Other preliminary information statements

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
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Preliminary Information Statement
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Definitive Information Statement
RUMBLEON, INC.
(Name of Registrant As Specified In Its Charter)
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RumbleOn, Inc.
1350 Lakeshore Drive
Suite 160
Coppell, Texas 75019
February    , 2019
NOTICE OF ACTION TAKEN
PURSUANT TO WRITTEN CONSENT OF STOCKHOLDERS
To Our Stockholders:
RumbleOn, Inc. (the Company ) hereby gives notice to the holders of its Class A common stock, par value $0.001 per share (the “Class A Common Stock”), and its Class B common stock, par value $0.001 per share (the “Class B Common Stock,” and together with the Class A Common Stock, the “Common Stock”), that certain stockholders of the Company holding a majority in voting power of its outstanding Common Stock have taken certain actions by written consent, which consent is set forth in Appendix A hereto, to approve the issuance of greater than 20 percent of the Company s outstanding Class B Common Stock underlying the Company s Series B Non-Voting Convertible Preferred Stock, par value $0.001 per share ( Series B Preferred ) issued in connection with the acquisitions by the Company (the Acquisitions ) of Wholesale Holdings, Inc. (“Holdings”), Holdings’ wholly owned subsidiary, Wholesale, LLC, a Tennessee limited liability company (“Wholesale”), and Wholesale Express, LLC (“Wholesale Express,” and together with Wholesale and Holdings, the “Wholesale Entities”) and in connection with certain financing transactions relating to the Acquisitions. Following the Acquisitions, Wholesale was converted from a limited liability company to a corporation under the name Wholesale, Inc.
The Company s Class B Common Stock is listed and traded on the Nasdaq Capital Market under the symbol RMBL. Under the Nasdaq Capital Market rules, the holders representing a majority in voting power of the outstanding shares of the Common Stock must approve the issuance of the Class B Common Stock underlying the Series B Preferred because such issuance, when aggregated with the shares of Class B Common Stock issued or to be issued in the related financing transactions securities, exceeds of 20% of the number of shares of Class B Common Stock outstanding before such issuances. Section 78.320 of the Nevada Revised Statutes (“NRS”) and our organizational documents permit any action that may be taken at a meeting of the stockholders to be taken by written consent by the holders of the number of shares of voting stock required to approve the action at a meeting. Accordingly, the holders of a majority in voting power of the outstanding shares of the Common Stock have approved the issuance of the Class B Common Stock underlying the Series B Preferred issued in connection with the Acquisitions, subject to the terms and conditions set forth in the documents governing the transactions.
All necessary corporate approvals in connection with the matters referred to in this Information Statement have been obtained, and the Company may issue the shares of Class B Common Stock underlying the Series B Preferred upon providing necessary notice to its non-consenting stockholders in accordance with NRS and the U.S. Federal Securities laws. This Information Statement is being furnished to all stockholders of the Company pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended (the Exchange Act ), and the rules and regulations promulgated thereunder, solely for the purpose of informing the non-consenting stockholders of these corporate actions before the Company takes the actions set forth in the written consent. In accordance with Rule 14c-2 under the Exchange Act, the Company may issue the shares of Class B Common Stock underlying the Series B Preferred on the date that is the twenty first (21 st ) day following the mailing of this Information Statement to the Company s non-consenting stockholders.
We are mailing this Information Statement to our holders of record as of the close of business on October 30, 2018, which is the date on which the respective consents received approval of a majority in voting power of our Common Stock. This Information Statement is being provided to you for your information to comply with the Exchange Act requirements. You are urged to read this Information Statement carefully in its entirety. No action is required on your part in connection with this document. No shareholder meeting will be held in connection with this Information Statement. We are not asking you for a proxy and you are requested not to send us a proxy.
We thank you for your continued support.
By order of the Board of Directors
Marshall Chesrown
Chairman and Chief Executive Officer
i
RumbleOn, Inc.
1350 Lakeshore Drive
Suite 160
Coppell, Texas 75019
INFORMATION STATEMENT
We are required to deliver this Information Statement to holders of our Common Stock in order to inform them that stockholders of the Company holding a majority in voting power of its outstanding Common Stock, have taken certain actions by written consent, which would normally require a meeting of stockholders. October 30, 2018, which is the date on which the consent received approval of a majority in voting power of our Common Stock, has been fixed as the record date for the determination of stockholders entitled to receive this Information Statement.
THIS INFORMATION STATEMENT IS FIRST BEING SENT ON OR ABOUT [●], 2019
TO THE RECORD HOLDERS AS OF OCTOBER 30, 2018.
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE NOT REQUESTED TO SEND US A PROXY.
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TABLE OF CONTENTS
Page
Summary Term Sheet
1
Questions and Answers About the Acquisitions
3
Risk Factors
6
The Acquisitions
8
Background of the Acquisitions
15
Reasons for the Acquisitions
18
Description of the Acquired Businesses
18
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Wholesale, Inc.
19
Management’s Discussion and Analysis of Financial Condition and Results of Operations of Wholesale Express, LLC
34
No Dissenter’s Rights
42
No Regulatory Approvals
42
Material U.S. Federal Income Tax Consequences
42
Accounting Treatment
42
Interest of Certain Persons in Matters to be Acted Upon
42
Security Ownership of Certain Beneficial Owners and Management
43
Where You Can Find More Information
44
Index to Financial Statements.
F-1
Unaudited Pro Forma Condensed Combined Financial Statement of RumbleOn, Inc.
PF-1
Appendix A
A-1
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Summary Term Sheet
This Summary Term Sheet and the section titled “Questions and Answers About the Acquisitions” summarize certain information contained in this Information Statement, but do not contain all of the information that is important to you. The description and summaries of the documents and agreements below do not purport to be complete and are qualified in their entirety by reference to the actual documents and agreements. You should carefully read this entire Information Statement, including the attached Appendices.
ISSUANCE OF UP TO 1,317,329 SHARES OF CLASS B COMMON STOCK UNDERLYING 1,317,329 SHARES OF SERIES B NON-VOTING CONVERTIBLE PREFERRED STOCK
On October 26, 2018, RumbleOn, Inc., a Nevada corporation ("RumbleOn" or the “Company”), entered into (i) an Agreement and Plan of Merger, as amended (the “Merger Agreement”) by and among the Company, RMBL Tennessee, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Merger Sub”), Wholesale Holdings, Inc., a Tennessee corporation (“Holdings”), Wholesale, LLC, a Tennessee limited liability company (“Wholesale”), the shareholders of the Holdings set forth in Schedule 1 to the Merger Agreement (each, a “Wholesale Seller,” and collectively, the “Wholesale Sellers”), Steven Brewster, a Tennessee resident, as the representative of each Wholesale Seller as more fully described in the Merger Agreement (the “Wholesale Representative”), and (ii) a Membership Interest Purchase Agreement (the “Purchase Agreement”), by and among the Company, the members of Wholesale Express, LLC, a Tennessee limited liability company (“Wholesale Express”) set forth in Schedule 1 to the Purchase Agreement (each, an “Express Seller,” and collectively, the “Express Sellers”), and Steven R. Brewster, a Tennessee resident, as the representative of each Seller as more fully described herein (the “Express Representative”). The Company, Wholesale Sellers, Express Sellers, Wholesale Representative and Express Representative are sometimes referred to herein collectively as the “Parties” and each individually as a “Party.” On October 29, 2018, the parties amended the Merger Agreement to provide for certain tax matters relating to the Merger (as defined below). The Merger Agreement and the amendment to the Merger Agreement, are included as Exhibits 2.1 and 2.2 to the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 31, 2018 (the "Form 8-K"), and are incorporated by reference in this Information Statement. The Purchase Agreement is included as Exhibit 2.3 to the Form 8-K and is incorporated in this Information Statement by reference.
The Parties completed the Acquisitions (as defined below) (the “Closing”) on October 30, 2018 (the “Closing Date”). On the Closing Date, Holdings merged with and into Merger Sub, with Merger Sub as the surviving entity (the “Merger”). Also on the Closing Date, the Company purchased all the membership interest in Wholesale Express (the “Express Purchase,” and together with the Merger, the “Acquisitions”). Following the Acquisitions, Wholesale was converted from a limited liability company to a corporation under the name Wholesale, Inc.
As consideration for the Merger, at Closing, Wholesale Sellers received from the Company:
1.
Approximately $12,000,000 in cash, inclusive of working capital adjustments, certain change of control payments due to certain Wholesale directors, employees and consultants; and
2.
1,317,329 shares of the Company s Series B Non-Voting Convertible Preferred Stock, par value $0.001 per share (the Series B Preferred ) of which 681,481 shares of Series B Preferred were held back in connection with Wholesale Sellers’ indemnification obligations under the Merger Agreement and the Express Sellers’ indemnification obligations under the Purchase Agreement. Each share of Series B Preferred shall automatically convert (the “Conversion”) into one share of the Company s Class B common stock, par value $0.001 (the “Class B Common Stock, and such shares of Class B Common Stock, the Conversion Shares ), on the date that is the twenty first (21 st ) day following the mailing of this Information Statement (the Conversion Date ). The issuances of Series B Preferred to the Wholesale Sellers were effected in reliance on the exemptions from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the Securities Act ), and Rule 506 of Regulation D promulgated thereunder.
As consideration for the Express Purchase, at Closing, Express Sellers received from the Company approximately $4,000,000 in cash, inclusive of working capital adjustments, certain change of control payments due to certain Wholesale Express officers, employees and consultants.
In connection with financing the cash portion of consideration in the Acquisitions, the Company entered into the following transactions (collectively, the Financing Transactions ):
1.
On the Closing Date, the Company, NextGen Pro, LLC, a Delaware limited liability company (“NextGen Pro”), RMBL Missouri, LLC, a Delaware limited liability company (“RMBL Missouri”), RMBL Texas, LLC, a Delaware limited liability company (“RMBL Texas,” and together with the Company, NextGen Pro, and RMBL Missouri, each, an “Existing Borrower”, and collectively, the “Existing Borrowers”), Merger Sub, Wholesale, Wholesale Express, RMBL Express, LLC, a Delaware limited liability company (“RMBL Express”, and together with Merger Sub, Wholesale and Wholesale Express, the “New Borrowers”; together with the Existing Borrowers, the “Borrowers”), Hercules Capital, Inc., a Maryland corporation (“Hercules”), in its capacity as lender (in such capacity, “Lender”), and Hercules, in its capacity as administrative agent and collateral agent for Lender (in such capacities, “Agent”), entered into the First Amendment and Waiver to Loan and Security Agreement (the “Amendment”), amending that certain Loan and Security Agreement, dated as of April 30, 2018 (the “Loan Agreement”; as amended by the Amendment, the “Amended Loan Agreement”), by and among the Existing Borrowers, Lender and Agent.
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Under the terms of the Amendment, $5,000,000 (less certain fees and expenses) were funded by Lender to the Borrowers in connection with the Closing Date (the “Tranche II Advance”). The Tranche II Advance has a maturity date of October 1, 2021 and an initial interest rate of 11.00%.
Advances under the Amended Loan Agreement (“Advances”) will bear interest at a per annum rate equal to the greater of either (i) the prime rate as reported in The Wall Street Journal plus 5.75% or (ii) 10.25%, based on a year consisting of 360 days, with interest computed daily based on the actual number of days elapsed. The Tranche II Advance, and any future amounts that may be advanced under the Amended Loan Agreement, will be due and payable on October 1, 2021.
Upon any event of default, the Agent may, at its option, exercise its right to demand immediate payment of all liabilities and other indebtedness and amounts owed to Lender by Borrowers. Conditions for an event of default remain unchanged by the Amendment.
In connection with the Amendment, on the Closing Date, the Company issued to Lender a warrant to purchase 20,950 shares of the Company’s Class B Common Stock at an exercise price of $7.16 per share (the “Warrant”).
2.
On October 25, 2018 (the “Placement Date”), the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with certain accredited investors (the “Investors”) pursuant to which the Company sold in a private placement (the “Private Placement”) an aggregate of 3,030,000 shares of its Class B Common Stock (the “Private Placement Shares”), at a purchase price of $7.10 per share for non-affiliates of the Company, and, with respect to directors participating in the Private Placement, at a price of $8.10 per share. The gross proceeds for the Private Placement were approximately $21.6 million. National Securities Corporation, a wholly owned subsidiary of National Holdings Corporation, and Craig-Hallum Capital Group (together the “Placement Agents”) served as the placement agents for the Private Placement. The Company paid the Placement Agents a fee of 6.5% of the gross proceeds in the Private Placement. Net proceeds from the Private Placement and $5,000,000 funded under the Tranche II Advance were used to partially fund the cash consideration of the Acquisitions and the balance will be used for working capital purposes.
3.
On the Closing Date, Wholesale, as borrower, entered into a floorplan vehicle financing credit line (the “NextGear Credit Line”) with NextGear Capital, Inc. (“NextGear”), as lender, pursuant to that certain Demand Promissory Note and Loan and Security Agreement and Amendment thereto, each dated as of the Closing Date. The available credit under the NextGear Credit Line is initially $63,000,000, will decrease to $55,000,000 after February 28, 2019 and will decrease to zero dollars after October 31, 2019. NextGear retains the exclusive right to make the decision to make an advance to or on behalf of Wholesale, whether or not an event of default has occurred, and NextGear may refuse to make an advance under the NextGear Credit Line at any time, with or without cause and without prior notice of such decision to Wholesale or its affiliates.
Advances under the NextGear Credit Line will bear interest at an initial per annum rate of 5.25%, based upon a 360-day year, and compounded daily, and the per annum interest rate will vary based on a base rate, plus the contract rate, which is currently negative 2.0%, until the outstanding liabilities to NextGear are paid in full. Advances under the NextGear Credit Line require Wholesale to maintain at least $5,500,000 cash collateral in a reserve account in favor of NextGear, which amount is subject to change in NextGear's sole discretion.
Advances under NextGear Credit Line, if not demanded earlier, are due and payable, without notice, on or before the maturity date, which is (a) for all liabilities relating to inventory or receivables financed, the date set forth on the applicable advance schedule or the date of a maturity event that causes NextGear to declare an event of default, or October 31, 2019; (b) for all liabilities not relating to inventory or receivables financed, 10 days after the date such liability is posted to Wholesale’s account; and (c) for loans in excess of the market value of a unit financed, the date on which such loan is posted to Wholesale’s account. Notwithstanding the foregoing, upon the declaration of an event of default by NextGear, the maturity date for all liabilities will be the earlier of (i) the date on which such event of default is declared by NextGear, or (ii) the date on which such event of default first occurred.
Upon any event of default (including, without limitation, Wholesale’s obligation to pay upon demand any outstanding liabilities of the NextGear Credit Line), NextGear may, at its option and without notice to Wholesale, exercise its right to demand immediate payment of all liabilities and other indebtedness and amounts owed to NextGear and its affiliates by Wholesale and its affiliates.
The NextGear Credit Line is secured by a grant of a first lien security interest in all of Wholesale’s assets. Payment to NextGear is guaranteed by unsecured guaranties of each of the Company and Merger Sub (collectively, the “Parent Guaranties”). In connection with the Amendment and the NextGear Credit Line, NextGear and Agent will enter into an intercreditor agreement (the “Wholesale Inventory Financing Intercreditor Agreement”) within 30 days of the Closing Date, by and among NextGear and Agent, in form and substance satisfactory to NextGear and Agent in Agent’s reasonable discretion. The terms of the Wholesale Inventory Financing Intercreditor Agreement and any additional intercreditor arrangements will control the priority of Agent’s security interest in the Collateral of Wholesale relative to NextGear’s security interest in the Collateral of Wholesale.
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Other Information
The Company s Class B Common Stock is listed and traded on the Nasdaq Capital Market under the symbol RMBL. Under the Nasdaq Capital Market rules, the holders of a majority of the outstanding shares of the Class B Common Stock and the Class A common stock, par value $0.001 per share (the “Class A Common Stock,” and together with the Class B Common Stock, the “Common Stock”) must approve the issuance of the Class B Common Stock underlying the Series B Preferred because we will have issued in connection with the Merger and the related Financing Transactions in excess of 20 percent of the number of shares of Class B Common Stock outstanding before such issuance. Section 78.320 of the Nevada Revised Statutes (“NRS”) and our organizational documents permit any action that may be taken at a meeting of the stockholders to be taken by written consent by the holders of the number of shares of voting stock required to approve the action at a meeting. Accordingly, the holders of a majority in voting power of the outstanding shares of the Common Stock have approved the issuance of the Class B Common Stock underlying the Series B Preferred issued in connection with the Merger, subject to the terms and conditions set forth in the documents governing the transaction, by written consent as set forth in Appendix A .
All necessary corporate approvals in connection with the matters referred to in this Information Statement have been obtained, and the Company may issue the shares underlying the Series B Preferred upon providing necessary notice to its non-consenting stockholders in accordance with NRS and the U.S. Federal Securities laws. This Information Statement is being furnished to all stockholders of the Company pursuant to Section 14(c) of the Securities Exchange Act of 1934, as amended (the Exchange Act ), and the rules and regulations promulgated thereunder, solely for the purpose of informing stockholders of these corporate actions before the Company takes such actions set forth in the written consent. In accordance with Rule 14c-2 under the Exchange Act, the Company may issue the shares of Class B Common Stock underlying the Series B Preferred on the date that is the twenty first (21 st ) day following the mailing of this Information Statement to the Company s non-consenting stockholders, subject to notice and approval of the Nasdaq Capital Market.
Questions and Answers About the Acquisitions
Q: Why am I receiving this Information Statement?
A: The Company has acquired Wholesale Express, Wholesale, and Holdings (collectively, the “Wholesale Entities”) in accordance with the terms of the Merger Agreement and the Purchase Agreement as described in this Information Statement. We are mailing this Information Statement to our holders of record as of the close of business on October 30, 2018, which is the date on which the respective consent received approval of a majority in voting power of our Common Stock. This Information Statement is being provided to you for your information to comply with the Exchange Act requirements. You are urged to read this Information Statement carefully in its entirety. However, no action is required on your part in connection with this document. We are not asking you for a proxy and you are requested not to send us a proxy.
Q: When and where is the stockholder meeting?
A: No stockholder meeting will be held in connection with this Information Statement.
Q: What is the record date for Stockholders entitled to receive this Information Statement?
A: The record date is October 30, 2018, which is the date on which the respective consents received approval of a majority in voting power of our Common Stock.
Q: Why is the Company acquiring the Wholesale Entities?
A : We are building a supply chain solution that will span all pre-owned vehicle segments. We built RumbleOn around inventory acquisitions and optimize our business through a completely agnostic distribution model. We believe that controlling the inventory at the source will prove to be a winning proposition in the supply of vehicles for consumers and dealers. Wholesale accelerates our plan to enter the huge automobile marketplace and allows us to do it with meaningful size and scale, and without the significant start-up costs typically associated with new market entries. Multiple sales channels allow us to maximize revenue by selling wherever the opportunity exists, based on customer demand, market conditions or inventory availability, at any given time. RumbleOn will be the dominant marketplace in online acquisition of vehicles direct from consumers and dealers while continuing its agnostic distribution approach of rapid turns of vehicle supply.
We will integrate our powerful technology with Wholesale, enabling us to acquire cars and trucks direct from consumers and creating liquidity, while maintaining our capital-light and agnostic distribution model that underpins RumbleOn today. This new source of inventory will provide incremental volume and improved gross margins to the current Wholesale distribution platform. Further, RumbleOn will market the current Wholesale inventory on RumbleOn.com, to provide the same friction-free transaction RumbleOn currently offers to motorcycle and powersports consumers and dealers.
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The Wholesale model has scaled over several years with an acquisition strategy that focuses primarily on acquiring inventory direct from dealers and auctions with a small portion from consumers direct or on trade. Overlaying the RumbleOn proprietary software to Wholesale’s current manual operations will provide new growth opportunities and enhance operating metrics. We believe that our cash offer tool, combined with our inventory management software, processes and guidelines will improve inventory turns, reduce mistakes and increase margins. By capturing data on all opportunities on the RumbleOn database, our ability to have the right vehicle, at the right time, at the right price, is greatly enhanced.
Additionally, Wholesale Express has become a well-known brand for the movement of thousands of cars and trucks for dealers across the country. We intend to realize cost benefits by moving our logistics across powersports onto the Wholesale Express platform. RumbleOn will market under the Wholesale Inc. brand, independently as a separate channel and in parallel, taking advantage of two brands and capitalizing on the associated marketing leverage. RumbleOn has the potential to make a meaningful improvement to the overall retail channel by leveraging our 100% online model, and we believe this will produce pure incremental purchases and sales of highly desirable and profitable inventory for Wholesale.
Q: What was the consideration paid by the Company to acquire 100% of the outstanding stock of Holdings and the interests in Wholesale Express?
A: In the Acquisitions, the Company acquired (A) 100% of the outstanding stock of Holdings from the Wholesale Sellers for (i) 1,317,329 shares of Series B Preferred, convertible into 1,317,329 shares of Class B Common Stock and (ii) approximately $12,000,000 in cash, inclusive of working capital adjustments, certain change of control payments due to certain Wholesale directors, employees and consultants, of which 681,481 shares of Series B Preferred were held back in connection with Wholesale Sellers’ indemnification obligations under the Merger Agreement and the Express Sellers’ indemnification obligations under the Purchase Agreement and (B) 100% of the membership interests of Wholesale Express from the Express Sellers for $4,000,000 in cash, inclusive of working capital adjustments, certain change of control payments due to certain Wholesale Express officers, employees and consultants.
Q: Into how many shares of Class B Common Stock can the Series B Preferred be converted?
A: Each share of Series B Preferred can be converted into one share of Class B Common Stock. As a result, upon conversion of the Series B Preferred received by the Wholesale Sellers, the Company will issue to the Wholesale Sellers an aggregate of 1,317,329 shares of Class B Common Stock.
Type of Stock
Shares
As Converted
Preferred Shares, Issued at Closing
1,317,329
1,317,329
Q: Who Can Help Answer Your Questions
A: If you have more questions about the Acquisitions the related financing, and the other transactions provided for in the Merger Agreement and described in this Information Statement, you should contact:
RumbleOn, Inc.
1350 Lakeshore Drive
Suite 160
Coppell, Texas 75019
Attention: Corporate Secretary
Phone: (469) 250-1185
4
Cautionary Statement Concerning Forward-Looking Statements
This Information Statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 ( PSLRA ), Section 27A of the Securities Act, and Section 21E of the Exchange Act. Such forward-looking statements contain information about our expectations, beliefs or intentions regarding our product development and commercialization efforts, business, financial condition, results of operations, strategies or prospects. You can identify forward-looking statements by the fact that these statements do not relate strictly to historical or current matters. Rather, forward-looking statements relate to anticipated or expected events, activities, trends or results as of the date they are made. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties that could cause our actual results to differ materially from any future results expressed or implied by the forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.
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Risk Factors
You should carefully consider the risk factors described below, together with the other information contained in this Information Statement. If any of the following events occur, our business, financial condition and operating results may be materially adversely affected. In that event, the market or trading price of our securities could decline and you could lose all or part of your investment. This information statement also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of specific factors, including the risks described below.
Risks Related to the Acquisitions
We may be unable to realize the anticipated synergies related to the Acquisitions, which could have a material adverse effect on our business, financial condition and results of operations.
We expect to realize significant synergies related to the Acquisitions. We also expect to incur costs to achieve these synergies. While we believe these synergies are achievable, our ability to achieve such estimated synergies in the amounts and timeframe expected is subject to various assumptions by our management based on expectations that are subject to a number of risks, which may or may not be realized, as well as the incurrence of other costs in our operations that may offset all or a portion of such synergies and other factors outside our control. As a consequence, we may not be able to realize all of these synergies within the time frame expected or at all, or the amounts of such synergies could be significantly reduced. In addition, we may incur additional and unexpected costs to realize these synergies. Failure to achieve the expected synergies could significantly reduce the expected benefits associated with the Acquisitions and adversely affect our business. We have incurred and will continue to incur substantial expenses in connection with the negotiation and consummation of the transactions contemplated by the Merger or the Express Purchase. These costs, as well as other unanticipated costs and expenses, could have a material adverse effect on our financial condition and operating results.
We may be unable to successfully integrate the Wholesale Entities’ business and realize the anticipated benefits of the Acquisitions.
We are now be required to devote significant management attention and resources to integrating the business and operations of the Wholesale Entities. Potential difficulties we may encounter in the integration process include the following:
the inability to successfully combine our business and the businesses of the Wholesale Entities in a manner that results in the anticipated benefits and synergies of the Acquisitions not being realized in the time frame currently anticipated or at all;
the loss of sales, customers or business partners of ours or of the Wholesale Entities’ as a result of such parties deciding not to continue business at the same or similar levels with us or the Wholesale Entities after the Acquisitions;
challenges associated with operating the combined business in markets and geographies in which we do not currently operate;
difficulty integrating our direct sales and distribution channels with the Wholesale Entities’ to effectively sell the vehicles of the combined company following the closing of the Acquisitions;
the complexities associated with managing our company and integrating personnel from the Wholesale Entities, resulting in a significantly larger combined company, while at the same time providing high quality services to customers;
unanticipated issues in coordinating accounting, information technology, communications, administration and other systems;
difficulty addressing possible differences in corporate culture and management philosophies;
the failure to retain key employees of ours or of the Wholesale Entities;
potential unknown liabilities and unforeseen increased expenses, delays or regulatory conditions associated with the Acquisitions;
performance shortfalls as a result of the diversion of management’s attention caused by consummating the Acquisitions and integrating the Wholesale Entities’ operations; and
managing the increased debt levels incurred in connection with the Acquisitions.
An inability to realize the anticipated benefits and cost synergies of the Acquisitions, as well as any delays encountered in the integration process, could have a material adverse effect on the operating results of the combined company, which may materially adversely affect the value of our Class B Common Stock.
In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefit of our plan for integration may not be realized. Actual synergies, if achieved at all, may be lower than what we expect and may take longer to achieve than anticipated. For example, the elimination of duplicative costs may not be possible or may take longer than anticipated, or the benefits from the Acquisitions may be offset by costs incurred or delays in integrating the companies. If we are not able to adequately address these challenges, we may be unable to successfully integrate the Wholesale Entities’ operations into our own or, even if we are able to combine the business operations successfully, to realize the anticipated benefits of the integration of the companies.
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Our business relationships, those of the Wholesale Entities or the combined company may be subject to disruption due to uncertainty associated with the Acquisitions.
Parties with which we or the Wholesale Entities do business may experience uncertainty associated with the Acquisitions, including with respect to current or future business relationships with us, the Wholesale Entities or the combined company. Our and the Wholesale Entities’ business relationships may be subject to disruption, as customers, distributors, suppliers, vendors, and others may seek to receive confirmation that their existing business relations with us or the Wholesale Entities, as the case may be, will not be adversely impacted as a result of the Acquisitions or attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than us, the Wholesale Entities, or the combined company as a result of the Acquisitions. Any of these other disruptions could have a material adverse effect on our or the Wholesale Entities’ businesses, financial condition, or results of operations or on the business, financial condition or results of operations of the combined company, and could also have an adverse effect on our ability to realize the anticipated benefits of the Acquisitions.
If we are unable to maintain effective internal control over financial reporting for the combined companies, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial statements.
We and the Wholesale Entities currently maintain separate internal control over financial reporting with different financial reporting processes and different process control software. We plan to integrate our internal control over financial reporting with those of the Wholesale Entities. We may encounter difficulties and unanticipated issues in combining our respective accounting systems due to the complexity of the financial reporting processes. We may also identify errors or misstatements that could require audit adjustments. If we are unable to implement and maintain effective internal control over financial reporting following completion of the Acquisitions, we may fail to prevent or detect material misstatements in our financial statements, in which case investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our securities may decline.
The Wholesale Entities may have liabilities that are not known, probable or estimable at this time.
As a result of the Acquisitions, the Wholesale Entities became subsidiaries of the Company and remain subject to their past, current and future liabilities. There could be unasserted claims or assessments against or affecting the Wholesale Entities, including the failure to comply with applicable laws, regulations, orders and consent decrees or infringement or misappropriation of third party intellectual property or other proprietary rights that we failed or were unable to discover or identify in the course of performing our due diligence investigation of the Wholesale Entities. In addition, there are liabilities of the Wholesale Entities that are neither probable nor estimable at this time that may become probable or estimable in the future, including indemnification requests received from customers of the Wholesale Entities relating to claims of infringement or misappropriation of third party intellectual property or other proprietary rights, tax liabilities arising in connection with ongoing or future tax audits and liabilities in connection with other past, current and future legal claims and litigation. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our financial results. We may learn additional information about the Wholesale Entities that adversely affects us, such as unknown, unasserted, or contingent liabilities and issues relating to compliance with applicable laws or infringement or misappropriation of third party intellectual property or other proprietary rights.
As a result of the Acquisitions, we and the Wholesale Entities may be unable to retain key employees.
Our success after the Acquisitions depends in part upon our ability to retain key employees of ours and the Wholesale Entities. Key employees may depart because of a variety of reasons relating to the Acquisitions. If we and the Wholesale Entities are unable to retain key personnel who are critical to the successful integration and future operations of the combined company, we could face disruptions in our operations, loss of existing customers, loss of key information, expertise or know-how, and unanticipated additional recruitment and training costs. In addition, the loss of key personnel could diminish the anticipated benefits of the Acquisitions.
Stockholders will experience dilution as a consequence of, among other transactions, the issuance of the Class B Common Stock underlying the Series B Preferred in connection with the Acquisitions.
Current stockholders will experience dilution upon the issuance of additional shares of Class B Common Stock upon conversion of the Series B Preferred issued pursuant to the Merger Agreement and the issuance of additional shares of Class B Common Stock upon exercise of the Warrant issued in connection with the Amendment. Such dilution could, among other things, limit the ability of the current stockholders to influence management of RumbleOn, including through the election of directors following the Acquisitions.
7
The Acquisitions
On October 26, 2018, the Company entered into (i) the Merger Agreement by and among the Company, the Merger Sub, Holdings, Wholesale, the Wholesale Sellers, and the Wholesale Representative, and (ii) the Purchase Agreement, by and among the Company, the Express Sellers and the Express Representative.
As consideration for the Merger, the Company paid in the aggregate:
1.
Approximately $12,000,000 in cash, inclusive of working capital adjustments, certain change of control payments due to certain Wholesale directors, employees and consultant; and
2.
1,317,329 shares of Series B Preferred, of which 681,481 shares of Series B Preferred were held back in connection with Wholesale Sellers’ indemnification obligations under the Merger Agreement and the Express Sellers’ indemnification obligations under the Purchase Agreement.
As consideration for the Express Purchase, at Closing, Express Sellers received from the Company approximately $4,000,000 in cash, inclusive of working capital adjustments, certain change of control payments due to certain Wholesale Express officers, employees and consultants.
The Merger Agreement
The discussion in this Information Statement of the Merger and the principal terms of the Merger Agreement described below is qualified in its entirety by reference to the copy of the Merger Agreement and the amendment to the Merger Agreement, which are attached as Exhibits 2.1 and 2.2, respectively, to the Company s Current Report on Form 8-K filed October 31, 2018, and are incorporated herein by reference. The following description summarizes the material provisions of the Merger Agreement, which we urge you to read carefully because it is the principal legal document that governed the Merger.
The representations and warranties described below and included in the Merger Agreement were made by the Company and the Wholesale Sellers as of specific dates. The assertions embodied in these representations and warranties may be subject to important qualifications and limitations mutually agreed to by the Company, Merger Sub, Holdings, Wholesale, the Wholesale Sellers, and the Wholesale Representative, in connection with negotiating the Merger Agreement. The representations and warranties may also be subject to a contractual standard of materiality that may be different from what may be viewed as material to stockholders, or may have been used for the purpose of allocating risk among the Company, Merger Sub, Holdings, Wholesale, the Wholesale Sellers, and the Wholesale Representative, rather than establishing matters as facts. The Merger Agreement is described in this Information Statement only to provide you with information regarding its terms and conditions at the time it was entered into by the Parties.
Basic Deal Terms
The Merger was structured as a one-step transaction. Holdings merged with and into Merger Sub, a wholly-owned subsidiary of the Company, with Merger Sub surviving such merger as a wholly-owned subsidiary of the Company; and
The Company paid, in the aggregate, in exchange for all of the shares in Holdings:
o
1,317,329 shares of Series B Preferred, convertible into 1,317,329 shares of Class B Common Stock, of which 681,481 shares of Series B Preferred were held back in connection with Wholesale Sellers’ indemnification obligations under the Merger Agreement and the Express Sellers’ indemnification obligations under the Purchase Agreement.; and
o
Approximately $12,000,000 in cash, inclusive of working capital adjustments, certain change of control payments due to certain Wholesale directors, employees and consultants.
The cash payable to the Wholesale Sellers at the Closing was subject to adjustment for working capital variances.
The parties agreed to escrow 681,481 shares of Series B Preferred in connection with Wholesale Sellers and the Express Sellers’ indemnification obligations.
The Company agreed to reserve up to $3,000,000 of restricted stock units ( RSUs ) or stock options for issuance to certain key employees of Wholesale under the Company’s 2017 Stock Incentive Plan, as amended (the “Plan”), as mutually agreed upon by the Company and the Wholesale Representative, subject to (i) a vesting schedule commensurate with the terms of such employees' employment agreements with Wholesale, as determined by the Company in its reasonable discretion, (ii) on such other terms as may be determined by the Company in reasonable consultation with such employees, and (iii) subject to approval by the Company’s compensation committee (the “Approval”). Of the up to $3,000,000 of equity awards to be reserved for issuance under the Plan, 382,734 RSUs were awarded as of the Closing Date.
8
The Series B Preferred will automatically convert into shares of Class B Common Stock, on a 1 to 1 basis, on the Conversion Date.
Upon conversion of the Series B Preferred to Class B Common Stock, 1,317,329 shares of Class B Common Stock will be issued pursuant to the Merger Agreement, which will represent approximately 7% of the Company s Class B Common Stock (on an as converted basis).
Representations and Warranties
In the Merger Agreement, Holdings, Wholesale, and the Wholesale Sellers made, as of the signing of the Merger Agreement and as of the Closing, certain representations and warranties (subject to certain exceptions and qualifications) about Wholesale relating to, among other things:
capital structure and capitalization;
authorization, execution, delivery and enforceability of the Merger Agreement and other transaction documents;
proper corporate organization and related corporate matters;
absence of conflicts with the organizational documents, material contracts and material permits of Wholesale;
required consents and approvals;
financial information and absence of undisclosed liabilities;
absence of certain changes or events;
absence of material litigation;
licenses and permits;
title to shares, properties and assets;
ownership of intellectual property and data security matters;
taxes;
employment and employee benefit matters;
transactions with affiliates and employees;
insurance coverage;
material contracts;
compliance with laws and absence of certain business practices;
brokers and finders;
environmental matters;
real property; and
business continuity.
In the Merger Agreement, the Company and Merger Sub made certain representations and warranties (subject to certain exceptions and qualifications) relating to, among other things:
capital structure and capitalization;
proper corporate organization and similar corporate matters;
authorization, execution, delivery and enforceability of the Merger Agreement and other transaction documents, the issuance of securities contemplated thereby;
absence of conflicts with the organizational documents, material contracts and material permits;
required consents and approvals;
Securities Exchange Commission (“SEC”) filings;
internal accounting controls;
compliance with laws; and
brokers and finders.
Covenants
The Merger Agreement contains covenants of the parties, including, among other things the following:
no public announcements;
covenants regarding allocation of Wholesale s taxes after closing;
non-competition and non-solicitation restrictions of Wholesale Sellers in favor of the Company;
use of commercially reasonable efforts to satisfy conditions to closing; and
transaction-related SEC filings.
9
Conditions to Closing
General Conditions
Consummation of the Merger was subject to conditions, including, among others:
No order issued by any governmental

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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