connection with a stockholder meeting and (b) as a result, no LD Topco Director yet exists.

4.Remaining Provision; References.  Except as expressly modified by this Amendment, the Agreement shall remain in full force and effect. Each reference in the Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import referring to the Agreement, and each reference in any other document relating to the “Agreement,” “thereunder,” “thereof” or words of like import referring to the Agreement, means and references the Agreement as amended by this Amendment.

2

5.Miscellaneous.  Sections 8 (No Strict Construction), 11 (Counterparts), 12 (Governing Law), 13 (Jurisdiction; WAIVER OF TRIAL BY JURY) and 16 (Amendment and Waiver) of the Agreement shall apply to this Amendment, mutatis mutandis.

[Remainder of page intentionally left blank]

3

IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed as of the date first above written.

KLDISCOVERY INC.

/s/ Dawn Wilson

By: _________________________________

Name:Dawn Wilson

Title:CFO

CEOF II DE I AIV, L.P.

By: CEOF II DE AIV GP, L.P., its general partner

By: CEOF II DE GP AIV, L.L.C., its general partner

/s/ Will Darman

By: _________________________________

Name:Will Darman

Title:Managing Director

CEOF II COINVESTMENT (DE), L.P.

By: CEOF II DE AIV GP, L.P., its general partner

By: CEOF II DE GP AIV, L.L.C., its general partner

/s/ Will Darman

By: _________________________________

Name:Will Darman

Title:Managing Director

CEOF II COINVESTMENT B (DE), L.P.

By: CEOF II DE AIV GP, L.P., its general partner

By: CEOF II DE GP AIV, L.L.C., its general partner

/s/ Will Darman

By: _________________________________

Name:Will Darman

Title:Managing Director

[Signature Page to Amendment to Stockholders’ Agreement]

REVOLUTION GROWTH III, LP

By: Revolution Growth GP III, L.P., its general partner

By: Revolution Growth UGP III, LLC, its general partner

/s/ Steven J. Murray

By: _________________________________

Name:Steven J. Murray

Title:Operating Manager

[Signature Page to Amendment to Stockholders’ Agreement]

EX-10.38

Exhibit 10.38

SECOND AMENDMENT TO

STOCKHOLDERS’ AGREEMENT DATED FEBRUARY 2, 2021

This Second Amendment (this “Second Amendment”) to the Stockholders’ Agreement, dated as of December 19, 2019 (the “Agreement”), by and among KLDiscovery Inc. (formerly known as Pivotal Acquisition Corp.), a Delaware corporation (the “Company”), CEOF II DE I AIV, L.P., a Delaware limited partnership (“CEOF AIV”), CEOF II Coinvestment (DE), L.P., a Delaware limited partnership (“CEOF Coinvest”), CEOF II Coinvestment B (DE), L.P., a Delaware limited partnership (“CEOF Coinvest B”), and Revolution Growth III, LP, a Delaware limited partnership (“Revolution” and, together with CEOF AIV, CEOF Coinvest and CEOF Coinvest B, the “LD Topco Holders”) and the original Amendment dated March 23, 2020 between the parties (“First Amendment”), is entered into as of February 2, 2021 (the “Amendment Date”), by and among the Company and the LD Topco Holders.  All capitalized terms used in this Second Amendment and not otherwise defined herein shall have the respective meanings given to such terms in the Agreement.

RECITALS

WHEREAS, the parties amended the Agreement through the provisions of the First Amendment by, amongst other matters, increasing the permitted size of the Board of Directors of the Company to nine (9) members; and

WHEREAS, the parties believe it to be in the best interests of the Company to increase the size of the Board of Directors of the Company to ten (10) members; and

WHEREAS, the parties to the Agreement desire to amend the Agreement as expressly provided in this Second Amendment pursuant to Section 16 of the Agreement.

NOW, THEREFORE, in consideration of the covenants, promises and representations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows;

1.Amendment to Section 1(b).  Section 1(b) of the Agreement is hereby amended and restated in its entirety and replaced for all purposes of the Agreement with the following:

“The Company has taken actions such that, as of the Amendment Date: (i) the size of the Board is set at ten members; and (ii) (A) Donna Morea, Jonathan J. Ledecky, Evan Morgan and Lauren Tanenbaum are serving as Class B Directors with terms ending at the Company’s 2021 Annual Meeting; (B) Christopher J. Weiler, Ian Fujiyama and William Darman are serving as Class C Directors with terms ending at the Company’s 2022 Annual Meeting; and (C) Richard J. Williams, Lawrence Prior and Kevin Griffin are serving as Class A Directors with terms ending at the Company’s 2023 Annual Meeting, having been re-appointed at the Company’s 2020 Annual Meeting”.

2.Amendment to Section 1(c).  Section 1(c) of the Agreement is hereby amended and restated in its entirety and replaced for all purposes of the Agreement with the following:

“(c) Subject to the terms and conditions of this Agreement, until a Termination Event shall have occurred, the Company shall, as promptly as practicable, take all necessary and

1

desirable actions within its control (including, without limitation, calling special meetings of the Board and the shareholders and recommending, supporting and soliciting proxies), so that:

(i) for so long as the LD Topco Holders (together with their Affiliates) Beneficially Own a number of shares of Common Stock equal to or greater than 65% of the total number of shares of Common Stock acquired by the LD Topco Holders on the date hereof, the LD Topco Holders holding a majority of the LD Topco Shares shall have the right to nominate, in the aggregate, a number of Nominees equal to six (less the number of LD Topco Directors who are not up for election), and the size of the Board shall be set at ten members;

(ii) for so long as the LD Topco Holders (together with their Affiliates) Beneficially Own a number of shares of Common Stock equal to or greater than 35% of the total number of shares of Common Stock acquired by the LD Topco Holders on the date hereof, but less than 65% of the total number of shares of Common Stock acquired by the LD Topco Holders on the date hereof, the LD Topco Holders holding a majority of the LD Topco Shares shall have the right to nominate, in the aggregate, a number of Nominees equal to three (less the number of LD Topco Directors who are then serving but not up for election), and the size of the Board shall be set at ten members; and

(iii) for so long as the LD Topco Holders (together with their Affiliates) Beneficially Own a number of shares of Common Stock equal to or greater than 10% of the total number of shares of Common Stock acquired by the LD Topco Holders on the date hereof but less than 35% of the total number of shares of Common Stock acquired by the LD Topco Holders on the date hereof, the LD Topco Holders holding a majority of the LD Topco Shares shall have the right to nominate, in the aggregate, a number of Nominees equal to one (less the number of LD Topco Directors who are then serving but not up for election), and the size of the Board shall be set at ten members;

provided, that, no reduction in the number of shares of Common Stock over which the LD Topco Holders and their Affiliates retain voting control shall shorten the term of any incumbent Director.”

3.LD Topco Holders Approval.  The LD Topco Holders hereby consent to the actions taken by the Company to increase the size of the Board as contemplated in this Second Amendment.  For the avoidance of doubt, as of the Amendment Date, (a) the LD Topco Holders have not designated any Nominee in connection with a stockholder meeting and (b) as a result, no LD Topco Director yet exists.

4.Remaining Provision; References.  Except as expressly modified by this Second Amendment, the Agreement shall remain in full force and effect. Each reference in the Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of like import referring to the Agreement, and each reference in any other document relating to the “Agreement,” “thereunder,” “thereof” or words of like import referring to the Agreement, means and references the Agreement as amended by this Second Amendment.

2

5.Miscellaneous.  Sections 8 (No Strict Construction), 11 (Counterparts), 12 (Governing Law), 13 (Jurisdiction; WAIVER OF TRIAL BY JURY) and 16 (Amendment and Waiver) of the Agreement shall apply to this Second Amendment, mutatis mutandis.

[Remainder of page intentionally left blank]

3

IN WITNESS WHEREOF, each of the parties hereto has caused this Second Amendment to be duly executed as of the date first above written.

KLDISCOVERY INC.

/s/ Dawn Wilson

By: _________________________________

Name: Dawn Wilson

Title: CFO

CEOF II DE I AIV, L.P.

By: CEOF II DE AIV GP, L.P., its general partner

By: CEOF II DE GP AIV, L.L.C., its general partner

/s/ Ian Fujiyama

By: _________________________________

Name: Ian Fujiyama

Title:Managing Director

CEOF II COINVESTMENT (DE), L.P.

By: CEOF II DE AIV GP, L.P., its general partner

By: CEOF II DE GP AIV, L.L.C., its general partner

/s/ Ian Fujiyama

By: _________________________________

Name:Ian Fujiyama

Title:Managing Director

CEOF II COINVESTMENT B (DE), L.P.

By: CEOF II DE AIV GP, L.P., its general partner

By: CEOF II DE GP AIV, L.L.C., its general partner

/s/ Ian Fujiyama

By: _________________________________

Name:Ian Fujiyama

Title:Managing Director

[Signature Page to Second Amendment to Stockholders’ Agreement]

REVOLUTION GROWTH III, LP

By: Revolution Growth GP III, L.P., its general partner

By: Revolution Growth UGP III, LLC, its general partner

/s/Steven J. Murray

By: _________________________________

Name:Steven J. Murray

Title:Operating Manager

[Signature Page to Second Amendment to Stockholders’ Agreement]

EX-21.1

Exhibit 21.1

Subsidiaries

Entity Name	Country (State)
Engenium Corporation	United States (Texas)
Ibas Ontrack AB	Sweden
Ibas Ontrack ApS	Denmark
Ibas Ontrack AS	Norway
Ibas Ontrack OY	Finland
KLDiscovery Limited	Ireland
KLDiscovery Limited	United Kingdom
KLDiscovery Ontrack (HK) Limited	Hong Kong
KLDiscovery Ontrack (Switzerland) GmbH	Switzerland
KLDiscovery Ontrack BV	The Netherlands
KLDiscovery Ontrack Franchise, LLC	United States (Delaware)
KLDiscovery Ontrack GmbH	Germany
KLDiscovery Ontrack K.K.	Japan
KLDiscovery Ontrack Limited	United Kingdom
KLDiscovery Ontrack LLC	United States (Minnesota)
KLDiscovery Ontrack Ltd (UK) Irish Branch	Ireland
KLDiscovery Ontrack Pte. Ltd.	Singapore
KLDiscovery Ontrack Pty Ltd.	Australia
KLDiscovery Ontrack S.L.	Spain
KLDiscovery Ontrack S.r.l.	Italy
KLDiscovery Ontrack Sarl	France
KLDiscovery Ontrack sp z.o.o.	Poland
KLDiscovery Private Limited	India
Kroll Ontrack (HK) Limited	Hong Kong
Kroll Ontrack AS	Norway
Kroll Ontrack Canada Co.	Canada
Kroll Ontrack Data Recovery LLC	United States (Minnesota)
Kroll Ontrack Data Recovery Pte Ltd	Singapore
Kroll Ontrack Info. Tech. Service (Shanghai) Co. Ltd.	China
Kroll Ontrack Pty Ltd	Australia
LD Intermediate Holdings Inc.	United States (Delaware)
LD International Holdings Ltd.	United Kingdom
LD International Holdings SRL	Barbados
LD Lower Holding, Inc.	United States (Delaware)
LDisc Holdings LLC	United States (Delaware)
LDiscovery LLC	United States (Delaware)
LDiscovery TX, LLC	United States (Delaware)
LD Topco, Inc.	United States (Delaware)
WVLD Acquisition Corp.	United States (Delaware)

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-236485) pertaining to the KLDiscovery Inc. 2019 Incentive Award Plan of our report dated March 18, 2021, with respect to the consolidated financial statements of KLDiscovery Inc. included in this Annual Report (Form 10-K) of KLDiscovery Inc., for the year ended December 31, 2020.

/s/ Ernst & Young LLP

Tysons, Virginia

March 18, 2021

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher J. Weiler, certify that:

1. I have reviewed this Annual Report on Form 10-K of KLDiscovery Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

March 18, 2021	By:	/s/ Christopher J. Weiler
		Christopher J. Weiler
		Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dawn Wilson, certify that:

1. I have reviewed this Annual Report on Form 10-K of KLDiscovery Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

March 18, 2021	By:	/s/ Dawn Wilson
		Dawn Wilson
		Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of KLDiscovery Inc. (the “Company”) on Form 10-K for the period ending December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

March 18, 2021	By:	/s/ Christopher J. Weiler
		Christopher J. Weiler
		Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of KLDiscovery Inc. (the “Company”) on Form 10-K for the period ending December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

March 18, 2021	By:	/s/ Dawn Wilson
		Dawn Wilson
		Chief Financial Officer (Principal Financial Officer)

XML

Cover Page - USD ($)
$ in Millions

12 Months Ended

Dec. 31, 2020

Mar. 18, 2021

Jun. 30, 2020

Cover [Abstract]

Document Type

10-K

Amendment Flag

false

Document Period End Date

Dec. 31, 2020

Document Fiscal Period Focus

FY

Document Fiscal Year Focus

2020

Entity Registrant Name

KLDiscovery Inc.

Entity Central Index Key

0001752474

Current Fiscal Year End Date

--12-31

Entity Filer Category

Non-accelerated Filer

Entity Emerging Growth Company

true

Entity Ex Transition Period

false

Entity Small Business

true

Entity Interactive Data Current

Yes

Entity Current Reporting Status

Yes

ICFR Auditor Attestation Flag

false

Entity Shell Company

false

Entity Common Stock, Shares Outstanding

42,533,482

Entity Public Float

$ 342

Entity File Number

001-38789

Entity Tax Identification Number

61-1898603

Entity Address, Address Line One

8201 Greensboro Drive

Entity Address, Address Line Two

Suite 300

Entity Address, City or Town

McLean

Entity Address, State or Province

VA

Entity Address, Postal Zip Code

22102

City Area Code

703

Local Phone Number

288-3380

Entity Well-known Seasoned Issuer

No

Entity Voluntary Filers

No

Entity Incorporation, State or Country Code

DE

Document Annual Report

true

Document Transition Report

false

Documents Incorporated by Reference

Portions of the registrant’s definitive proxy statement relating to its annual meeting of stockholders to be held in 2021 (the “2021 Annual Meeting”), to be filed with the Securities and Exchange Commission (the “SEC”) within 120 days after the end of the fiscal year to which this Annual Report on Form 10-K relates, are incorporated herein by reference where indicated. Except with respect to information specifically incorporated by reference in this Annual Report on Form 10-K, such proxy statement is not deemed to be filed as part hereof.

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Current assets
Cash and cash equivalents	$ 51,201	$ 43,407
Accounts receivable, net of allowance for doubtful accounts of $8,513 and $7,486, respectively	83,985	96,994
Prepaid expenses	7,175	7,296
Other current assets	709	556
Total current assets	143,070	148,253
Property and equipment
Accumulated depreciation	(77,697)	(64,682)
Property and equipment, net	25,150	38,303
Intangible assets, net	109,733	130,568
Goodwill	399,085	395,171
Other assets	2,708	2,617
Total assets	679,746	714,912
Current liabilities
Current portion of long-term debt, net	10,948	11,689
Accounts payable and accrued expense	33,504	31,270
Current portion of contingent consideration	695	340
Deferred revenue	3,955	4,851
Total current liabilities	49,102	48,150
Long-term debt, net	472,600	468,932
Deferred tax liabilities	7,335	6,294
Other liabilities	8,488	7,771
Total liabilities	537,525	531,147
Commitments and contingencies
Stockholders' equity
Common stock $0.0001 par value, shares authorized - 200,000,000 shares authorized as of December 31, 2020 and December 31, 2019; 42,529,017 shares issued and outstanding as of December 31, 2020 and December 31, 2019	4	4
Preferred stock $0.0001 par value, 1,000,000 shares authorized, zero issued and outstanding as of December 31, 2020 and December 31, 2019
December 31, 2019	385,387	381,952
Accumulated deficit	(255,424)	(205,498)
Accumulated other comprehensive income	12,254	7,307
Total stockholders' equity	142,221	183,765
Total liabilities and stockholders' equity	679,746	714,912
Computer software and hardware
Property and equipment
Property and equipment, gross	72,211	72,228
Leasehold improvements
Property and equipment
Property and equipment, gross	27,271	26,963
Furniture, fixtures and other equipment
Property and equipment
Property and equipment, gross	$ 3,365	$ 3,794

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Statement Of Financial Position [Abstract]
Allowance for doubtful accounts	$ 8,513	$ 7,486
Common stock, par value	$ 0.0001	$ 0.0001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	42,529,017	42,529,017
Common stock, shares outstanding	42,529,017	42,529,017
Preferred Stock, per share	$ 0.0001	$ 0.0001
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0

XML

Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Income Statement [Abstract]
Revenues	$ 289,545	$ 312,054
Cost of revenues	147,732	160,845
Gross profit	141,813	151,209
Operating expenses
General and administrative	58,509	55,005
Research and development	7,167	5,945
Sales and marketing	38,395	48,517
Depreciation and amortization	35,955	39,149
Total operating expenses	140,026	148,616
Income from operations	1,787	2,593
Other expenses
Other expense	118	308
Loss on extinguishment of debt		7,203
Interest expense	50,659	48,377
Loss before income taxes	(48,990)	(53,295)
Income tax provision	936	719
Net loss	(49,926)	(54,014)
Other comprehensive income, net of tax
Foreign currency translation	4,947	311
Total other comprehensive income, net of tax	4,947	311
Comprehensive loss	$ (44,979)	$ (53,703)
Net loss per share - basic and diluted	$ (1.17)	$ (1.27)
Weighted average shares outstanding - basic and diluted	42,529,017	42,425,295

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common stock	Additional Paid-In Capital	Treasury Stock	Accumulated Deficit	Accumulated Other Comprehensive (Loss) Income
Balance at Dec. 31, 2018	$ 228,956	$ 4	$ 372,316	$ (2,406)	$ (147,954)	$ 6,996
Balance (in shares) at Dec. 31, 2018		42,288,870
Issuance of common stock	$ 1,655		1,655
Issuance of common shares (in shares)	172,350	172,350
Recapitalization transaction	$ 4,592		8,122		(3,530)
Retirement of treasury stock			(2,406)	$ 2,406
Share-based compensation	2,265		2,265
Share based compensation (in shares)		67,797
Foreign exchange translation	311					311
Net loss	(54,014)				(54,014)
Balance at Dec. 31, 2019	$ 183,765	$ 4	381,952		(205,498)	7,307
Balance (in shares) at Dec. 31, 2019		42,529,017
Issuance of common shares (in shares)	0
Share-based compensation	$ 3,435		3,435
Foreign exchange translation	4,947					4,947
Net loss	(49,926)				(49,926)
Balance at Dec. 31, 2020	$ 142,221	$ 4	$ 385,387		$ (255,424)	$ 12,254
Balance (in shares) at Dec. 31, 2020		42,529,017

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Operating activities
Net loss	$ (49,926)	$ (54,014)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	47,762	50,407
Non-cash interest	19,450	5,320
Loss on extinguishment of debt		7,203
Stock-based compensation	3,435	2,265
Provision for losses on accounts receivable	4,088	3,104
Deferred income taxes	1,041	219
Change in fair value of contingent consideration	98	48
Changes in operating assets and liabilities:
Accounts receivable	10,050	(16,712)
Prepaid expenses and other assets	87	2,404
Accounts payable and accrued expenses	4,675	(8,937)
Deferred revenue	(984)	396
Net cash provided by (used in) operating activities	39,776	(8,297)
Investing activities
Acquisitions, net of cash	(3,124)	(1,950)
Purchases of property and equipment	(10,935)	(13,268)
Net cash used in investing activities	(14,059)	(15,218)
Financing activities
Recapitalization transaction		186,503
Revolving credit facility draws	29,000	54,500
Revolving credit facility repayments	(29,000)	(54,500)
Payments for capital lease obligations	(1,595)	(1,427)
Payments on long-term debt	(17,000)	(142,000)
Issuance of common stock		414
Net cash (used in) provided by financing activities	(18,595)	43,490
Effect of foreign exchange rates	672	(7)
Net increase in cash	7,794	19,968
Cash at beginning of period	43,407	23,439
Cash at end of period	51,201	43,407
Supplemental disclosure:
Cash paid for interest	32,196	42,693
Income taxes paid, net of refunds	(195)	470
Significant noncash investing and financing activities
Assumption of Pivotal Debentures		200,000
Equity issued for acquisitions		1,241
Purchases of property and equipment in accounts payable and accrued expenses on the consolidated balance sheets	$ 394	$ 129

XML

Organization, Business and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization, business and summary of significant accounting policies

KLDiscovery Inc.

Notes to Consolidated Financial Statements

Note 1 – Organization, business and summary of significant accounting policies

Organization

KLDiscovery Inc., (the “Company”) provides technology-based litigation support solutions and services including computer e-discovery, data hosting, and managed review predominantly to top law firms, corporations and government agencies. The majority of the Company’s current business is derived from these services. The Company’s headquarters is located in McLean, Virginia and has 32 locations in 18 countries, 9 data centers and 18 data recovery labs around the globe.

The Company was originally incorporated under the name Pivotal Acquisition Corp. (“Pivotal”) as a blank check company on August 2, 2018 under the laws of the State of Delaware for the purpose of entering into a merger, capital stock exchange, stock purchase, reorganization or similar business combination with one or more businesses or entities.

On December 19, 2019, Pivotal acquired of the outstanding shares of LD Topco, Inc. via a reverse capitalization (the “Business Combination”) and was renamed KLDiscovery Inc.

Principles of consolidation

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of KLDiscovery and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation.

The Business Combination was accounted for as a reverse recapitalization (the "Recapitalization Transaction") in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations. For accounting and financial reporting purposes, LD Topco, Inc. is considered the acquirer based on facts and circumstances, including the following:

• LD Topco, Inc.’s operations comprise the ongoing operations of the combined entity;

• The officers of the newly combined company consist of LD Topco, Inc.’s executives, including the Chief Executive Officer, Chief Financial Officer and General Counsel; and,

• The former shareholders of LD Topco, Inc. own a majority voting interest in the combined entity.

As a result of LD Topco, Inc. being the accounting acquirer, the financial reports filed with the SEC by the Company subsequent to the Business Combination are prepared “as if” LD Topco, Inc. is the predecessor and legal successor to the Company. The historical operations of LD Topco, Inc. are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of LD Topco, Inc. prior to the Business Combination; (ii) the combined results of the Company and LD Topco, Inc. following the Business Combination on December 19, 2019; (iii) the assets and liabilities of LD Topco, Inc. at their historical cost; and (iv) KLDiscovery Inc.’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the purchase of LD Topco, Inc. in connection with the Business Combination is reflected retroactively to January 1, 2018 and has been utilized for calculating earnings per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Business Combination transaction consistent with the treatment of the transaction as a reverse capitalization of LD Topco, Inc.

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Although actual results could differ from those estimates, management does not believe that such differences would be material.

Significant estimates include, but are not limited to, the allowance for doubtful accounts, determining the fair values of assets acquired and liabilities assumed, the recoverability and useful lives of property and equipment, intangible assets, and other long-lived assets, the impairment of goodwill, the valuation and realization of deferred income taxes, the fair value of the Company’s common stock and stock option awards, and acquisition-related contingent consideration.

Segments, concentration of credit risk and major customers

The Company operates in one business segment, providing technology-based litigation support solutions and services.

Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company places its cash with a banking institution where the balances, at times, exceed federally insured limits. Management believes the risks associated with these deposits are limited.

With respect to accounts receivable, the Company performs ongoing evaluations of its customers, generally grants uncollateralized credit terms to its customers, and maintains an allowance for doubtful accounts based on historical experience and management’s expectations of future losses. As of and for the years ended December 31, 2020 and 2019, the Company did not have a single customer that represents more than five percent (5%) or more of its consolidated revenues or accounts receivable. The Company believes that the geographic and industry diversity of the Company’s customer base throughout the U.S. and internationally minimizes the risk of incurring material losses due to concentrations of credit risk. The Company’s foreign revenues, principally from businesses in the UK and Germany, totaled approximately $57.0 million in 2020 and $69.8 million in 2019. The Company’s long-lived assets in foreign countries, principally in the UK and Germany, totaled approximately $26.3 million at December 31, 2020 and $21.8 million at December 31, 2019.

Foreign currency

Results of operations for the Company’s non-U.S. subsidiaries are translated from the designated functional currency to the reporting currency of the U.S. dollar. Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive income.”

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in “Other expense” on the Company’s Consolidated Statements of Comprehensive Loss. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

Cash and cash equivalents

The Company considers all highly liquid financial instruments with an original maturity of three months or less when purchased to be cash equivalents.

Accounts receivable

Accounts receivable are recorded at original invoice amount less an estimate for doubtful receivables based on a review of outstanding amounts monthly. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history. Accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received.

A rollforward of the allowance for doubtful accounts is presented below (in thousands):

Balance at December 31, 2018	$	5,564
Charged to/reversed from expense		3,104
Charged to/from other accounts		—
Deductions (write offs)		(1,182	)
Balance at December 31, 2019	$	7,486
Charged to/reversed from expense		4,088
Charged to/from other accounts		283
Deductions (write offs)		(3,344	)
Balance at December 31, 2020	$	8,513

Fixed Assets

Computer software, property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets:

Computer software and hardware	3 to 5 years
Leasehold improvements	Shorter of lease term or useful life
Furniture, fixtures and other equipment	3 to 5 years

Gains or losses on disposals are included in results of operations at amounts equal to the difference between the net book value of the disposed assets and the proceeds received upon disposal. Costs for replacements and betterments are capitalized, while the costs of maintenance and repairs are expensed as incurred. Property under capital leases are depreciated using the straight-line method over the lease term.

Depreciation expense totaled $16.9 million and $18.6 million for the years ended December 31, 2020 and 2019, respectively, and includes amortization of assets recorded under capital leases.

Internal-use software development costs

The Company capitalizes certain internal computer software costs incurred during the application development stage. The application development stage generally includes software design and configuration, coding, testing and installation activities. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditure will result in additional functionality. Capitalized software costs are depreciated over the estimated useful life of the underlying project on a straight-line basis. The Company’s estimated useful life of capitalized software costs varies between three and five years, depending on management’s expectation of the economic life of various software. Capitalized software amortization costs are recorded as a component of cost of revenue.

Capitalized software costs are reflected as part of the “Intangible assets, net line” in the Company’s Consolidated Balance Sheets and totaled $18.5 million and $13.5 million, net of accumulated amortization, as of December 31, 2020 and 2019, respectively.

Intangible assets and other long-lived assets

The Company evaluates the recoverability of its long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the difference between the fair value of the asset compared to its carrying amount. No impairment losses were recognized in the accompanying consolidated financial statements.

Amortization expense totaled $30.9 million and $31.8 million for the years ended December 31, 2020 and 2019, respectively; $11.8 million and $11.3 million of which was classified as part of the “Cost of revenues” line in the Company’s Consolidated Statements of Comprehensive Loss.

The Company allocates the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company recognizes as goodwill the amount by which the purchase price of an acquired entity exceeds the net of the fair values assigned to the assets acquired and liabilities assumed. In determining the fair values of assets acquired and liabilities assumed, the Company uses various recognized valuation methods including the income and market approaches. Further, the Company makes assumptions within certain valuation techniques, including discount rates, royalty rates, and the amount and timing of future cash flows. The Company records the net assets and results of operations of an acquired entity in the financial statements from the acquisition date. The Company initially performs these valuations based upon preliminary estimates and assumptions by management or independent valuation specialists under its supervision, where appropriate, and make revisions as estimates and assumptions are finalized. The Company expenses acquisition-related costs as they are incurred.

Goodwill

Goodwill represents the excess of the total consideration paid over identified intangible and tangible assets of the Company and its acquisitions. The Company tests its goodwill for impairment at the reporting unit level on an annual basis on October 1, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. As of the October 1 testing date the Company determined there is one reporting unit.

Goodwill impairment exists when the estimated fair value of the reporting unit is less than its carrying value. If impairment exists, the carrying value of the goodwill is reduced by the excess through an impairment charge recorded in the Company’s statements of operations. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis.

The fair value of the Company’s reporting unit is estimated using a combination of a discounted cash flow (“DCF”) analysis and market-based valuation methodologies such as comparable public company trading values. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples. The cash flows employed in the DCF analyses are based on the Company’s best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, changes in working capital, long term business plans and recent operating performance. The carrying value of the reporting unit includes the assets and liabilities employed in its operations and goodwill.

Accordingly, the Company has not identified any indicators of impairment, nor have any impairment charges been recorded related to goodwill resulting from the annual impairment test.

The following table provides a rollforward of the carrying amount of goodwill (in thousands):

Balance at December 31, 2018	$	394,167
Acquisitions		263
Foreign currency translation		741
Balance at December 31, 2019		395,171
Acquisitions		1,009
Disposal		(96	)
Foreign currency translation		3,001
Balance at December 31, 2020	$	399,085

Debt issuance costs

Debt issuance costs are stated at cost, net of accumulated amortization, and are amortized over the term of the debt using both the straight-line and the effective yield methods. U.S. GAAP requires that the effective yield method be used to amortize debt acquisition costs; however, if the effect of using the straight-line method is not materially different from the results that would have been obtained under the effective yield method, the straight-line method may be used. The amortization for funded term debt is calculated according to the effective yield method and revolving and unfunded term debt is calculated according to the straight-line method. Debt issuance costs related to funded term debt is presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Debt issuance costs related to revolving and unfunded term debt is presented in the Consolidated Balance Sheets within “Other assets.”

Revenue recognition

The Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), effective January 1, 2019, utilizing the modified retrospective method. The Company’s adoption of ASC 606 did not result in material changes to the Company’s revenue recognition.

Revenues are recognized when we satisfy a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services. Performance obligations in our contracts represent distinct or separate service streams that we provide to our customers.

The Company evaluates its revenue contracts with customers based on the five-step model under ASC 606: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenues when (or as) each performance obligation is satisfied.

The following table summarizes revenue from contracts with customers for the years ended December 31, 2020 and 2019 (in thousands):

	Year Ended December 31, 2020		Year Ended December 31, 2019
eDiscovery services	$	197,300	$	215,560
Managed review		49,985		50,290
Legal technology services		247,285		265,850
Data recovery		42,260		46,204
Total revenue	$	289,545	$	312,054

Performance Obligations and Timing of Revenue Recognition

The Company primarily sells services and products that fall into the categories discussed below. Each category contains one or more performance obligations that are either (1) capable of being distinct (i.e., the customer can benefit from the product or service on its own or together with readily available resources, including those purchased separately from us) and distinct within the context of the contract (i.e., separately identified from other promises in the contract) or (2) a series of distinct products or services that are substantially the same and have the same pattern of transfer to the customer.

(1) eDiscovery services, which provides end-to-end eDiscovery services support including collections, processing, analytics, hosting, production and professional services;

(2) Managed review services, which provides the staffing necessary to review large complex data sets; and

(3) Data recovery services, which offers data restoration, data erasure and data management.

The Company generates the majority of its revenues by providing Legal Technology services to our clients. All of our eDiscovery service contracts are time and materials types of arrangements.

Time and materials arrangements are based on units of data stored or processed. Unit-based revenues are recognized as services are provided, based on either the amount of data stored or processed, the number of concurrent users accessing the information, or the number of pages or images processed for a client, at agreed upon per unit rates. We recognize revenues for these arrangements utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date.

Certain of our eDiscovery contracts are subscription-based, fixed-fee arrangements, which have tiered pricing based on the quantity of data hosted. For a fixed monthly fee, our clients receive a variety of optional eDiscovery services, which are included in addition to the data hosting. The Company recognizes revenues for these arrangements based on predetermined monthly fees as determined in our contractual agreements, utilizing a right-to-invoice practical expedient because the Company has a right to consideration for services completed to date.

Managed review services are time and materials types of arrangements. These agreements require the client to pay us based on the number of hours worked at contractually agreed-upon rates. The Company recognizes revenues for these arrangements based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because the Company has a right to consideration for services completed to date.

Data recovery services are mainly fixed fee arrangements requiring the client to pay a pre-established fee in exchange for the successful completion of a data recovery on a predetermined device. For the recovery services performed by the Company’s technicians, the revenue is recognized at a point in time, when the recovered data is sent to the customer.

Data erasure services are fixed fee arrangements for which revenue is recognized at a point in time, when the certificate of erasure is sent to the customer.

Ontrack PowerControls, included in the data recovery revenue stream, offers term license subscriptions for customers with on-premises installations of the software pursuant to contracts that are historically one to four years in length. The term license subscriptions include maintenance, support, as well as access to future software upgrades and fixes. The license and the additional support services are deemed to be one performance obligation, and thus revenue for these arrangements is recognized ratably over the term of the agreement.

Share-based compensation

The Company measures and recognizes compensation expense for all share-based awards to employees based on estimated grant date fair values on a straight-line basis over the requisite service period. The Company uses the Black-Scholes valuation model, depending on terms, facts and circumstances of each share-based award. The expected vesting of the Company’s performance-based RSUs is based upon the probability of a liquidity event, such as a change in control as defined under the 2019 Plan. The level of achievement of the liquidity event, if any, is re-evaluated quarterly.

Advertising

Advertising costs consist of marketing, advertising through print and other media, professional event sponsorship and public relations. These costs are expensed as incurred. Advertising costs totaled $4.5 million and $7.1 million for the years ended December 31, 2020 and 2019, respectively. Advertising costs are reflected within “Sales and marketing” in the accompanying Consolidated Statements of Comprehensive Loss.

Research and development expense

Costs incurred in the research and development of the Company’s technologies primarily consist of developer salaries. Research and development expenses were $7.2 million and $5.9 million for the years ended December 31, 2020 and 2019, respectively.

Income taxes

Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. Excess tax benefits and tax deficiencies are recognized in the income tax provision in the period in which they occur.

The Company records a valuation allowance when it determines, based on available positive and negative evidence, that it is more-likely-than-not that some portion, or all its deferred tax assets will not be realized. The Company determines the realizability of its deferred tax assets primarily based on the reversal of existing taxable temporary differences and projections of future taxable income (exclusive of reversing temporary differences and carryforwards). In evaluating such projections, the Company considers its history of profitability, the competitive environment, and general economic conditions. In addition, the Company considers the time frame over which it would take to utilize the deferred tax assets prior to their expiration.

For certain tax positions, the Company uses a more-likely-than-not threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of tax benefits determined on a cumulative probability basis, which are more-likely-than-not to be realized upon ultimate settlement in the financial statements. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.   

Net Loss per Common Share

Basic net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the year, plus the dilutive effect of common stock equivalents, including stock options and restricted shares. Common stock and common stock equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive.

On December 19, 2019, the Company completed a reverse merger with Pivotal Acquisition Corp. whereby the Company received 34,800,000 shares for its outstanding 3,707,564 shares, effecting 1-to-9.3862 stock exchange. The per share amounts have been updated to show the effect of the exchange on earnings per share as if the exchange occurred at the beginning of both years for the annual financial statements of the Company. The impact of the stock exchange is also shown on the Company’s Statements of Stockholders’ Equity.”

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement”, which amends ASC 820 to add, remove, and modify fair value measurement disclosure requirements. This standard was effective for the Company for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The adoption did not have a material impact on the Company’s current financial position and results of operations, but the financial statement disclosures were updated in accordance with the ASU.

Accounting Standards Not Yet Adopted

In connection with the transaction with Pivotal (see Note 2), the Company elected to be an Emerging Growth Company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act and take advantage of the extended transition period of delaying the adoption of new or revised accounting standards until such time as those standards apply to private companies. This may make the comparison of the Company’s consolidated financial statements to other public companies not meaningful due to the differences in accounting standards being applied.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. This standard is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, and the Company is currently evaluating the impact that Topic 842 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. The Company is required to adopt ASC 326 effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and the Company is currently evaluating the impact that Topic 326 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption, including the adoption in any interim period, is permitted for all entities. The Company does not expect ASU 2019-12 to have a meaningful effect on the Company’s current financial position, results of operations or financial statement disclosures.

XML

Acquisitions

12 Months Ended

Dec. 31, 2020

Business Combinations [Abstract]

Acquisitions

Note 2 – Acquisitions

Pivotal Acquisition Corp.

On December 19, 2019, Pivotal, the legal predecessor company, consummated the Business Combination with LD Topco, Inc. The stockholders of LD Topco, Inc. received an aggregate of 34,800,000 shares of Pivotal common stock. The former stockholders of LD Topco, Inc. also have the right to receive up to 2,200,000 shares of the Company’s common stock if (i) a change in control occurs or (ii) the reported closing sale price of the Company’s common stock exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Business Combination. The Company also assumed 29,500,000 warrants which entitles the holder to purchase shares of the Company’s common stock beginning December 18, 2019 at an exercise price of $11.50 per share as part of this transaction.

As part of the transaction, on December 19, 2019, the Company assumed 8% convertible debentures (“Debentures”) due 2024 in an aggregate principal amount of $200 million. The proceeds of the Debentures were used in part to repay the Company’s outstanding Second Lien Facility and amounts outstanding under its revolving credit facility.

The net proceeds from the Business Combination, as reported in the consolidated statements of cash flows for the year ended December 31, 2019 within the financing section are summarized below:

Gross cash received by KLDiscovery from Business    Combination	$	201,657
Less: fees to underwriters		(6,500	)
Less: other transaction costs		(8,654	)
Net cash received by KLDiscovery from Business    Combination	$	186,503

XML

Fair Value Measurements

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 3 – Fair value measurements

The Company accounts for recurring and non-recurring fair value measurements in accordance with ASC 820, Fair Value Measurements. ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosures about fair value measurements. The ASC 820 hierarchy ranks the quality of reliability of inputs, or assumptions, used in the determination of fair value, and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

Level 1 – Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.

Level 2 – Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.

Level 3 – Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by a reporting entity – e.g., determining an appropriate adjustment to a discount factor for illiquidity associated with a given security.

The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires significant judgments to be made by the Company.

The Company believes that the fair values of its current assets and current liabilities (cash, accounts receivable, accounts payable, and other current liabilities) approximate their reported carrying amounts. The Company believes that the interest rates on its debt are current market rates.

The Company estimates the fair value of contingent purchase consideration based on the present value of the consideration expected to be paid during the remainder of the earn-out period, based on management’s assessment of the acquired operations’ forecasted earnings. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement. During 2019, the Company acquired three companies for total consideration of $5.5 million, of which $2.0 million was in cash, $1.5 million was in deferred payments, $1.2 million was in stock and contingent consideration of $1.0 million, which was recorded at its estimated fair value of $0.8 million related to future earnouts. The fair value of future expected acquisition-related contingent consideration obligations was $0.9 million and $0.8 million at December 31, 2020 and 2019, respectively.

The significant unobservable inputs used in the fair value measurements of the Company’s contingent purchase consideration include its measures of the future profitability and related cash flows of the acquired business or assets, impacted by appropriate discount rates. Significant increases (decreases) in any of these individual inputs would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is indirectly proportional to the fair value of contingent purchase consideration and a change in the assumptions used for the future cash flows is directly proportional to the fair value of contingent purchase consideration. The Company, using additional information as it becomes available, reassesses the fair value of the contingent purchase consideration on an annual basis.

Any change in the fair value of contingent consideration liability results in a remeasurement gain or loss that is recorded as income or expense on the Consolidated Statements of Comprehensive Loss.

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the years ended December 31, 2020 and 2019 (in thousands):

Balance at December 31, 2018	$	—
Additions (payments) to contingent consideration		774
Change in fair value of contingent consideration		48
Balance at December 31, 2019		822
Additions (payments) to contingent consideration		—
Change in fair value of contingent consideration		98
Balance at December 31, 2020	$	920

Management estimates the carrying amount of the Company’s long-term debt approximates its fair value because the interest rates on these instruments are subject to changes in market interest rates or are consistent with prevailing interest rates.

XML

Intangible Assets

12 Months Ended

Dec. 31, 2020

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets

Note 4 – Intangible assets

Intangible assets consist of the following (in thousands):

Description	Weighted Average Remaining Useful Life in Years		December 31, 2020			December 31, 2019
Trademark and tradenames		5.5	$	67,183		$	66,311
Accumulated amortization				(29,004	)		(21,504	)
Trademark and tradenames, net				38,179			44,807
Developed technology		4.2		79,796			71,327
Accumulated amortization				(49,968	)		(36,838	)
Developed technology, net				29,828			34,489
Non-compete agreements		—		1,402			1,467
Accumulated amortization				(1,402	)		(1,242	)
Non-compete agreements, net				—			225
Customer relationships		6.1		97,420			95,693
Accumulated amortization				(55,694	)		(44,646	)
Customer relationships, net				41,726			51,047
Intangible assets, net of amortization			$	109,733		$	130,568

Future amortization of intangible assets is as follows (in thousands):

December 31,	Amount
2021	$	27,398
2022		23,153
2023		17,413
2024		13,111
2025		8,718
Thereafter		15,025
In process		4,916
Total	$	109,733

XML

Accrued Expenses

12 Months Ended

Dec. 31, 2020

Payables And Accruals [Abstract]

Accrued Expenses

Note 5 – Accrued expenses

Accrued expenses consisted of the following (in thousands):

	December 31,
	2020		2019
Accrued expenses:
Accrued interest	$	5,041	$	7,000
Accrued salaries		11,802		9,509
Current taxes payable		519		535
Other accrued expenses		2,694		2,847
Total	$	20,056	$	19,891

XML

Leasing Arrangements

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Leasing Arrangements

Note 6 – Leasing arrangements

The Company leases office space and certain equipment under operating and capital lease agreements, expiring in various years through 2029. Certain leases contain annual rent escalation clauses.

Rent expense totaled $14.1 million and $14.7 million for the years ended December 31, 2020 and 2019, respectively. As part of an effort to optimize the Company’s real estate footprint, during 2020, the Company terminated leases in 18 locations and reduced the footprint of four locations resulting in lease termination savings of approximately $4.6 million.

The amortization expense recorded for capital leases totaled $0.5 million and $0.7 million, respectively, for the years ended December 31, 2020 and 2019.

For years subsequent to December 31, 2020, future minimum payments for all operating and capital lease obligations that have initial non-cancelable lease terms exceeding one year, net of rental income from subleases are as follows (in thousands):

December 31,	Capital Leases			Operating Leases
2021	$	1,313		$	9,437
2022		1,586			8,936
2023		1,346			8,568
2024		721			7,377
2025		—			3,810
Thereafter		—			2,552
Total	$	4,966		$	40,680
Less: interest on lease obligations		(464	)
Net amount		4,502
Less: current portion		(1,313	)
Non-current	$	3,189

XML

Long Term Debt

12 Months Ended

Dec. 31, 2020

Long Term Debt [Abstract]

Long Term Debt

Note 7 – Long term debt

The table below summarizes the components of the Company’s long-term debt (in thousands):

	December 31,
	2020			2019
First lien facility due 2022		289,000			306,000
Convertible debenture notes due 2024		214,541			200,000
Total debt		503,541			506,000
Less: unamortized original issue discount		(16,126	)		(19,806	)
Less: unamortized debt issuance costs		(3,867	)		(5,573	)
Total debt, net		483,548			480,621
Current portion of debt		17,000			17,000
Less: current portion of unamortized original    issue discount		(4,312	)		(3,687	)
Less: current portion of unamortized debt    issuance costs		(1,740	)		(1,624	)
Total current portion of debt, net		10,948			11,689
Total long-term debt, net	$	472,600		$	468,932

On February 8, 2021 we entered into the 2021 Credit Agreement, the details of which are disclosed below in Note 17 - Subsequent Events.

2016 Credit Agreement

On December 9, 2016, KLDiscovery entered into a Credit Agreement with a group of lenders to establish term loan facilities and a revolving line of credit for borrowings by LD Intermediate, Inc. and LD Lower Holdings, Inc. (the “Initial Term Loans”). The Initial Term Loan borrowings of $340.0 million (“First Lien Facility”) and $125.0 million (“Second Lien Facility”) were to mature on December 9, 2022 and December 9, 2023, respectively. The First Lien Facility was repaid on February 8, 2021 (see Note 17) and the Second Lien Facility was repaid on December 19, 2019.

The First Lien Facility established a term loan principal payment schedule with payments due on the last day of each calendar quarter beginning on March 31, 2017 of $2.1 million. Quarterly principal payments increased to $4.3 million beginning on March 31, 2019 with a balloon payment of $259.3 million due at maturity. The interest rate for the First Lien Facility adjusted every interest rate period, which could be one, two, three or six months in duration and was decided by the Company, or to the extent consented to by all appropriate Lenders, twelve months thereafter. Interest payment dates include the last day of each interest period and any maturity dates of the facility; however, if any interest period exceeded three months, the respective dates that fall every three months after the beginning of an interest period was also an interest payment date. For each interest period, the interest rate per annum was 5.875% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate multiplied by the greatest of a) LIBOR, b) 0.00% per annum and c) solely with respect to the Initial Term Loans, 1.00% per annum. At December 31, 2020, the balance due was $289.0 million with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 1.00%. At December 31, 2019, the balance due was $306.0 million with an interest rate of 5.875% plus an Adjusted Eurocurrency Rate of 2.596%.

The Second Lien Facility required a balloon payment of $125.0 million due at maturity. The interest rate for the Second Lien Facility adjusted every interest rate period, which could have been one, two, three or six months in duration and was decided by the Company, or to the extent consented to by all appropriate Lenders, twelve months thereafter. Interest payment dates included the last day of each interest period and any maturity dates of the facility; however, if any interest period exceeded three months, the respective dates that fall every three months after the beginning of an interest period was also an interest payment date. For each interest period, the interest rate per annum was 10.0% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate multiplied by the greatest of a) LIBOR, b) 0.00% per annum and c) solely with respect to the Initial Term Loans, 1.00% per annum. On December 19, 2019, the Second Lien Facility was paid off and closed. A loss on debt extinguishment was recognized related to the Second Lien Facility closing in the amount of $7.2 million in 2019 related to the write off of deferred financing costs and original issue discounts on the Second Lien Facility. At December 31, 2019 the balance due was zero.   

The First and Second Lien Facilities were secured by substantially all the Company’s assets and contain financial covenants. As of December 31, 2020 and 2019, the Company was in compliance with all covenants.

The 2016 Credit Agreement included a mandatory prepayment within ten days after delivery of the annual audited financial statements commencing with the year ending December 31, 2016, in an amount equal to the Excess Cash Flow Percentage of Excess Cash Flow for such Fiscal Year, as defined in the agreement. There were no mandatory prepayments with respect to 2020 and 2019.

Revolving Credit Facility

The 2016 Credit Agreement also provided for unfunded revolver commitment (the “Revolving Credit Facility”) for borrowing up to $30.0 million and was to mature on June 9, 2022. Interest was due at adjustable interest rates ranging from 5.375% to 5.875% based on the First Lien Net Leverage Ratio plus an amount equal to the LIBOR. No amounts were outstanding under the revolving loan as of December 31, 2020 and 2019. The Revolving Credit Facility was retired on February 8, 2021.

As of December 31, 2020, there was approximately $29.3 million available capacity for borrowing under the Revolving Credit Facility due to $0.7 million of letters of credit outstanding (See Note 15).

Convertible Debentures

On December 19, 2019, the Company assumed 8% convertible debentures (“Debentures”) due 2024 in an aggregate principal amount of $200 million. The proceeds of the Debentures were used in part to repay the Company’s outstanding Second Lien Facility and amounts outstanding under the Revolving Credit Facility. At December 31, 2020 and 2019, the balance due under the Convertible Debentures, including in-kind and accrued interest, was $214.5 million and $200.0 million, respectively.

The Debentures will mature on December 19, 2024 unless earlier converted, redeemed or repurchased. The Debentures will bear interest at an annual rate of 4.00% in cash, payable quarterly, and 4.00% in kind, accrued quarterly, on the last business day of March, June, September and December. In addition, on each anniversary of the Closing Date, the Company will add to the principal amount (subject to reduction for any principal amount repaid) of the Debentures an amount equal to 3.00% of the original aggregate principal amount of the Debentures outstanding. The additional payment will accrue from the last payment date for the additional payment (or the Closing Date if no prior payment has been made), and will also be payable at maturity, upon conversion and upon an optional redemption.

At any time, upon notice as set forth in the Debentures, the Debentures will be redeemable at the Company’s option, in whole or in part, at a price equal to 100% of the principal amount of the Debentures redeemed, plus accrued and unpaid interest thereon.

Subject to approval to allow for the full conversion of the Debentures into common stock, the Debentures will be convertible into shares of the Company’s common stock at the option of the debenture holders at any time and from time to time at a price of $18 per share, subject to certain adjustments. However, in the event the Company elects to redeem any Debentures, the holders will have a right to purchase common stock from the Company in an amount equal to the amount redeemed at the conversion price.

The Debentures contain covenants that limit the Company’s ability to, among other things: (i) incur additional debt; (ii) create liens on assets; (iii) engage in certain transactions with affiliates; or (iv) designate the Company’s subsidiaries as unrestricted subsidiaries. The Debentures provide for customary events of default, including non-payment, failure to comply with covenants or other agreements in the Debentures and certain events of bankruptcy or insolvency. If an event of default occurs and continues, the holders of at least 25% in aggregate principal amount of the outstanding Debentures may declare the entire principal amount of all the Debentures to be due and payable immediately. As of December 31, 2020 and 2019 the Company was in compliance with all covenants.

Future principal payments, including in kind interest, are as follows (in thousands):

December 31,	Amount
2021		17,000
2022		272,000
2023		-
2024		277,287
Thereafter		-
Total	$	566,287

The initial term loan borrowings related to the 2016 Credit Agreement were issued at an original issue discount of $11.9 million and $6.3 million for the First Lien Facility and Second Lien Facility, respectively. The Debentures were issued at an original discount of $13.7 million. The original issue discount is amortized using the effective yield method over the respective term of each facility or debenture. Accretion of the original issue discount totaled $3.7 million and $2.7 million during the years ended December 31, 2020 and 2019, respectively. Amortization is recorded as interest expense in the accompanying Consolidated Statements of Comprehensive Loss.

The Company incurred term loan facilities and revolver closing fees related to the 2016 Credit Agreement of $13.6 million. The term loan facilities and revolver closing fees were deferred on December 9, 2016, along with fees of $0.6 million related to the 2016 Credit Agreement and are amortized over their respective terms. The Company incurred closing fees related to the Debentures of $0.9 million which were deferred on December 19, 2019 and are amortized over the term of the debentures. Amortization of debt issuance costs totaled $1.6 million and $2.1 million during the years ended December 31, 2020 and 2019, respectively. Amortization is recorded as interest expense in the accompanying Consolidated Statements of Comprehensive Loss. A loss on debt extinguishment was recognized related to the closing of the Second Lien Facility in the amount of $7.2 million for deferred financing costs and original issue discounts in 2019.

The future amortization of debt issuance costs and original issue discount related to the 2016 Credit Agreement, the Revolving Credit Facility and Convertible Debentures are as follows (in thousands):

December 31,	Amount
2021	$	6,052
2022		6,453
2023		3,528
2024		3,961
Total	$	19,994

In February 2021, the Company expensed $7.2 million of these debt issuance costs in connection with the retirement of the 2016 Credit Agreement.

XML

Employee Benefit Plan

12 Months Ended

Dec. 31, 2020

Compensation And Retirement Disclosure [Abstract]

Employee Benefit Plan

Note 8 – Employee benefit plan

The Company’s 401(k) plan covers employees who are at least 21 years of age, have completed one year of employment and worked a minimum of 1,000 hours. Employees may elect to defer a percentage of their salary up to the maximum allowed under the Internal Revenue Service Code. During 2019, the Company made matching contributions to its 401(k) plan equal to 100% of the first 3% of salary deferred plus 50% of the next 2% of an employee’s contribution for a total maximum Company match of 4% of the salary deferred by the employee, subject to Internal Revenue Service Code limitations. Starting in January 2020, the Company discontinued matching contributions to the 401(k) plan. Contributions to the 401(k) plan were $0.3 million and $3.7 million for the years ended December 31, 2020 and 2019, respectively.

XML

Equity Incentive Plan

12 Months Ended

Dec. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Equity Incentive Plan

Note 9 – Equity incentive plan

On December 19, 2019, the Company adopted the 2019 Incentive Award Plan (the “2019 Plan”) under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options, restricted stock, restricted stock units, or other stock-based awards, including shares of common stock. As of December 31, 2020, 7,500,000 shares of Common Stock were reserved under the 2019 Plan, of which 1,948,815 shares of Common Stock remained available for issuance.

On March 29, 2016, the Company adopted the 2016 Equity Incentive Plan (as amended, the “2016 Plan”) under which eligible employees, officers, directors and consultants of the Company may be granted incentive or non-qualified stock options, restricted stock, restricted stock units, or other stock-based awards, including shares of common stock. The 2016 Plan was terminated on December 19, 2019 and all outstanding awards were cancelled.

Stock option activity

The following table summarizes the Company’s stock option activity under the 2019 Plan:

Description	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Options outstanding, December 31, 2018		-
Granted		514,710		$	9.90		10.0
Forfeited		-
Expired		-
Options outstanding, December 31, 2019		514,710		$	9.90		10.0
Granted		4,137,750			8.49
Forfeited		(387,186	)		8.85
Expired		(4,521	)		8.85
Options outstanding, December 31, 2020		4,260,753		$	8.46		9.0	$	54
Options vested and exercisable, December 31, 2020		1,204,863		$	8.20		9.0	$	54
Options vested and expected to vest, December 31, 2020		4,260,753		$	8.46		9.0	$	54

The following table summarizes the Company’s stock option activity under the 2016 Plan:

Description	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Options Outstanding, December 31, 2018		411,480		$	100		8.3	$	—
Granted		67,050			90
Forfeited		(32,860	)		99
Expired		(8,640	)		99
Cancelled		(437,030	)		100
Options Outstanding, December 31, 2019		-						$	—

(1) Aggregate intrinsic value (in thousands) represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.

No stock options were exercised during the years ended December 31, 2020 and 2019.

The following table summarizes additional information on stock option grants and vesting (in thousands):

	2016 Plan				2019 Plan
	Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2020		Year Ended December 31, 2019
Total fair value of stock options granted	$	-	$	2,492	$	9,241	$	974
Total fair value of options vested		-		1,439		2,711		-

Time-based vesting stock options

Under the 2016 Plan, time-based vesting stock options vested over a five-year period, subject to graded vesting schedules, and expired ten years from the date of grant or within 90 days of termination. The weighted-average fair value per share of time-based vesting stock options granted by the Company was $37.16 during the year ended December 31, 2019.

Under the 2016 Plan, for the year ended December 31, 2019, the Company recognized $2.3 million of stock-based compensation expense in connection with time-based stock options.

Under the 2019 Plan, time-based vesting stock options generally vest over a three-year period, are subject to graded vesting schedules, and expire ten years from the date of grant or within 90 days of termination. The weighted-average fair value per share of time-based vesting stock options granted by the Company was $2.19, and $1.89 during the years ended December 31, 2020 and 2019, respectively.

Under the 2019 Plan, for the years ended December 31, 2020 and 2019, the Company recognized $3.4 million and $0.01 million of stock-based compensation expense in connection with time-based stock options, respectively. As of December 31, 2020 and 2019, there was $6.4 million and $1.0 million of unrecognized stock-based compensation expense related to unvested time-based stock options that is expected to be recognized over a weighted-average period of three years, respectively.

Performance-based vesting stock options

Performance-based vesting stock options were issued under the 2016 Plan, which was terminated in December 2019, and generally vested upon the satisfaction of performance- and market-based criteria, based on the Principal Stockholders’ (as defined in the 2016 Plan) internal rate of return on their investment in the Company as measured following their sale of at least 70% of the Principal Stockholders total holdings in the Company, and expire ten years from the date of grant. The weighted-average fair value per share of performance-based vesting stock options granted by the Company was $37.16 during the year ended December 31, 2019.

Award Valuation

The Company used valuation models to value both time and performance-based vesting stock options granted during 2020 and 2019. The following table summarizes the assumptions used in the valuation models to determine the fair value of awards granted to employees and non-employees under both the 2019 Plan and the 2016 Plan:

	Year Ended December 31, 2020		Year Ended December 31, 2019
Expected volatility	37.63 - 41.24%		36.92 - 37.70%
Expected term (in years)		6.0	6 - 6.5
Dividend yield	0%		0%
Risk free interest rate	0.30 - 1.43%		1.79 - 2.89%

A discussion of management’s methodology for developing each of the assumptions used in the valuation model follows:

• Expected volatility – Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses an estimated volatility based on the historical and implied volatilities of comparable companies.

• Expected term – This is the period that the options granted are expected to remain unexercised. For options granted during the years ended December 31, 2020 and 2019, the Company derived the expected life of the option based on the average midpoint between vesting and the contractual term as there is little exercise history.

• Dividend yield – The Company has never declared or paid dividends and have no plans to do so in the foreseeable future.

• Risk-free interest rate – This is the U.S. Treasury rate for securities with similar terms that most closely resembles the expected life of the option.

Stock award activity

During the years ended December 31, 2020 and 2019, the Company granted to certain non-employee directors 136,956 and 7,223 stock awards, respectively. These stock awards were issued to non-employee directors in satisfaction of their annual retainer payments and are not subject to any vesting conditions, and thus became issued and outstanding shares on the grant date. Accordingly, the Company recognized the grant-date fair value of the stock awards of $0.4 million and $0.7 million as stock-based compensation expense concurrent with the grant date of the awards during the years ended December 31, 2020 and 2019, respectively.

Stock-based compensation expense

Stock-based compensation expense is included in the Consolidated Statements of Comprehensive Loss within the following line items (in thousands):

	December 31,
	2020		2019
Cost of revenues	$	1,336	$	573
General and administrative		1,198		1,161
Research and development		268		87
Sales and marketing		633		444
Total	$	3,435	$	2,265

Restricted stock units

Certain employees may be eligible to receive restricted stock unit (“RSU”) awards in the event of a change in control or IPO (as both terms are defined in the respective employment agreements) with a market value equal to the greater of (1) $3.5 million for two employees, or $4 million for the other referenced employee or (2) an amount determined using a formula-based model (as defined in the respective employment agreements), as of the date of such grants.

The amount and timing of the vesting of the RSUs is dependent on the type and timing of the liquidity event as it relates to the Business Combination date of December 19, 2019. Generally, a portion of the RSUs will first vest upon the occurrence of the liquidity event and the remainder will vest in installments thereafter, provided that if the liquidity event occurs after the third anniversary of the Business Combination, all RSUs will vest immediately upon the liquidity event. The vesting of the RSUs is generally subject to continued employment.

The following table summarizes the Company’s RSU activity under the 2019 Plan:

	RSUs
Description	Outstanding
Outstanding at December 31, 2019		-
Granted		1,402,312
Forfeited		(111,880	)
Expired		-
Outstanding at December 31, 2020		1,290,432

The Company determined that the achievement of the liquidity event was not probable and therefore no expense was recorded during the year ended December 31, 2020.

XML

Equity

12 Months Ended

Dec. 31, 2020

Equity [Abstract]

Equity

Note 10 – Equity

The Company is authorized to issue up to 200,000,000 shares of common stock, $0.0001 par value per share (the “Common Stock”) and 1,000,000 shares of preferred stock, $0.0001 par value per share. Each holder of Common Stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. The holders of the Common Stock are entitled to receive dividends out of assets legally available at the time and in the amounts as the Company’s Board of Directors may from time to time determine. In the event of any liquidation, dissolution or winding up of the Company, the assets of the Company shall be distributed ratably among the holders of the then outstanding common stock.

During 2019, the Company issued 172,350 shares of Common Stock in exchange for $1.7 million. There were no stock issuances during 2020.

Warrants

On December 19, 2019, in connection with the consummation of the Business Combination, the Company assumed 23,000,000 warrants (the “Public Warrants”), 4,585,281 warrants (the “Private Warrants”) and (iii) 1,764,719 warrants (the “Debenture Holder Warrants”). These warrants qualified for equity accounting as the warrants did not fall within the scope of ASC Topic 480, Distinguishing Liabilities from Equity. The warrants were measured at fair value at the time of issuance and classified as equity.

Each warrant entitles the holder to purchase one share of common stock for $11.50 per share. If held by the initial purchaser of the Private Warrant or certain permitted transferees, the purchase can occur on a cashless basis. The warrants will expire on December 19, 2024 or earlier upon redemption or liquidation.

If the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three business days before the Company sends the notice of redemption to the warrant holders, the Company may redeem all the Public Warrants at a price of $0.01 per warrant upon not less than 30 days’ prior written notice.

If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a cashless basis. The exercise price and number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. The warrants will not be adjusted for issuance of common stock at a price below its exercise price. The Company will not be required to net cash settle the warrants.

The Private Warrants are identical to the Public Warrants except that the Private Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

Shares Subject to Forfeiture

On December 19, 2019, in connection with the consummation of the reverse merger transaction, 550,000 shares of common stock held by Pivotal Acquisition Holdings LLC are subject to an additional lockup that will be released only if the last reported sale price of the common stock equals or exceeds $15.00 for a period of 20 consecutive trading days during the five-year period following the Closing Date. If the last reported sale price of common stock does not equal or exceed $15.00 within five years from the Closing Date, such shares will be forfeited to the Company for no consideration. These shares are reported as outstanding in our financial statements and continue to be subject to the additional lockup as of December 31, 2020.

XML

Loss Per Share

12 Months Ended

Dec. 31, 2020

Earnings Per Share [Abstract]

Loss Per Share

Note 11 – Loss per share

Basic loss per common share (“EPS”) is calculated by dividing the net loss for the year by the weighted-average number of common shares outstanding during the period. Due to the Company’s net loss for the years ended December 31, 2020 and 2019, all potential common stock equivalents were anti-dilutive.

The following table summarizes basic and diluted loss per share or the years ended December 31, 2020 and 2019 (in thousands, except per share amounts):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Basic and diluted loss per share:
Net loss	$	(49,926	)	$	(54,014	)
Weighted average common shares    outstanding - basic		42,529,017			42,529,017
Dilutive effect of potentially    issuable shares		—			—
Weighted average common shares    outstanding - diluted		42,529,017			42,529,017
Basic loss per share	$	(1.17	)	$	(1.27	)
Dilutive effect of potentially    issuable shares		—			—
Diluted loss per share	$	(1.17	)	$	(1.27	)
Common share equivalents    excluded due to anti-dilutive effect		3,788,388			—

XML

Foreign Currency

12 Months Ended

Dec. 31, 2020

Foreign Currency [Abstract]

Foreign Currency

Note 12 – Foreign currency

The Company had immaterial foreign currency losses that are reflected in “Other expense” on the Company’s Consolidated Statements of Comprehensive Loss for years December 31, 2020 and 2019. Transaction gains and losses, both realized and unrealized, relate to the remeasurement or settlement of monetary assets and liabilities that are denominated in a currency other than an entity’s functional currency. These monetary assets and liabilities include cash as well as third party receivables and payables.

XML

Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Note 13 – Income taxes

The components of income tax expense for the years ended December 31, 2020 and 2019 are presented below (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Current
Federal	$	(712	)	$	(37	)
State		73			61
Foreign		729			447
Deferred
Federal		334			332
State		806			705
Foreign		(294	)		(789	)
Total income tax provision	$	936		$	719

The actual income tax expense amounts for the years ended December 31, 2020 and 2019 differed from the expected tax amounts computed by applying the U.S. federal corporate income tax rate of 21% for 2020 and 2019 to the amounts of loss before income taxes as presented below (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Pre-tax book loss	$	(48,990	)	$	(53,295	)
Tax at Federal statutory rate of 21% in 2020 and    2019		(10,288	)		(11,192	)
State taxes		879			766
Stock based compensation		3			1,060
Foreign rate differential		(1,223	)		(871	)
Unrecognized tax benefit		549			-
Other adjustments		1,453			(1,707	)
Valuation allowance		9,563			12,663
Total income tax provision	$	936		$	719

The domestic and foreign components of loss before income taxes from continuing operations for the years ended December 31, 2020 and 2019 are as follows (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Domestic	$	(46,686	)	$	(52,438	)
Foreign		(2,304	)		(857	)
Total	$	(48,990	)	$	(53,295	)

The tax effects of temporary differences at December 31, 2020 and 2019 are as follows (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Net operating losses and other carryforwards	$	42,859		$	41,299
Interest expense carryforward		30,112			20,070
Property and equipment		2,448			2,221
Accrued expenses		512			82
Payroll tax deferral		1,089			-
Allowance for doubtful accounts		1,768			1,517
Stock-based compensation		878			—
Other		540			633
Deferred tax asset		80,206			65,822
Valuation allowance		(65,228	)		(51,895	)
Total deferred tax assets, net of valuation allowance		14,978			13,927
Intangible assets		(21,791	)		(20,098	)
Prepaid expenses		(107	)		(73	)
Other		(415	)		(50	)
Deferred tax liability		(22,313	)		(20,221	)
Net deferred tax liability	$	(7,335	)	$	(6,294	)

At December 31, 2020 and 2019, the Company had tax effected U.S. federal net operating loss carryforwards of approximately $32.1 million and $31.0 million, respectively, of which $7.8 million tax effected, begin to expire in 2024 but approximately $16.5 million, tax effected, begin to expire in 2035 and $7.8 million, tax effected, have no expiration. At December 31, 2020 and 2019, the Company had tax effected state net operating loss carryforwards of approximately $6.7 million and $6.5 million, respectively. The majority of the state tax losses will not begin expiring until 2035 or later. At December 31, 2020 and 2019, the Company also had U.S. tax credit carryforwards of approximately $0.9 million and $0.9 million, respectively. The tax credits will expire in 2021.

The tax effected foreign net operating loss at December 31, 2020 and 2019 is approximately $3.1 million and $2.9 million, respectively, the majority of which has an unlimited carryforward period.

The Company operates in multiple tax jurisdictions and, in the normal course of business, its tax returns are subject to examination by various taxing authorities. Such examinations may result in future assessments by these taxing authorities. The Company is subject to examination by U.S. tax authorities beginning with the year ended December 31, 2016. The Company is also subject to examination in various foreign jurisdictions. In material foreign jurisdictions, the statute of limitations ranges one – four years from the filing of a tax return.

The Company has not provided for U.S. income and foreign withholding taxes on approximately $13.5 million of certain foreign subsidiaries' undistributed earnings as of December 31, 2020, because such earnings have been retained and are intended to be indefinitely reinvested outside of the U.S. These earnings could become subject to additional tax, if they were remitted as dividends, loaned to the Company, or if the Company should sell its stock in these foreign subsidiaries.  However, it is not practicable to estimate the amount of taxes that would be payable for these earnings because such tax, if any, is dependent on circumstances existing if and when a taxable event occurs.

Valuation Allowance

As of December 31, 2020 and 2019, the Company had a valuation allowance of $65.2 million and $51.9 million, respectively, against certain deferred tax assets. The valuation allowance relates to the deferred tax assets of the Company’s U.S. entities, including federal and state tax attributes and timing differences, as well as the deferred tax assets of certain foreign subsidiaries. The increase in the valuation allowance during 2020 is primarily related to operating losses incurred during the year and the limitation on deductibility of interest expense. To the extent the Company determines that, based on the weight of available evidence, all or a portion of its valuation allowance is no longer necessary, the Company will recognize an income tax benefit in the period such determination is made for the reversal of the valuation allowance. If management determines that, based on the weight of available evidence, it is more-likely-than-not that all or a portion of the net deferred tax assets will not be realized; the Company may recognize income tax expense in the period such determination is made to increase the valuation allowance. It is possible that such reduction of or addition to the Company’s valuation allowance may have a material impact on the Company’s results from operations. The U.S. federal and foreign changes to valuation allowance of approximately $9.6 million is presented in the effective tax rate reconciliation as part of the valuation allowance. The U.S. state changes to valuation allowance of approximately $3.8 million is presented as part of the state taxes in the effective tax rate reconciliation as part of the unrecognized tax benefit.

A summary of the deferred tax asset valuation allowance is as follows:

	Year Ended December 31, 2020			Year Ended December 31, 2019
Beginning Balance	$	51,895		$	36,595
Additions	$	14,149		$	15,622
Reductions		(816	)		(322	)
Ending Balance	$	65,228		$	51,895

Uncertain Tax Positions

As of December 31, 2020 and 2019, the total amount of unrecognized tax benefits was $1.0 million and $0 million, respectively, that would favorably impact the Company’s effective income tax rate. However, due to the Company’s determination that the deferred tax asset would not more-likely-than-not be realized, a full valuation allowance was recorded, therefore, zero net impact resulted in the Company’s effective income tax rate. The Company’s uncertain income tax position liability has been recorded to deferred income taxes to offset the tax attribute carryforward amounts. The U.S. federal and foreign changes to uncertain tax positions of approximately $0.6 million is presented in the effective tax rate reconciliation as part of the unrecognized tax benefit. The U.S. state changes to uncertain tax positions of approximately $0.4 million is presented as part of the state taxes in the effective tax rate reconciliation as part of the unrecognized tax benefit.

A summary of the unrecognized tax benefits is as follows:

	Year Ended December 31, 2020
Beginning Balance	$	-
Additions	$	1,002
Reductions		-
Ending Balance	$	1,002

XML

Severance and Retention

12 Months Ended

Dec. 31, 2020

Restructuring And Related Activities [Abstract]

Severance and Retention

Note 14 – Severance and retention

In connection with the Company’s continued integration and realignment efforts following the 2016 acquisition of Kroll Ontrack, LLC, the Company recorded severance and retention expense of $2.5 million and $1.4 million during the years ended December 31, 2020 and 2019, comprised of employee severance and other employee-related costs associated with a reduction in workforce of 39 and 33 employees for 2020 and 2019, respectively. Severance and retention expense are included in the Consolidated Statements of Comprehensive Loss as follows:

	Year Ended December 31, 2020		Year Ended December 31, 2019
Costs of revenues	$	950	$	301
General and administrative		469		567
Sales and marketing		1,076		516
Research and development		8		19
Total	$	2,503	$	1,403

The activity and balance of severance-related liabilities, which are recorded within Accounts payable and accrued expense in our Consolidated Balance Sheet, are as follows (in thousands):

Balance at December 31, 2018	$	555
Payments		(1,600	)
Expense		1,403
Balance at December 31, 2019	$	358
Payments		(1,395	)
Expense		2,503
Balance at December 31, 2020	$	1,466

XML

Commitments and Contingencies

12 Months Ended

Dec. 31, 2020

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

Note 15 – Commitments and contingencies

The Company is involved in various legal proceedings, which may arise occasionally in the normal course of business. While the ultimate results of such matters generally cannot be predicted with certainty, management does not expect such matters to have a material effect on the financial position and results of operations as of December 31, 2020. The Company has three letters of credit totaling $0.7 million as additional security for lease guarantees related to leased properties.                                                                                                         

Risks and Uncertainties

Impacts of COVID-19 pandemic on KLDiscovery’s Business

The potential impacts of the ongoing COVID-19 pandemic on the Company’s business are currently not estimable or determinable. The Company has made modifications to employee travel, work locations, and cancellation of certain events, among other modifications. During 2020, the Company implemented a salary exchange program pursuant to which certain employees took a temporary reduction in salary through December 31, 2020 that ranges from 2% to 20% in exchange for receiving 417,673 stock options and 211,207 RSUs. In December 2020, the Company extended the salary reduction program through September 20, 2021 for the named executive officers and for management positions of or higher than Vice-Presidents. The Company also initiated limited furloughs for certain employees. The Company will continue to actively monitor the situation and may take further actions that alter its business operations as may be required by federal, state or local authorities or that it determines is in the best interests of its employees, customers, partners, suppliers and stockholders.Primarily due to the impact of COVID-19, our revenues decreased by $22.5 million, or 7.2%, to $289.5 million for the year ended December 31, 2020 as compared to $312.1 million for the year ended December 31, 2019 as many clients delayed new litigation and court systems closed for a period of time and have been slow to reopen.

On March 27, 2020, the President signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer-side social security payments, NOL carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, (i) for taxable years beginning before 2021, NOL carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in 2018, 2019, and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility was increased from 30% to 50% of taxable income. As permitted under the CARES Act, the Company deferred payroll taxes due in 2020 to 2021 and 2022. The Company continues to analyze other aspects of the CARES Act as well as similar tax legislation in other countries we operate but does not believe they will have a meaningful impact to its results.

XML

Related Parties

12 Months Ended

Dec. 31, 2020

Related Party Transactions [Abstract]

Related Parties

Note 16 – Related parties

On December 22, 2015, the Company entered into a consulting agreement with Carlyle Investment Management, LLC, an affiliate of Carlyle, for advisory, consulting and other services in relation to the strategic and financial management of the Company. For the year ended December 31, 2019, the Company recognized $1.0 million in management consulting fees, reflected within “General and administrative expenses” in the accompanying consolidated Statements of Comprehensive Loss. The consulting agreement was terminated on December 19, 2019.

As of December 31, 2020, $107.3 million including paid-in kind of the Company’s Debentures are owed to affiliates of MGG Investment Group, which is an affiliate of a director of the Company. For the years ended December 31, 2020 and December 31,2019, the Company recognized $12.1 million and $0.4 million in interest expense, respectively related to the amounts owned by the MGG Investment Group.

XML

Subsequent Events

12 Months Ended

Dec. 31, 2020

Subsequent Events [Abstract]

Subsequent Events

Note 17 – Subsequent events

The Company has evaluated subsequent events through the dates on which this Form 10-K was filed, the date on which these financial statements were issued, and identified the below item for discussion.

2021 Credit Agreement

On February 8, 2021, the Company entered into a new secured credit agreement (the “2021 Credit Agreement”). Proceeds were used to pay in full all outstanding loans and terminate all lending commitments under the 2016 Credit Agreement.

The 2021 Credit Agreement provides for (i) initial term loans in an aggregate principal amount of $300 million (the “Initial Term Loans”), (ii) delayed draw term loans in an aggregate principal amount of $50 million (the “Delayed Draw Term Loans”), and (iii) revolving credit loans in an aggregate principal amount of $40 million (the “Revolving Credit Loans”). The Delayed Draw Term Loans will be available to the Company at any time prior to February 8, 2023, subject to certain conditions.

The Initial Term Loans and Delayed Draw Term Loans will bear interest, at the Company’s option, at the rate of (x) with respect to Eurocurrency Rate Loans (as defined in the 2021 Credit Agreement), the Adjusted Eurocurrency Rate (as defined in the 2021 Credit Agreement) with a 1.0% floor, plus 6.50% per annum, or (y) with respect to Base Rate Loans (as defined in the 2021 Credit Agreement), the Base Rate (as defined in the 2021 Credit Agreement) plus 5.50% per annum. The Revolving Credit Loans will bear interest, at our option, at the rate of (x) with respect to Eurocurrency Rate Loans, the Adjusted Eurocurrency Rate plus 4.00% per annum, or (y) with respect to Base Rate Loans, the Base Rate plus 3.00% per annum. The Initial Term Loans and Delayed Draw Term Loans amortize at a rate of 1.00% of the aggregate principal amount of Initial Term Loans and Delayed Draw Term Loans outstanding, payable in consecutive quarterly installments, beginning on June 30, 2021.

The Initial Term Loans, Delayed Draw Term Loans and Revolving Credit Loans are each scheduled to mature on the earlier of February 16, 2026 and or six months prior to maturity of our Debentures due in December 2024. The Initial Term Loans and Delayed Draw Term Loans may be voluntarily repaid at any time, but may be subject to a prepayment premium. The Initial Term Loans and Delayed Draw Term Loans are required to be repaid under certain circumstances, including with Excess Cash Flow (as defined in the 2021 Credit Agreement), the proceeds of an Asset Sale or Casualty Event (each as defined in the 2021 Credit Agreement) and the proceeds of certain refinancing indebtedness.

The obligations under the 2021 Credit Agreement are secured by substantially all of the Company’s assets.The 2021 Credit Agreement contains customary affirmative and negative covenants as well as a financial maintenance covenant that requires the Loan Parties to maintain a First Lien Net Leverage Ratio of less than or equal to 7.00 to 1.00, tested at the end of each fiscal quarter.

The Company incurred closing fees of $8.0 million in connection with the entry into the 2021 Credit Agreement. These fees will be amortized over the full term of the 2021 Credit Agreement.

In February 2021, a loss on debt extinguishment of $7.2 million was recognized in connection with the retirement of the 2016 Credit Agreement.

Stock and option awards

On February 16, 2021, the Company issued an additional 1.1 million time-based options and 0.3 million performance/market-based restricted stock units to its employees under the 2019 Plan.

XML

Organization, Business and Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Organization

Organization

KLDiscovery Inc., (the “Company”) provides technology-based litigation support solutions and services including computer e-discovery, data hosting, and managed review predominantly to top law firms, corporations and government agencies. The majority of the Company’s current business is derived from these services. The Company’s headquarters is located in McLean, Virginia and has 32 locations in 18 countries, 9 data centers and 18 data recovery labs around the globe.

The Company was originally incorporated under the name Pivotal Acquisition Corp. (“Pivotal”) as a blank check company on August 2, 2018 under the laws of the State of Delaware for the purpose of entering into a merger, capital stock exchange, stock purchase, reorganization or similar business combination with one or more businesses or entities.

On December 19, 2019, Pivotal acquired of the outstanding shares of LD Topco, Inc. via a reverse capitalization (the “Business Combination”) and was renamed KLDiscovery Inc.

Principles of consolidation

Principles of consolidation

The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The accompanying consolidated financial statements include the accounts of KLDiscovery and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation.

The Business Combination was accounted for as a reverse recapitalization (the "Recapitalization Transaction") in accordance with Accounting Standard Codification (“ASC”) 805, Business Combinations. For accounting and financial reporting purposes, LD Topco, Inc. is considered the acquirer based on facts and circumstances, including the following:

• LD Topco, Inc.’s operations comprise the ongoing operations of the combined entity;

• The officers of the newly combined company consist of LD Topco, Inc.’s executives, including the Chief Executive Officer, Chief Financial Officer and General Counsel; and,

• The former shareholders of LD Topco, Inc. own a majority voting interest in the combined entity.

As a result of LD Topco, Inc. being the accounting acquirer, the financial reports filed with the SEC by the Company subsequent to the Business Combination are prepared “as if” LD Topco, Inc. is the predecessor and legal successor to the Company. The historical operations of LD Topco, Inc. are deemed to be those of the Company. Thus, the financial statements included in this report reflect (i) the historical operating results of LD Topco, Inc. prior to the Business Combination; (ii) the combined results of the Company and LD Topco, Inc. following the Business Combination on December 19, 2019; (iii) the assets and liabilities of LD Topco, Inc. at their historical cost; and (iv) KLDiscovery Inc.’s equity structure for all periods presented. The recapitalization of the number of shares of common stock attributable to the purchase of LD Topco, Inc. in connection with the Business Combination is reflected retroactively to January 1, 2018 and has been utilized for calculating earnings per share in all prior periods presented. No step-up basis of intangible assets or goodwill was recorded in the Business Combination transaction consistent with the treatment of the transaction as a reverse capitalization of LD Topco, Inc.

Use of estimates

Use of estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. Although actual results could differ from those estimates, management does not believe that such differences would be material.

Significant estimates include, but are not limited to, the allowance for doubtful accounts, determining the fair values of assets acquired and liabilities assumed, the recoverability and useful lives of property and equipment, intangible assets, and other long-lived assets, the impairment of goodwill, the valuation and realization of deferred income taxes, the fair value of the Company’s common stock and stock option awards, and acquisition-related contingent consideration.

Segments, concentration of credit risk and major customers

Segments, concentration of credit risk and major customers

The Company operates in one business segment, providing technology-based litigation support solutions and services.

Financial instruments, which potentially expose the Company to concentrations of credit risk, consist principally of cash and accounts receivable. The Company places its cash with a banking institution where the balances, at times, exceed federally insured limits. Management believes the risks associated with these deposits are limited.

With respect to accounts receivable, the Company performs ongoing evaluations of its customers, generally grants uncollateralized credit terms to its customers, and maintains an allowance for doubtful accounts based on historical experience and management’s expectations of future losses. As of and for the years ended December 31, 2020 and 2019, the Company did not have a single customer that represents more than five percent (5%) or more of its consolidated revenues or accounts receivable. The Company believes that the geographic and industry diversity of the Company’s customer base throughout the U.S. and internationally minimizes the risk of incurring material losses due to concentrations of credit risk. The Company’s foreign revenues, principally from businesses in the UK and Germany, totaled approximately $57.0 million in 2020 and $69.8 million in 2019. The Company’s long-lived assets in foreign countries, principally in the UK and Germany, totaled approximately $26.3 million at December 31, 2020 and $21.8 million at December 31, 2019.

Foreign currency

Foreign currency

Results of operations for the Company’s non-U.S. subsidiaries are translated from the designated functional currency to the reporting currency of the U.S. dollar. Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive income.”

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in “Other expense” on the Company’s Consolidated Statements of Comprehensive Loss. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

Cash and cash equivalents

Cash and cash equivalents

The Company considers all highly liquid financial instruments with an original maturity of three months or less when purchased to be cash equivalents.

Accounts receivable

Accounts receivable

Accounts receivable are recorded at original invoice amount less an estimate for doubtful receivables based on a review of outstanding amounts monthly. Management determines the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition and credit history. Accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received.

A rollforward of the allowance for doubtful accounts is presented below (in thousands):

Balance at December 31, 2018	$	5,564
Charged to/reversed from expense		3,104
Charged to/from other accounts		—
Deductions (write offs)		(1,182	)
Balance at December 31, 2019	$	7,486
Charged to/reversed from expense		4,088
Charged to/from other accounts		283
Deductions (write offs)		(3,344	)
Balance at December 31, 2020	$	8,513

Fixed Assets

Fixed Assets

Computer software, property and equipment are recorded at cost. Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets:

Computer software and hardware	3 to 5 years
Leasehold improvements	Shorter of lease term or useful life
Furniture, fixtures and other equipment	3 to 5 years

Gains or losses on disposals are included in results of operations at amounts equal to the difference between the net book value of the disposed assets and the proceeds received upon disposal. Costs for replacements and betterments are capitalized, while the costs of maintenance and repairs are expensed as incurred. Property under capital leases are depreciated using the straight-line method over the lease term.

Depreciation expense totaled $16.9 million and $18.6 million for the years ended December 31, 2020 and 2019, respectively, and includes amortization of assets recorded under capital leases.

Internal-use software development costs

Internal-use software development costs

The Company capitalizes certain internal computer software costs incurred during the application development stage. The application development stage generally includes software design and configuration, coding, testing and installation activities. Training and maintenance costs are expensed as incurred, while upgrades and enhancements are capitalized if it is probable that such expenditure will result in additional functionality. Capitalized software costs are depreciated over the estimated useful life of the underlying project on a straight-line basis. The Company’s estimated useful life of capitalized software costs varies between three and five years, depending on management’s expectation of the economic life of various software. Capitalized software amortization costs are recorded as a component of cost of revenue.

Capitalized software costs are reflected as part of the “Intangible assets, net line” in the Company’s Consolidated Balance Sheets and totaled $18.5 million and $13.5 million, net of accumulated amortization, as of December 31, 2020 and 2019, respectively.

Intangible assets and other long-lived assets

Intangible assets and other long-lived assets

The Company evaluates the recoverability of its long-lived assets, including finite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of any asset to future net undiscounted cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the difference between the fair value of the asset compared to its carrying amount. No impairment losses were recognized in the accompanying consolidated financial statements.

Amortization expense totaled $30.9 million and $31.8 million for the years ended December 31, 2020 and 2019, respectively; $11.8 million and $11.3 million of which was classified as part of the “Cost of revenues” line in the Company’s Consolidated Statements of Comprehensive Loss.

The Company allocates the purchase price of an acquisition to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The Company recognizes as goodwill the amount by which the purchase price of an acquired entity exceeds the net of the fair values assigned to the assets acquired and liabilities assumed. In determining the fair values of assets acquired and liabilities assumed, the Company uses various recognized valuation methods including the income and market approaches. Further, the Company makes assumptions within certain valuation techniques, including discount rates, royalty rates, and the amount and timing of future cash flows. The Company records the net assets and results of operations of an acquired entity in the financial statements from the acquisition date. The Company initially performs these valuations based upon preliminary estimates and assumptions by management or independent valuation specialists under its supervision, where appropriate, and make revisions as estimates and assumptions are finalized. The Company expenses acquisition-related costs as they are incurred.

Goodwill

Goodwill

Goodwill represents the excess of the total consideration paid over identified intangible and tangible assets of the Company and its acquisitions. The Company tests its goodwill for impairment at the reporting unit level on an annual basis on October 1, and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the business climate, legal factors, operating performance indicators, competition, or sale or disposition of a significant portion of a reporting unit. As of the October 1 testing date the Company determined there is one reporting unit.

Goodwill impairment exists when the estimated fair value of the reporting unit is less than its carrying value. If impairment exists, the carrying value of the goodwill is reduced by the excess through an impairment charge recorded in the Company’s statements of operations. The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis.

The fair value of the Company’s reporting unit is estimated using a combination of a discounted cash flow (“DCF”) analysis and market-based valuation methodologies such as comparable public company trading values. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples. The cash flows employed in the DCF analyses are based on the Company’s best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, changes in working capital, long term business plans and recent operating performance. The carrying value of the reporting unit includes the assets and liabilities employed in its operations and goodwill.

Accordingly, the Company has not identified any indicators of impairment, nor have any impairment charges been recorded related to goodwill resulting from the annual impairment test.

The following table provides a rollforward of the carrying amount of goodwill (in thousands):

Balance at December 31, 2018	$	394,167
Acquisitions		263
Foreign currency translation		741
Balance at December 31, 2019		395,171
Acquisitions		1,009
Disposal		(96	)
Foreign currency translation		3,001
Balance at December 31, 2020	$	399,085

Debt issuance costs

Debt issuance costs

Debt issuance costs are stated at cost, net of accumulated amortization, and are amortized over the term of the debt using both the straight-line and the effective yield methods. U.S. GAAP requires that the effective yield method be used to amortize debt acquisition costs; however, if the effect of using the straight-line method is not materially different from the results that would have been obtained under the effective yield method, the straight-line method may be used. The amortization for funded term debt is calculated according to the effective yield method and revolving and unfunded term debt is calculated according to the straight-line method. Debt issuance costs related to funded term debt is presented in the Consolidated Balance Sheets as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. Debt issuance costs related to revolving and unfunded term debt is presented in the Consolidated Balance Sheets within “Other assets.”

Revenue recognition

Revenue recognition

The Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), effective January 1, 2019, utilizing the modified retrospective method. The Company’s adoption of ASC 606 did not result in material changes to the Company’s revenue recognition.

Revenues are recognized when we satisfy a performance obligation by transferring goods or services promised in a contract to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those services. Performance obligations in our contracts represent distinct or separate service streams that we provide to our customers.

The Company evaluates its revenue contracts with customers based on the five-step model under ASC 606: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenues when (or as) each performance obligation is satisfied.

The following table summarizes revenue from contracts with customers for the years ended December 31, 2020 and 2019 (in thousands):

	Year Ended December 31, 2020		Year Ended December 31, 2019
eDiscovery services	$	197,300	$	215,560
Managed review		49,985		50,290
Legal technology services		247,285		265,850
Data recovery		42,260		46,204
Total revenue	$	289,545	$	312,054

Performance Obligations and Timing of Revenue Recognition

The Company primarily sells services and products that fall into the categories discussed below. Each category contains one or more performance obligations that are either (1) capable of being distinct (i.e., the customer can benefit from the product or service on its own or together with readily available resources, including those purchased separately from us) and distinct within the context of the contract (i.e., separately identified from other promises in the contract) or (2) a series of distinct products or services that are substantially the same and have the same pattern of transfer to the customer.

(1) eDiscovery services, which provides end-to-end eDiscovery services support including collections, processing, analytics, hosting, production and professional services;

(2) Managed review services, which provides the staffing necessary to review large complex data sets; and

(3) Data recovery services, which offers data restoration, data erasure and data management.

The Company generates the majority of its revenues by providing Legal Technology services to our clients. All of our eDiscovery service contracts are time and materials types of arrangements.

Time and materials arrangements are based on units of data stored or processed. Unit-based revenues are recognized as services are provided, based on either the amount of data stored or processed, the number of concurrent users accessing the information, or the number of pages or images processed for a client, at agreed upon per unit rates. We recognize revenues for these arrangements utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date.

Certain of our eDiscovery contracts are subscription-based, fixed-fee arrangements, which have tiered pricing based on the quantity of data hosted. For a fixed monthly fee, our clients receive a variety of optional eDiscovery services, which are included in addition to the data hosting. The Company recognizes revenues for these arrangements based on predetermined monthly fees as determined in our contractual agreements, utilizing a right-to-invoice practical expedient because the Company has a right to consideration for services completed to date.

Managed review services are time and materials types of arrangements. These agreements require the client to pay us based on the number of hours worked at contractually agreed-upon rates. The Company recognizes revenues for these arrangements based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because the Company has a right to consideration for services completed to date.

Data recovery services are mainly fixed fee arrangements requiring the client to pay a pre-established fee in exchange for the successful completion of a data recovery on a predetermined device. For the recovery services performed by the Company’s technicians, the revenue is recognized at a point in time, when the recovered data is sent to the customer.

Data erasure services are fixed fee arrangements for which revenue is recognized at a point in time, when the certificate of erasure is sent to the customer.

Ontrack PowerControls, included in the data recovery revenue stream, offers term license subscriptions for customers with on-premises installations of the software pursuant to contracts that are historically one to four years in length. The term license subscriptions include maintenance, support, as well as access to future software upgrades and fixes. The license and the additional support services are deemed to be one performance obligation, and thus revenue for these arrangements is recognized ratably over the term of the agreement.

Share-based compensation

Share-based compensation

The Company measures and recognizes compensation expense for all share-based awards to employees based on estimated grant date fair values on a straight-line basis over the requisite service period. The Company uses the Black-Scholes valuation model, depending on terms, facts and circumstances of each share-based award. The expected vesting of the Company’s performance-based RSUs is based upon the probability of a liquidity event, such as a change in control as defined under the 2019 Plan. The level of achievement of the liquidity event, if any, is re-evaluated quarterly.

Advertising

Advertising

Advertising costs consist of marketing, advertising through print and other media, professional event sponsorship and public relations. These costs are expensed as incurred. Advertising costs totaled $4.5 million and $7.1 million for the years ended December 31, 2020 and 2019, respectively. Advertising costs are reflected within “Sales and marketing” in the accompanying Consolidated Statements of Comprehensive Loss.

Research and development expense

Research and development expense

Costs incurred in the research and development of the Company’s technologies primarily consist of developer salaries. Research and development expenses were $7.2 million and $5.9 million for the years ended December 31, 2020 and 2019, respectively.

Income taxes

Income taxes

Income taxes are accounted for using the asset and liability method. Deferred income taxes are provided for temporary differences in recognizing certain income, expense and credit items for financial reporting purposes and tax reporting purposes. Such deferred income taxes primarily relate to the difference between the tax bases of assets and liabilities and their financial reporting amounts. Deferred tax assets and liabilities are measured by applying enacted statutory tax rates applicable to the future years in which deferred tax assets or liabilities are expected to be settled or realized. Excess tax benefits and tax deficiencies are recognized in the income tax provision in the period in which they occur.

The Company records a valuation allowance when it determines, based on available positive and negative evidence, that it is more-likely-than-not that some portion, or all its deferred tax assets will not be realized. The Company determines the realizability of its deferred tax assets primarily based on the reversal of existing taxable temporary differences and projections of future taxable income (exclusive of reversing temporary differences and carryforwards). In evaluating such projections, the Company considers its history of profitability, the competitive environment, and general economic conditions. In addition, the Company considers the time frame over which it would take to utilize the deferred tax assets prior to their expiration.

For certain tax positions, the Company uses a more-likely-than-not threshold based on the technical merits of the tax position taken. Tax positions that meet the more-likely-than-not recognition threshold are measured at the largest amount of tax benefits determined on a cumulative probability basis, which are more-likely-than-not to be realized upon ultimate settlement in the financial statements. The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.   

Net Loss per Common Share

Net Loss per Common Share

Basic net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted net loss per common share is determined by dividing net loss by the weighted average number of common shares outstanding during the year, plus the dilutive effect of common stock equivalents, including stock options and restricted shares. Common stock and common stock equivalents included in the computation represent shares issuable upon assumed exercise of outstanding stock options and release of restricted shares, except when the effect of their inclusion would be antidilutive.

On December 19, 2019, the Company completed a reverse merger with Pivotal Acquisition Corp. whereby the Company received 34,800,000 shares for its outstanding 3,707,564 shares, effecting 1-to-9.3862 stock exchange. The per share amounts have been updated to show the effect of the exchange on earnings per share as if the exchange occurred at the beginning of both years for the annual financial statements of the Company. The impact of the stock exchange is also shown on the Company’s Statements of Stockholders’ Equity.”

Recently Adopted Accounting Standards and Accounting Standards Not Yet Adopted

Recently Adopted Accounting Standards

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement”, which amends ASC 820 to add, remove, and modify fair value measurement disclosure requirements. This standard was effective for the Company for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. The adoption did not have a material impact on the Company’s current financial position and results of operations, but the financial statement disclosures were updated in accordance with the ASU.

Accounting Standards Not Yet Adopted

In connection with the transaction with Pivotal (see Note 2), the Company elected to be an Emerging Growth Company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act and take advantage of the extended transition period of delaying the adoption of new or revised accounting standards until such time as those standards apply to private companies. This may make the comparison of the Company’s consolidated financial statements to other public companies not meaningful due to the differences in accounting standards being applied.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. This standard is effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, and the Company is currently evaluating the impact that Topic 842 will have on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (“ASC 326”): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). This guidance is intended to introduce a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. The Company is required to adopt ASC 326 effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and the Company is currently evaluating the impact that Topic 326 will have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the general principles for income taxes. The new standard is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption, including the adoption in any interim period, is permitted for all entities. The Company does not expect ASU 2019-12 to have a meaningful effect on the Company’s current financial position, results of operations or financial statement disclosures.

XML

Organization, Business and Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2020

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Rollforward of Allowance for Doubtful Accounts

A rollforward of the allowance for doubtful accounts is presented below (in thousands):

Balance at December 31, 2018	$	5,564
Charged to/reversed from expense		3,104
Charged to/from other accounts		—
Deductions (write offs)		(1,182	)
Balance at December 31, 2019	$	7,486
Charged to/reversed from expense		4,088
Charged to/from other accounts		283
Deductions (write offs)		(3,344	)
Balance at December 31, 2020	$	8,513

Estimated Useful Lives of Assets

Depreciation is calculated using the straight-line method over the following estimated useful lives of the assets:

Computer software and hardware	3 to 5 years
Leasehold improvements	Shorter of lease term or useful life
Furniture, fixtures and other equipment	3 to 5 years

Rollforward of Carrying Amount of Goodwill

The following table provides a rollforward of the carrying amount of goodwill (in thousands):

Balance at December 31, 2018	$	394,167
Acquisitions		263
Foreign currency translation		741
Balance at December 31, 2019		395,171
Acquisitions		1,009
Disposal		(96	)
Foreign currency translation		3,001
Balance at December 31, 2020	$	399,085

Summary of Revenue from Contracts with Customers

The following table summarizes revenue from contracts with customers for the years ended December 31, 2020 and 2019 (in thousands):

	Year Ended December 31, 2020		Year Ended December 31, 2019
eDiscovery services	$	197,300	$	215,560
Managed review		49,985		50,290
Legal technology services		247,285		265,850
Data recovery		42,260		46,204
Total revenue	$	289,545	$	312,054

XML

Acquisitions (Tables)

12 Months Ended

Dec. 31, 2020

Business Combinations [Abstract]

Summary of Net Proceeds from Business Combination

The net proceeds from the Business Combination, as reported in the consolidated statements of cash flows for the year ended December 31, 2019 within the financing section are summarized below:

Gross cash received by KLDiscovery from Business    Combination	$	201,657
Less: fees to underwriters		(6,500	)
Less: other transaction costs		(8,654	)
Net cash received by KLDiscovery from Business    Combination	$	186,503

XML

Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

Summary of Reconciliation of Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3)

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the years ended December 31, 2020 and 2019 (in thousands):

Balance at December 31, 2018	$	—
Additions (payments) to contingent consideration		774
Change in fair value of contingent consideration		48
Balance at December 31, 2019		822
Additions (payments) to contingent consideration		—
Change in fair value of contingent consideration		98
Balance at December 31, 2020	$	920

XML

Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2020

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

Intangible assets consist of the following (in thousands):

Description	Weighted Average Remaining Useful Life in Years		December 31, 2020			December 31, 2019
Trademark and tradenames		5.5	$	67,183		$	66,311
Accumulated amortization				(29,004	)		(21,504	)
Trademark and tradenames, net				38,179			44,807
Developed technology		4.2		79,796			71,327
Accumulated amortization				(49,968	)		(36,838	)
Developed technology, net				29,828			34,489
Non-compete agreements		—		1,402			1,467
Accumulated amortization				(1,402	)		(1,242	)
Non-compete agreements, net				—			225
Customer relationships		6.1		97,420			95,693
Accumulated amortization				(55,694	)		(44,646	)
Customer relationships, net				41,726			51,047
Intangible assets, net of amortization			$	109,733		$	130,568

Schedule of Future Amortization of Intangible Assets

Future amortization of intangible assets is as follows (in thousands):

December 31,	Amount
2021	$	27,398
2022		23,153
2023		17,413
2024		13,111
2025		8,718
Thereafter		15,025
In process		4,916
Total	$	109,733

XML

Accrued Expenses (Tables)

12 Months Ended

Dec. 31, 2020

Payables And Accruals [Abstract]

Schedule of Accrued Expenses

Accrued expenses consisted of the following (in thousands):

	December 31,
	2020		2019
Accrued expenses:
Accrued interest	$	5,041	$	7,000
Accrued salaries		11,802		9,509
Current taxes payable		519		535
Other accrued expenses		2,694		2,847
Total	$	20,056	$	19,891

XML

Leasing Arrangements (Tables)

12 Months Ended

Dec. 31, 2020

Leases [Abstract]

Schedule of Future Minimum Payments for Operating and Capital Lease Obligations

For years subsequent to December 31, 2020, future minimum payments for all operating and capital lease obligations that have initial non-cancelable lease terms exceeding one year, net of rental income from subleases are as follows (in thousands):

December 31,	Capital Leases			Operating Leases
2021	$	1,313		$	9,437
2022		1,586			8,936
2023		1,346			8,568
2024		721			7,377
2025		—			3,810
Thereafter		—			2,552
Total	$	4,966		$	40,680
Less: interest on lease obligations		(464	)
Net amount		4,502
Less: current portion		(1,313	)
Non-current	$	3,189

XML

Long Term Debt (Tables)

12 Months Ended

Dec. 31, 2020

Long Term Debt [Abstract]

Summary of Components of Long-term Debt

The table below summarizes the components of the Company’s long-term debt (in thousands):

	December 31,
	2020			2019
First lien facility due 2022		289,000			306,000
Convertible debenture notes due 2024		214,541			200,000
Total debt		503,541			506,000
Less: unamortized original issue discount		(16,126	)		(19,806	)
Less: unamortized debt issuance costs		(3,867	)		(5,573	)
Total debt, net		483,548			480,621
Current portion of debt		17,000			17,000
Less: current portion of unamortized original    issue discount		(4,312	)		(3,687	)
Less: current portion of unamortized debt    issuance costs		(1,740	)		(1,624	)
Total current portion of debt, net		10,948			11,689
Total long-term debt, net	$	472,600		$	468,932

Summary of Future Principal Payments, Including in Kind Interest

Future principal payments, including in kind interest, are as follows (in thousands):

December 31,	Amount
2021		17,000
2022		272,000
2023		-
2024		277,287
Thereafter		-
Total	$	566,287

Schedule of Future Amortization of Debt Issuance Costs and Original Issue Discount

The future amortization of debt issuance costs and original issue discount related to the 2016 Credit Agreement, the Revolving Credit Facility and Convertible Debentures are as follows (in thousands):

December 31,	Amount
2021	$	6,052
2022		6,453
2023		3,528
2024		3,961
Total	$	19,994

XML

Equity Incentive Plan (Tables)

12 Months Ended

Dec. 31, 2020

Schedule of Additional Information on Stock Option Grants And Vesting

The following table summarizes additional information on stock option grants and vesting (in thousands):

	2016 Plan				2019 Plan
	Year Ended December 31, 2020		Year Ended December 31, 2019		Year Ended December 31, 2020		Year Ended December 31, 2019
Total fair value of stock options granted	$	-	$	2,492	$	9,241	$	974
Total fair value of options vested		-		1,439		2,711		-

Summary of Valuation Models of Fair Value of Awards Granted To Employees and Non-Employees Under 2016 Plan

The following table summarizes the assumptions used in the valuation models to determine the fair value of awards granted to employees and non-employees under both the 2019 Plan and the 2016 Plan:

	Year Ended December 31, 2020		Year Ended December 31, 2019
Expected volatility	37.63 - 41.24%		36.92 - 37.70%
Expected term (in years)		6.0	6 - 6.5
Dividend yield	0%		0%
Risk free interest rate	0.30 - 1.43%		1.79 - 2.89%

Stock Based Compensation Expense Included In Consolidated Statements of Comprehensive Loss

Stock-based compensation expense is included in the Consolidated Statements of Comprehensive Loss within the following line items (in thousands):

	December 31,
	2020		2019
Cost of revenues	$	1,336	$	573
General and administrative		1,198		1,161
Research and development		268		87
Sales and marketing		633		444
Total	$	3,435	$	2,265

Restricted Stock Units [Member]

Schedule of RSUs Activity Under 2019 Plan

The following table summarizes the Company’s RSU activity under the 2019 Plan:

	RSUs
Description	Outstanding
Outstanding at December 31, 2019		-
Granted		1,402,312
Forfeited		(111,880	)
Expired		-
Outstanding at December 31, 2020		1,290,432

2019 Plan [Member]

Schedule of Stock Option Activity

The following table summarizes the Company’s stock option activity under the 2019 Plan:

Description	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Options outstanding, December 31, 2018		-
Granted		514,710		$	9.90		10.0
Forfeited		-
Expired		-
Options outstanding, December 31, 2019		514,710		$	9.90		10.0
Granted		4,137,750			8.49
Forfeited		(387,186	)		8.85
Expired		(4,521	)		8.85
Options outstanding, December 31, 2020		4,260,753		$	8.46		9.0	$	54
Options vested and exercisable, December 31, 2020		1,204,863		$	8.20		9.0	$	54
Options vested and expected to vest, December 31, 2020		4,260,753		$	8.46		9.0	$	54

2016 Plan [Member]

Schedule of Stock Option Activity

The following table summarizes the Company’s stock option activity under the 2016 Plan:

Description	Options Outstanding			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (1)
Options Outstanding, December 31, 2018		411,480		$	100		8.3	$	—
Granted		67,050			90
Forfeited		(32,860	)		99
Expired		(8,640	)		99
Cancelled		(437,030	)		100
Options Outstanding, December 31, 2019		-						$	—

(1) Aggregate intrinsic value (in thousands) represents the difference between the estimated fair value of the underlying common stock and the exercise price of outstanding, in-the-money options.

XML

Loss Per Share (Tables)

12 Months Ended

Dec. 31, 2020

Earnings Per Share [Abstract]

Summary of Basic and Diluted Loss Per Share

The following table summarizes basic and diluted loss per share or the years ended December 31, 2020 and 2019 (in thousands, except per share amounts):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Basic and diluted loss per share:
Net loss	$	(49,926	)	$	(54,014	)
Weighted average common shares    outstanding - basic		42,529,017			42,529,017
Dilutive effect of potentially    issuable shares		—			—
Weighted average common shares    outstanding - diluted		42,529,017			42,529,017
Basic loss per share	$	(1.17	)	$	(1.27	)
Dilutive effect of potentially    issuable shares		—			—
Diluted loss per share	$	(1.17	)	$	(1.27	)
Common share equivalents    excluded due to anti-dilutive effect		3,788,388			—

XML

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense

The components of income tax expense for the years ended December 31, 2020 and 2019 are presented below (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Current
Federal	$	(712	)	$	(37	)
State		73			61
Foreign		729			447
Deferred
Federal		334			332
State		806			705
Foreign		(294	)		(789	)
Total income tax provision	$	936		$	719

Schedule of Loss Before Income Taxes

The actual income tax expense amounts for the years ended December 31, 2020 and 2019 differed from the expected tax amounts computed by applying the U.S. federal corporate income tax rate of 21% for 2020 and 2019 to the amounts of loss before income taxes as presented below (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Pre-tax book loss	$	(48,990	)	$	(53,295	)
Tax at Federal statutory rate of 21% in 2020 and    2019		(10,288	)		(11,192	)
State taxes		879			766
Stock based compensation		3			1,060
Foreign rate differential		(1,223	)		(871	)
Unrecognized tax benefit		549			-
Other adjustments		1,453			(1,707	)
Valuation allowance		9,563			12,663
Total income tax provision	$	936		$	719

Components of Loss Before Income Taxes from Continuing Operations

The domestic and foreign components of loss before income taxes from continuing operations for the years ended December 31, 2020 and 2019 are as follows (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Domestic	$	(46,686	)	$	(52,438	)
Foreign		(2,304	)		(857	)
Total	$	(48,990	)	$	(53,295	)

Summary of Tax Effects of Temporary Differences

The tax effects of temporary differences at December 31, 2020 and 2019 are as follows (in thousands):

	Year Ended December 31, 2020			Year Ended December 31, 2019
Net operating losses and other carryforwards	$	42,859		$	41,299
Interest expense carryforward		30,112			20,070
Property and equipment		2,448			2,221
Accrued expenses		512			82
Payroll tax deferral		1,089			-
Allowance for doubtful accounts		1,768			1,517
Stock-based compensation		878			—
Other		540			633
Deferred tax asset		80,206			65,822
Valuation allowance		(65,228	)		(51,895	)
Total deferred tax assets, net of valuation allowance		14,978			13,927
Intangible assets		(21,791	)		(20,098	)
Prepaid expenses		(107	)		(73	)
Other		(415	)		(50	)
Deferred tax liability		(22,313	)		(20,221	)
Net deferred tax liability	$	(7,335	)	$	(6,294	)

Summary of Deferred Tax Asset Valuation Allowance

A summary of the deferred tax asset valuation allowance is as follows:

	Year Ended December 31, 2020			Year Ended December 31, 2019
Beginning Balance	$	51,895		$	36,595
Additions	$	14,149		$	15,622
Reductions		(816	)		(322	)
Ending Balance	$	65,228		$	51,895

Schedule of Unrecognized Tax Benefits Roll Forward

A summary of the unrecognized tax benefits is as follows:

	Year Ended December 31, 2020
Beginning Balance	$	-
Additions	$	1,002
Reductions		-
Ending Balance	$	1,002

XML

Severance and Retention (Tables)

12 Months Ended

Dec. 31, 2020

Restructuring And Related Activities [Abstract]

Summary of Severance and Retention Expense

Severance and retention expense are included in the Consolidated Statements of Comprehensive Loss as follows:

	Year Ended December 31, 2020		Year Ended December 31, 2019
Costs of revenues	$	950	$	301
General and administrative		469		567
Sales and marketing		1,076		516
Research and development		8		19
Total	$	2,503	$	1,403

Summary of Severance Related Liabilities within Accounts Payable and Accrued Expense

The activity and balance of severance-related liabilities, which are recorded within Accounts payable and accrued expense in our Consolidated Balance Sheet, are as follows (in thousands):

Balance at December 31, 2018	$	555
Payments		(1,600	)
Expense		1,403
Balance at December 31, 2019	$	358
Payments		(1,395	)
Expense		2,503
Balance at December 31, 2020	$	1,466

XML

Organization, Business and Summary of Significant Accounting Policies - Additional Information (Detail)		12 Months Ended
	Dec. 19, 2019 shares	Dec. 31, 2020 USD ($) Location Country Datacenter Lab Segment Customer ReportingUnit	Dec. 31, 2019 USD ($) Customer
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Number of countries | Country		18
Number of data centers | Datacenter		9
Number of data recovery labs | Lab		18
Date of incorporation		Aug. 02, 2018
Number of business segment | Segment		1
Revenues		$ 289,545,000	$ 312,054,000
Depreciation expense		16,900,000	18,600,000
Impairment losses recognized		0
Amortization expense		$ 30,900,000	31,800,000
Number of reporting unit | ReportingUnit		1
Research and development		$ 7,167,000	5,945,000
Pivotal Acquisition Corp. [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Business combination, aggregate shares of common stock received by stockholders | shares	34,800,000
Business combination, outstanding shares | shares	3,707,564
Business combination, stock exchange ratio | shares	9.3862
Cost of Revenues [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Amortization expense		11,800,000	11,300,000
Sales and Marketing [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Advertising costs		4,500,000	7,100,000
Internal-Use Software Development [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Capitalized software costs		18,500,000	13,500,000
UK and Germany [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Revenues		57,000,000	69,800,000
Long-lived assets		$ 26,300,000	$ 21,800,000
Consolidated Revenues [Member] | Customer Concentration Risk [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Number of customers representing more than 5% of consolidated revenues or accounts receivable | Customer		0	0
Accounts Receivable [Member] | Customer Concentration Risk [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Number of customers representing more than 5% of consolidated revenues or accounts receivable | Customer		0	0
Minimum [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Number of locations | Location		32
Minimum [Member] | Internal-Use Software Development [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Estimated useful life		3 years
Maximum [Member] | Internal-Use Software Development [Member]
Organization Business And Summary Of Significant Accounting Policies [Line Items]
Estimated useful life		5 years

XML

Organization, Business and Summary of Significant Accounting Policies - Rollforward of Allowance for Doubtful Accounts (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Allowance for Doubtful Accounts [Roll Forward]
Balance at beginning	$ 7,486	$ 5,564
Charged to/reversed from expense	4,088	3,104
Charged to/from other accounts	283
Deductions (write offs)	(3,344)	(1,182)
Balance at ending	$ 8,513	$ 7,486

XML

Organization, Business and Summary of Significant Accounting Policies - Estimated Useful Lives of Assets (Detail)	12 Months Ended
	Dec. 31, 2020
Computer software and hardware | Minimum [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	3 years
Computer software and hardware | Maximum [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	5 years
Leasehold improvements
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	Shorter of lease term or useful life
Furniture, fixtures and other equipment | Minimum [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	3 years
Furniture, fixtures and other equipment | Maximum [Member]
Property Plant And Equipment [Line Items]
Estimated useful lives of assets	5 years

XML

Organization, Business and Summary of Significant Accounting Policies - Rollforward of Carrying Amount of Goodwill (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Goodwill [Roll Forward]
Balance at beginning	$ 395,171	$ 394,167
Acquisitions	1,009	263
Disposal	(96)
Foreign currency translation	3,001	741
Balance at end	$ 399,085	$ 395,171

XML

Organization, Business and Summary of Significant Accounting Policies - Summary of Revenue from Contracts with Customers (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Disaggregation Of Revenue [Line Items]
Revenues	$ 289,545	$ 312,054
eDiscovery Services [Member]
Disaggregation Of Revenue [Line Items]
Revenues	197,300	215,560
Managed Review [Member]
Disaggregation Of Revenue [Line Items]
Revenues	49,985	50,290
Legal Technology Services [Member]
Disaggregation Of Revenue [Line Items]
Revenues	247,285	265,850
Data Recovery [Member]
Disaggregation Of Revenue [Line Items]
Revenues	$ 42,260	$ 46,204

XML

Acquisitions - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Millions		12 Months Ended
	Dec. 19, 2019	Dec. 31, 2019	Dec. 18, 2019
8% Convertible Debentures Due 2024 [Member]
Business Acquisition [Line Items]
Debt, principal amount	$ 200
Pivotal Acquisition Corp. [Member]
Business Acquisition [Line Items]
Business combination, date of merger	Dec. 19, 2019
Business combination, aggregate shares of common stock received by stockholders	34,800,000
Closing sale price of company's common stock	$ 13.50
Business combination, contingent consideration arrangements, description		The former stockholders of LD Topco, Inc. also have the right to receive up to 2,200,000 shares of the Company’s common stock if (i) a change in control occurs or (ii) the reported closing sale price of the Company’s common stock exceeds $13.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations or other similar actions) for any 20 consecutive trading days during the five-year period following the closing of the Business Combination.
Warrants to receive shares of common stock	29,500,000
Exercise price per share	$ 11.50		$ 11.50
Pivotal Acquisition Corp. [Member] | 8% Convertible Debentures Due 2024 [Member]
Business Acquisition [Line Items]
Debt, principal amount	$ 200
Pivotal Acquisition Corp. [Member] | Maximum [Member] | Common Stock Issuable Contingently [Member]
Business Acquisition [Line Items]
Common stock issuable pursuant to merger	2,200,000

XML

Acquisitions - Summary of Net Proceeds from Business Combination (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)
Business Acquisition [Line Items]
Net cash received by KLDiscovery from Business Combination	$ 186,503
Pivotal Acquisition Corp. [Member]
Business Acquisition [Line Items]
Gross cash received by KLDiscovery from Business Combination	201,657
Less: fees to underwriters	(6,500)
Less: other transaction costs	(8,654)
Net cash received by KLDiscovery from Business Combination	$ 186,503

XML

Fair Value Measurements - Additional Information (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2020 USD ($) Company	Dec. 31, 2019 USD ($)
Fair Value Disclosures [Abstract]
Fair value of future expected acquisition-related contingent consideration obligations	$ 0.9	$ 0.8
Number of companies acquired | Company	3
Business acquisition, total consideration	$ 5.5
Business acquisition, consideration in cash	2.0
Business acquisition, deferred payments	1.5
Business acquisition, stock	1.2
Business acquisition, future earnouts	$ 1.0

XML

Fair Value Measurements - Summary of Reconciliation of Liabilities Measured at Fair Value Using Significant Unobservable Inputs (Level 3) (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance at beginning	$ 822
Additions (payments) to contingent consideration		$ 774
Change in fair value of contingent consideration	98	48
Balance at ending	$ 920	$ 822

XML

Intangibles Assets - Schedule of Intangible Assets (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Finite Lived Intangible Assets [Line Items]
Intangible assets, net of amortization	$ 109,733	$ 130,568
Trademarks and Trade Names [Member]
Finite Lived Intangible Assets [Line Items]
Weighted Average Remaining Useful Life in Years	5 years 6 months
Gross intangible assets	$ 67,183	66,311
Accumulated amortization	(29,004)	(21,504)
Intangible assets, net of amortization	$ 38,179	44,807
Developed Technology Rights [Member]
Finite Lived Intangible Assets [Line Items]
Weighted Average Remaining Useful Life in Years	4 years 2 months 12 days
Gross intangible assets	$ 79,796	71,327
Accumulated amortization	(49,968)	(36,838)
Intangible assets, net of amortization	29,828	34,489
Non-compete Agreements [Member]
Finite Lived Intangible Assets [Line Items]
Gross intangible assets	1,402	1,467
Accumulated amortization	$ (1,402)	(1,242)
Intangible assets, net of amortization		225
Customer Relationships [Member]
Finite Lived Intangible Assets [Line Items]
Weighted Average Remaining Useful Life in Years	6 years 1 month 6 days
Gross intangible assets	$ 97,420	95,693
Accumulated amortization	(55,694)	(44,646)
Intangible assets, net of amortization	$ 41,726	$ 51,047

XML

Intangibles Assets - Schedule of Future Amortization of Intangible Assets (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Finite Lived Intangible Assets Future Amortization Expense [Abstract]
2021	$ 27,398
2022	23,153
2023	17,413
2024	13,111
2025	8,718
Thereafter	15,025
In process	4,916
Intangible assets, net of amortization	$ 109,733	$ 130,568

XML

Accrued Expenses - Schedule of Accrued Expenses (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Accrued expenses:
Accrued interest	$ 5,041	$ 7,000
Accrued salaries	11,802	9,509
Current taxes payable	519	535
Other accrued expenses	2,694	2,847
Total	$ 20,056	$ 19,891

XML

Leasing Arrangements - Additional Information (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2020 USD ($) Location	Dec. 31, 2019 USD ($)
Leases [Abstract]
Operating and capital lease agreements lease expiring year	2029
Rent expense	$ 14.1	$ 14.7
Number of lease agreement terminated locations | Location	18
Number of reduce footprint lease location | Location	4
Savings on early lease termination	$ 4.6
Amortization expense for capital leases	$ 0.5	$ 0.7

XML

Leasing Arrangements - Schedule of Future Minimum Payments for Operating and Capital Lease Obligations (Detail) $ in Thousands	Dec. 31, 2020 USD ($)
Capital Leases
2021	$ 1,313
2022	1,586
2023	1,346
2024	721
Total	4,966
Less: interest on lease obligations	(464)
Net amount	4,502
Less: current portion	(1,313)
Non-current	3,189
Operating Leases
2021	9,437
2022	8,936
2023	8,568
2024	7,377
2025	3,810
Thereafter	2,552
Total	$ 40,680

XML

Long Term Debt - Summary of Components of Long-term Debt (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Total debt	$ 503,541	$ 506,000
Less: unamortized original issue discount	(16,126)	(19,806)
Less: unamortized debt issuance costs	(3,867)	(5,573)
Total debt, net	483,548	480,621
Current portion of debt	17,000	17,000
Less: current portion of unamortized original issue discount	(4,312)	(3,687)
Less: current portion of unamortized debt issuance costs	(1,740)	(1,624)
Total current portion of debt, net	10,948	11,689
Long-term debt, net	472,600	468,932
First Lien Facility Due 2022
Debt Instrument [Line Items]
Total debt	289,000	306,000
Convertible Debenture Notes Due 2024
Debt Instrument [Line Items]
Total debt	$ 214,541	$ 200,000

XML

Long Term Debt - Additional Information (Detail) - USD ($)			12 Months Ended
	Dec. 19, 2019	Dec. 09, 2016	Dec. 31, 2020	Dec. 31, 2019	Feb. 28, 2021
Debt Instrument [Line Items]
Loss on extinguishment of debt				$ 7,203,000
Mandatory prepayment amount			$ 0	0
Debt amount, balance due			503,541,000	506,000,000
Accretion of original issue discount			3,700,000	2,700,000
Amortization of debt issuance costs			1,600,000	2,100,000
2016 Credit Agreement
Debt Instrument [Line Items]
Debt closing fees			13,600,000
Deferred closing fees		$ 600,000
2016 Credit Agreement | Subsequent Event [Member]
Debt Instrument [Line Items]
Debt issuance costs					$ 7,200,000
2016 Credit Agreement | Revolving Loan Commitment
Debt Instrument [Line Items]
Maximum borrowing capacity			$ 30,000,000
Loan maturing date			Jun. 09, 2022
Outstanding loan amount			$ 0	$ 0
Available borrowing capacity			29,300,000
2016 Credit Agreement | Letter of Credit [Member]
Debt Instrument [Line Items]
Outstanding loan amount			$ 700,000
LIBOR | 2016 Credit Agreement | Revolving Loan Commitment
Debt Instrument [Line Items]
Loan variable interest rate			5.375%
Loan variable interest rate option three			5.875%
First Lien Facility
Debt Instrument [Line Items]
Initial term loan borrowing		340,000,000
Term loan maturity date			Dec. 09, 2022
Payments for loans			$ 2,100,000
Debt instrument, date of first required payment			Mar. 31, 2017
Quarterly principal payments increase			$ 4,300,000
Term loan balloon payment			$ 259,300,000
Term loan interest rate per annum during period			5.875%	5.875%
Loan variable interest rate			0.00%
Term loan description of variable rate basis			For each interest period, the interest rate per annum was 5.875% plus the Adjusted Eurocurrency Rate which was defined as an amount equal to the Statutory Reserve Rate multiplied by the greatest of a) LIBOR, b) 0.00% per annum and c) solely with respect to the Initial Term Loans, 1.00% per annum.
Term loan balance due			$ 289,000,000	$ 306,000,000
First Lien Facility | 2016 Credit Agreement
Debt Instrument [Line Items]
Original issue discount		11,900,000
First Lien Facility | Adjusted Eurocurrency Rate
Debt Instrument [Line Items]
Loan variable interest rate			1.00%	2.596%
First Lien Facility | Term Loan
Debt Instrument [Line Items]
Loan variable interest rate			1.00%
Second Lien Facility
Debt Instrument [Line Items]
Initial term loan borrowing		125,000,000
Term loan maturity date			Dec. 09, 2023
Term loan balloon payment			$ 125,000,000
Term loan interest rate per annum during period			10.00%
Loan variable interest rate			0.00%
Term loan balance due				$ 0
Loss on extinguishment of debt			$ 7,200,000	7,200,000
Second Lien Facility | 2016 Credit Agreement
Debt Instrument [Line Items]
Original issue discount		$ 6,300,000
Second Lien Facility | Term Loan
Debt Instrument [Line Items]
Loan variable interest rate			1.00%
8% Convertible Debentures Due 2024 [Member]
Debt Instrument [Line Items]
Term loan maturity date	Dec. 19, 2024
Debt principal amount	$ 200,000,000
Debt interest rate	8.00%
Debt amount, balance due			$ 214,541,000	$ 200,000,000
Debt interest rate in cash	4.00%
Debt interest rate in kind	4.00%
Debt periodic payment			The Debentures will bear interest at an annual rate of 4.00% in cash, payable quarterly, and 4.00% in kind, accrued quarterly, on the last business day of March, June, September and December.
Percentage of amount will add to principal amount			3.00%
Principal amount of debt redeemed	100.00%
Debt conversion price per share	$ 18
Percentage of principal amount paid in event of default			25.00%
Original issue discount	$ 13,700,000
Deferred closing fees	$ 900,000

XML

Long Term Debt - Summary of Future Principal Payments, Including in Kind Interest (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019
Debt Instrument [Line Items]
Total debt, net	$ 483,548	$ 480,621
Kind Interest
Debt Instrument [Line Items]
2021	17,000
2022	272,000
2024	277,287
Total debt, net	$ 566,287

XML

Long Term Debt - Summary of Future Amortization of Debt Issuance Costs and Original Issue Discount (Detail) - 2016 Credit Agreement $ in Thousands	12 Months Ended
	Dec. 31, 2020 USD ($)
Debt Instrument [Line Items]
2021	$ 6,052
2022	6,453
2023	3,528
2024	3,961
Total	$ 19,994

XML

Employee Benefit Plan - Additional Information (Detail) - 401(k) plan [Member] - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Defined Benefit Plan Disclosure [Line Items]
Defined contribution plan, description	The Company’s 401(k) plan covers employees who are at least 21 years of age, have completed one year of employment and worked a minimum of 1,000 hours. Employees may elect to defer a percentage of their salary up to the maximum allowed under the Internal Revenue Service Code. During 2019, the Company made matching contributions to its 401(k) plan equal to 100% of the first 3% of salary deferred plus 50% of the next 2% of an employee’s contribution for a total maximum Company match of 4% of the salary deferred by the employee, subject to Internal Revenue Service Code limitations.
Defined contribution plan, employee eligibility age	21 years
Defined contribution plan, minimum service period required for eligibility	1 year
Defined contribution plan, cost	$ 0.3	$ 3.7
Defined contribution plan, matching contribution percent		100.00%
Defined contribution plan, employee contribution deferred percent		3.00%
Defined contribution plan, employee contribution percent		2.00%
Defined contribution plan, maximum employee contribution percent		4.00%
Maximum [Member]
Defined Benefit Plan Disclosure [Line Items]
Defined contribution plan, matching contribution percent		50.00%

XML

Equity Incentive Plan - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2020 USD ($) Employee $ / shares shares	Dec. 31, 2019 USD ($) $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock option exercised | shares	0	0
Stock-based compensation	$ 3,435,000	$ 2,265,000
Stock issued during period value	$ 3,500,000
Number of employees issued stock during period | Employee	2
Restricted stock units, Description	market value equal to the greater of (1) $3.5 million for two employees, or $4 million for the other referenced employee or (2) an amount determined using a formula-based model (as defined in the respective employment agreements), as of the date of such grants.
Non Employee Director [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation	$ 400,000	$ 700,000
Options granted | shares	136,956	7,223
Other Referenced Employee [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock issued during period value	$ 4,000,000
Performance Based Vesting Stock Option [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expiration period	10 years
Weighted average fair value granted | $ / shares		$ 37.16
Stock option termination	2019-12
Performance Based Vesting Stock Option [Member] | Minimum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Internal rate of return on investment	70.00%
2019 Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Common stock options authorized under plan | shares	7,500,000
Common stock options available for issuance | shares	1,948,815
Options granted | shares	4,137,750	514,710
2019 Plan [Member] | Time Based Vesting Stock Option [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period	3 years
Expiration period	10 years
Weighted average fair value granted | $ / shares	$ 2.19	$ 1.89
Stock-based compensation	$ 3,400,000	$ 10,000
Unrecognized stock-based compensation expense	$ 6,400,000	$ 1,000,000
Unrecognized stock-based compensation expense, period	3 years
2019 Plan [Member] | Restricted Stock Units [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation	$ 0
2016 Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options granted | shares		67,050
2016 Plan [Member] | Time Based Vesting Stock Option [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Vesting period	5 years
Expiration period	10 years
Weighted average fair value granted | $ / shares		$ 37.16
Stock-based compensation		$ 2,300,000

XML

Equity Incentive Plan - Schedule of Stock Option Activity Under 2019 Plan (Detail) - 2019 Plan [Member] - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options outstanding, beginning balance	514,710
Options granted	4,137,750	514,710
Options forfeited	(387,186)
Options expired	(4,521)
Options outstanding, ending balance	4,260,753	514,710
Options vested and exercisable	1,204,863
Options vested and expected to vest	4,260,753
Weighted average exercise price, beginning balance	$ 9.90
Weighted average exercise price, granted	8.49	$ 9.90
Weighted average exercise price, forfeited	8.85
Weighted average exercise price, expired	8.85
Weighted average exercise price, ending balance	8.46	$ 9.90
Weighted average exercise price, vested and exercisable	8.20
Weighted average exercise price, vested and expected to vest	$ 8.46
Weighted average remaining contractual term, granted		10 years
Weighted average remaining contractual term, balance	9 years	10 years
Weighted average remaining contractual term, vested and exercisable	9 years
Weighted average remaining contractual term, vested and expected to vest	9 years
Aggregate intrinsic value, ending balance	$ 54
Aggregate intrinsic value, vested and exercisable	54
Aggregate intrinsic value, vested and expected to vest	$ 54

XML

Equity Incentive Plan - Schedule of Stock Option Activity Under 2016 Plan (Detail) - 2016 Plan [Member] - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options outstanding, beginning balance	411,480
Options granted	67,050
Options forfeited	(32,860)
Options expired	(8,640)
Cancelled	(437,030)
Options outstanding, ending balance		411,480
Weighted average exercise price, beginning balance	$ 100
Weighted average exercise price, granted	90
Weighted average exercise price, forfeited	99
Weighted average exercise price, expired	99
Weighted average exercise price, cancelled	$ 100
Weighted average exercise price, ending balance		$ 100
Weighted average remaining contractual term, balance		8 years 3 months 18 days

XML

Equity Incentive Plan - Schedule of Additional Information on Stock Option Grants And Vesting (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
2016 Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total fair value of stock options granted		$ 2,492
Total fair value of options vested		1,439
2019 Plan [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Total fair value of stock options granted	$ 9,241	$ 974
Total fair value of options vested	$ 2,711

XML

Equity Incentive Plan - Summary of Valuation Models of Fair Value of Awards Granted To Employees and Non-Employees Under 2016 Plan (Detail) - 2019 Plan and 2016 Plan [Member]	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expected volatility	37.63%	36.92%
Expected volatility	41.24%	37.70%
Dividend yield	0.00%	0.00%
Risk free interest rate	0.30%	1.79%
Risk free interest rate	1.43%	2.89%
Minimum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expected term (in years)	6 years	6 years
Maximum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expected term (in years)		6 years 6 months

XML

Equity Incentive Plan - Stock Based Compensation Expense Included In Consolidated Statements of Comprehensive Loss (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 3,435	$ 2,265
Cost of Revenues [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	1,336	573
General and administrative [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	1,198	1,161
Research and development [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	268	87
Sales and Marketing [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 633	$ 444

XML

Equity Incentive Plan - Schedule of RSUs Activity Under 2019 Plan (Detail) - Restricted Stock Units [Member] - 2019 Plan [Member]	12 Months Ended
	Dec. 31, 2020 shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Granted	1,402,312
Forfeited	(111,880)
Ending balance	1,290,432

XML

Equity - Additional Information (Detail) - USD ($)		12 Months Ended
	Dec. 19, 2019	Dec. 31, 2020	Dec. 31, 2019	Dec. 18, 2019
Class Of Stock [Line Items]
Common stock, shares authorized		200,000,000	200,000,000
Common stock, par value		$ 0.0001	$ 0.0001
Preferred stock, shares authorized		1,000,000	1,000,000
Preferred Stock, per share		$ 0.0001	$ 0.0001
Common stock, voting rights		one vote for each share
Common stock, shares issued		0	172,350
Common stock, shares issued value			$ 1,655,000
Common Stock [Member]
Class Of Stock [Line Items]
Common stock, shares issued			172,350
Pivotal Acquisition Corp. [Member]
Class Of Stock [Line Items]
Warrants outstanding	29,500,000
Description of warrants	Each warrant entitles the holder to purchase one share of common stock for $11.50 per share. If held by the initial purchaser of the Private Warrant or certain permitted transferees, the purchase can occur on a cashless basis. The warrants will expire on December 19, 2024 or earlier upon redemption or liquidation.
Price per share	$ 11.50			$ 11.50
Warrants expiration date	Dec. 19, 2024
Sale price of common stock	$ 18.00
Number of business days	3 days
Recapitalization transaction (in shares)	34,800,000
Pivotal Acquisition Corp. [Member] | Minimum [Member]
Class Of Stock [Line Items]
Number of trading days	20 days
Pivotal Acquisition Corp. [Member] | Maximum [Member]
Class Of Stock [Line Items]
Number of trading days	30 days
Pivotal Acquisition Corp. [Member] | Common Stock [Member]
Class Of Stock [Line Items]
Number of securities eligible for each warrant	1
Pivotal Acquisition Holdings LLC [Member]
Class Of Stock [Line Items]
Recapitalization transaction (in shares)	550,000
Number of consecutive trading days	20 days
Reverse merger transaction, sale of common stock description	On December?19, 2019, in connection with the consummation of the reverse merger transaction, 550,000 shares of common stock held by Pivotal Acquisition Holdings LLC are subject to an additional lockup that will be released only if the last reported sale price of the common stock equals or exceeds $15.00 for a period of 20 consecutive trading days during the five-year period following the Closing Date. If the last reported sale price of common stock does not equal or exceed $15.00 within five years from the Closing Date, such shares will be forfeited to the Company for no consideration. These shares are reported as outstanding in our financial statements.
Closing stock price period	5 years
Forfeited amount	$ 0
Pivotal Acquisition Holdings LLC [Member] | Minimum [Member]
Class Of Stock [Line Items]
Closing sale price of company's common stock	$ 15.00
Pivotal Acquisition Holdings LLC [Member] | Maximum [Member]
Class Of Stock [Line Items]
Closing sale price of company's common stock	$ 15.00
Public Warrants [Member] | Pivotal Acquisition Corp. [Member]
Class Of Stock [Line Items]
Warrants outstanding	23,000,000
Price per share	$ 0.01
Public Warrants [Member] | Pivotal Acquisition Corp. [Member] | Maximum [Member]
Class Of Stock [Line Items]
Minimum prior written notice period	30 days
Private Warrants [Member] | Pivotal Acquisition Corp. [Member]
Class Of Stock [Line Items]
Warrants outstanding	4,585,281
Debenture Holder Warrants [Member] | Pivotal Acquisition Corp. [Member]
Class Of Stock [Line Items]
Warrants outstanding	1,764,719

XML

Loss Per Share - Summary of Basic and Diluted Loss Per Share (Detail) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Basic and diluted loss per share:
Net loss	$ (49,926)	$ (54,014)
Weighted average common shares outstanding - basic	42,529,017	42,529,017
Weighted average common shares outstanding - diluted	42,529,017	42,529,017
Basic loss per share	$ (1.17)	$ (1.27)
Diluted loss per share	$ (1.17)	$ (1.27)
Common share equivalents excluded due to anti-dilutive effect	3,788,388

XML

Income Taxes - Schedule of Components of Income Tax Expense (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Current
Federal	$ (712)	$ (37)
State	73	61
Foreign	729	447
Deferred
Federal	334	332
State	806	705
Foreign	(294)	(789)
Total income tax provision	$ 936	$ 719

XML

Income Taxes - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Operating Loss Carryforwards [Line Items]
Federal corporate income tax rate	21.00%	21.00%
Tax credit carryforward	$ 900,000	$ 900,000
Foreign subsidiaries undistributed earnings	13,500,000
Valuation allowance	65,228,000	51,895,000	$ 36,595,000
Unrecognized tax benefits	$ 1,000,000	0
Minimum [Member]
Operating Loss Carryforwards [Line Items]
Limitation range for income tax examination year	1 year
Maximum [Member]
Operating Loss Carryforwards [Line Items]
Limitation range for income tax examination year	4 years
Federal [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	$ 32,100,000	31,000,000
Federal [Member] | Expire Till 2024 [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	7,800
Federal [Member] | Expire Till 2035 [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	16,500
Federal [Member] | No Expiration [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	7,800
State and Local Jurisdiction [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	6,700,000	6,500,000
Changes in valuation allowance	3,800,000
Changes in uncertain tax positions	400,000
Foreign [Member]
Operating Loss Carryforwards [Line Items]
Net operating loss carryforwards	3,100,000	$ 2,900,000
Federal And Foreign Tax [Member]
Operating Loss Carryforwards [Line Items]
Changes in valuation allowance	9,600,000
Changes in uncertain tax positions	$ 600,000

XML

Income Taxes - Schedule of Loss Before Income Taxes (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Income Tax Disclosure [Abstract]
Pre-tax book loss	$ (48,990)	$ (53,295)
Tax at federal statutory rate	(10,288)	(11,192)
State taxes	879	766
Stock based compensation	3	1,060
Foreign rate differential	(1,223)	(871)
Unrecognized tax benefit	549
Other adjustments	1,453	(1,707)
Valuation allowance	9,563	12,663
Total income tax provision	$ 936	$ 719

XML

Income Taxes - Schedule of Loss Before Income Taxes (Parenthetical) (Detail)	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Income Tax Disclosure [Abstract]
Federal Statutory rate	21.00%	21.00%

XML

Income Taxes - Components of Loss Before Income Taxes from Continuing Operations (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Income Tax Disclosure [Abstract]
Domestic	$ (46,686)	$ (52,438)
Foreign	(2,304)	(857)
Total	$ (48,990)	$ (53,295)

XML

Income Taxes - Summary of Tax Effects of Temporary Differences (Detail) - USD ($) $ in Thousands	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018
Income Tax Disclosure [Abstract]
Net operating losses and other carryforwards	$ 42,859	$ 41,299
Interest expense carryforward	30,112	20,070
Property and equipment	2,448	2,221
Accrued expenses	512	82
Payroll tax deferral	1,089
Allowance for doubtful accounts	1,768	1,517
Stock-based compensation	878
Other	540	633
Deferred tax asset	80,206	65,822
Valuation allowance	(65,228)	(51,895)	$ (36,595)
Total deferred tax assets, net of valuation allowance	14,978	13,927
Intangible assets	(21,791)	(20,098)
Prepaid expenses	(107)	(73)
Other	(415)	(50)
Deferred tax liability	(22,313)	(20,221)
Net deferred tax liability	$ (7,335)	$ (6,294)

XML

Income Taxes - Summary of Deferred Tax Asset Valuation Allowance (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Income Tax Disclosure [Abstract]
Beginning Balance	$ 51,895	$ 36,595
Additions	14,149	15,622
Reductions	(816)	(322)
Ending Balance	$ 65,228	$ 51,895

XML

Income Taxes - Summary of Unrecognized Tax Benefits (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2020 USD ($)
Income Tax Disclosure [Abstract]
Additions	$ 1,002
Ending Balance	$ 1,002

XML

Severance and Retention - Additional Information (Detail) $ in Thousands	12 Months Ended
	Dec. 31, 2020 USD ($) Employee	Dec. 31, 2019 USD ($) Employee
Restructuring And Related Activities [Abstract]
Severance and retention expense | $	$ 2,503	$ 1,403
Number of employees associated with reduction in workforce | Employee	39	33

XML

Severance and Retention - Summary of Severance and Retention Expense (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Restructuring Cost And Reserve [Line Items]
Severance and retention expense	$ 2,503	$ 1,403
Cost of Revenues [Member]
Restructuring Cost And Reserve [Line Items]
Severance and retention expense	950	301
General and Administrative [Member]
Restructuring Cost And Reserve [Line Items]
Severance and retention expense	469	567
Sales and Marketing [Member]
Restructuring Cost And Reserve [Line Items]
Severance and retention expense	1,076	516
Research and Development [Member]
Restructuring Cost And Reserve [Line Items]
Severance and retention expense	$ 8	$ 19

XML

Severance and Retention - Summary of Severance Related Liabilities within Accounts Payable and Accrued Expense (Detail) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
Restructuring And Related Activities [Abstract]
Balance at beginning of year	$ 358	$ 555
Payments	(1,395)	(1,600)
Expense	2,503	1,403
Balance at ending of year	$ 1,466	$ 358

XML

Commitments and Contingencies - Additional Information (Detail) $ in Millions	12 Months Ended
	Dec. 31, 2020 USD ($) LetterofCredit shares	Dec. 31, 2019 USD ($)	Dec. 31, 2018
Loss Contingencies [Line Items]
Number of letters of credit | LetterofCredit	3
Letters of credit as additional security for lease guarantees	$ 0.7
Decrease in revenue	$ 22.5
Decrease in revenue percentage	7.20%
Revenue	$ 289.5	$ 312.1
Percentage of taxable income offset by NOL carryforwards and carrybacks	100.00%
Net operating loss carrybacks, period	5 years
Tax-deductible interest, base percentage	50.00%	50.00%	30.00%
Salary Exchange Program [Member] | Minimum [Member]
Loss Contingencies [Line Items]
Percentage of salary exchange program for award	2.00%
Salary Exchange Program [Member] | Maximum [Member]
Loss Contingencies [Line Items]
Percentage of salary exchange program for award	20.00%
Salary Exchange Program [Member] | Employee Stock Options [Member]
Loss Contingencies [Line Items]
Options granted | shares	417,673
Salary Exchange Program [Member] | Restricted Stock Units [Member]
Loss Contingencies [Line Items]
Granted | shares	211,207

XML

Related Parties -Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019
MGG Investment Group [Member]
Related Party Transaction [Line Items]
Interest expense, related party	$ 12.1	$ 0.4
MGG Investment Group [Member] | Debenture [Member]
Related Party Transaction [Line Items]
Debt instrument outstanding	$ 107.3
Carlyle Investment Management, LLC [Member]
Related Party Transaction [Line Items]
Agreement termination date	Dec. 19, 2019
General and administrative [Member] | Carlyle Investment Management, LLC [Member]
Related Party Transaction [Line Items]
Management consulting fees		$ 1.0

XML

Subsequent Events - Additional Information (Detail) - USD ($) $ in Thousands, shares in Millions			1 Months Ended	12 Months Ended
	Feb. 16, 2021	Feb. 08, 2021	Feb. 28, 2021	Dec. 31, 2019
Subsequent Event [Line Items]
Loss on debt extinguishment				$ (7,203)
Subsequent Event [Member] | Term Loans and Delayed Draw Term Loans [Member]
Subsequent Event [Line Items]
Floor interest rate		1.00%
2019 Plan [Member] | Subsequent Event [Member] | Time-based Options [Member] | Employees [Member]
Subsequent Event [Line Items]
Stock issued during period additional options issued	1.1
2019 Plan [Member] | Subsequent Event [Member] | Performance/Market-based Restricted Stock Units [Member] | Employees [Member]
Subsequent Event [Line Items]
Stock issued during period shares	0.3
2021 Credit Agreement [Member] | Subsequent Event [Member]
Subsequent Event [Line Items]
Initial term loan borrowing		$ 300,000
Delayed draw term loans		$ 50,000
Debt instrument, maturity description		The Initial Term Loans, Delayed Draw Term Loans and Revolving Credit Loans are each scheduled to mature on the earlier of February 16, 2026 and or six months prior to maturity of our Debentures due in December 2024. The Initial Term Loans and Delayed Draw Term Loans may be voluntarily repaid at any time, but may be subject to a prepayment premium. The Initial Term Loans and Delayed Draw Term Loans are required to be repaid under certain circumstances, including with Excess Cash Flow (as defined in the 2021 Credit Agreement), the proceeds of an Asset Sale or Casualty Event (each as defined in the 2021 Credit Agreement) and the proceeds of certain refinancing indebtedness
Debt instrument, closing fees		$ 8,000
Loss on debt extinguishment			$ (7,200)
2021 Credit Agreement [Member] | Subsequent Event [Member] | Maximum [Member]
Subsequent Event [Line Items]
Debt instrument, net leverage ratio		7.00
2021 Credit Agreement [Member] | Subsequent Event [Member] | Minimum [Member]
Subsequent Event [Line Items]
Debt instrument, net leverage ratio		1.00
2021 Credit Agreement [Member] | Subsequent Event [Member] | Term Loans and Delayed Draw Term Loans [Member]
Subsequent Event [Line Items]
Loans amortize rate		1.00%
2021 Credit Agreement [Member] | Subsequent Event [Member] | Adjusted Eurocurrency Rate | Term Loans and Delayed Draw Term Loans [Member]
Subsequent Event [Line Items]
Loan variable interest rate		6.50%
2021 Credit Agreement [Member] | Subsequent Event [Member] | Base Rate [Member] | Term Loans and Delayed Draw Term Loans [Member]
Subsequent Event [Line Items]
Loan variable interest rate		5.50%
2021 Credit Agreement [Member] | Subsequent Event [Member] | Revolving Credit Facility [Member]
Subsequent Event [Line Items]
Outstanding loan amount		$ 40,000
2021 Credit Agreement [Member] | Subsequent Event [Member] | Revolving Credit Facility [Member] | Adjusted Eurocurrency Rate
Subsequent Event [Line Items]
Loan variable interest rate		4.00%
2021 Credit Agreement [Member] | Subsequent Event [Member] | Revolving Credit Facility [Member] | Base Rate [Member]
Subsequent Event [Line Items]
Loan variable interest rate		3.00%