Item 1.01 Entry into a Material Definitive Agreement.
Commitment and Transaction Support Agreement
On April 2, 2023 Sunlight Financial LLC (“Sunlight”),
a wholly owned subsidiary of Sunlight Financial Holdings Inc. (the “Company”), the Company and Cross River Bank (“the
Bank Partner”), entered into a Commitment and Transaction Support Agreement (the “Commitment & Transaction Support
Agreement “) pursuant to which the parties have agreed to undertake the transactions contemplated under the Commitment &
Transaction Support Agreement, including the transaction term sheet (“Transaction Term Sheet”) set forth therein (“the
Transactions) pursuant to definitive documents that remain subject to negotiation and completion (“Definitive Documents”).
Each of the Definitive Documents is required to (i) contain terms and conditions consistent in all material respects with the Commitment &
Transaction Support Agreement, including, the Transaction Term Sheet, and (ii) to the extent any matter is not addressed in the Transaction
Term Sheet, is required to be in form and substance reasonably acceptable to the Company and the Bank Partner.
The Transactions contemplated by the Commitment & Transaction
Support Agreement and the Transaction Term Sheet include:
| ● | Amendments to the following agreements with the Bank Partner: (a) a First Amended and Restated Loan Program Agreement dated as
of February 12, 2018 (as previously amended, the “Existing Solar Loan Program Agreement”) (b) an Amended and Restated
Loan Sale Agreement dated as of February 12, 2018 (as previously amended,
the “Existing Solar Loan Sale Agreement”) (c) a Home Improvement Loan Program Agreement dated as of January 29,
2019 (as previously amended, the “Existing HI Program Agreement”), and (d) a Loan Sale Agreement dated as of November 19,
2020 (as previously amended, the “Existing HI Loan Sale Agreement”, and together with the Existing Solar Loan Program Agreement,
Existing Solar Loan Sale Agreement, and Existing HI Program Agreement the “Bank Partner Agreements”). These amendments, described
in more detail below, will include an increase in the total loan cap from $450 million to $650 million and reductions to the interest
and fees payable on loan balances held for sale. |
| ● | Entry into a First Lien Secured Term Loan Facility with the Bank Partner (the “Secured Term Loan”) with amounts outstanding
not to exceed $100 million (inclusive of accrued and capitalized interest and fees), which will be used repay outstanding borrowings under
the Company’s revolving credit facility with Silicon Valley Bank (“SVB”) that matures on April 26, 2023 and to
terminate that credit facility, to fund guarantee payments to the Bank Partner in connection with the sale of certain loans, pay certain
accrued expenses and provide support for general corporate purposes. |
| ● | Agreement to issue to the Bank Partner equity warrants (the “Warrants”), described in more detail below, entitling the
Bank Partner or its designees to purchase shares of the Company’s Class A common stock, par value $0.0001 per share (the “Common
Stock”). |
Under the Commitment & Transaction Support Agreement, the
Bank Partner agrees to:
| ● | use commercially reasonable efforts to support the Transactions, act in good faith, and take any and all actions reasonably necessary
to consummate the Transaction consistent with the Agreement, as promptly as practicable, and in no event later than April 21, 2023
or such later date as the parties mutually agree (the “Outside Closing Date”);
and |
| ● | negotiate in good faith the Definitive Documents and, to the extent applicable, execute the Definitive Documents. |
The Bank Partner also agrees to temporarily waive the exercise of all
rights and remedies against any of the Company or Sunlight in contravention of the Commitment & Transaction Support Agreement
or that would reasonably be expected to prevent, interfere with, delay, or impede the consummation of the Transactions.
During the Commitment & TSA Support Period (as defined in
the Commitment & Transaction Support Agreement), the Company and Sunlight agree to:
| ● | use commercially reasonable efforts to support the Transactions and take any actions reasonably necessary to promptly consummate the
Transactions, consistent with the Commitment & Transaction Support Agreement, in no event later than the Outside Closing Date; |
| ● | provide prompt written notice to the Bank Partner of (a) receipt of any written
notice from any governmental authority in connection with the Commitment & Transaction Support Agreement or the
Transactions, and (b) receipt of any written notice of any proceeding commenced or threatened against the Company or Sunlight
that, if successful, would prevent or materially interfere with, delay, or impede the consummation of the Transactions; |
| ● | not, without prior written consent of the Bank Partner, (a) amend its organizational documents, (b) combine or reclassify
any shares of capital stock of the Company or declare or pay any dividend or other distribution in respect of the capital stock of the
Company, or redeem, repurchase or otherwise acquire any Company or Sunlight equity securities,
(c) issue, deliver or sell any Company or Sunlight equity securities or amend any term of any Company or Sunlight equity security,
or (d) enter into an agreement to do any of the foregoing; and |
| ● | operate the business in a reasonably prudent manner as determined by the Company and Sunlight. |
The Commitment & Transaction Support Agreement may be terminated
by the Bank Partner as follows:
| ● | as a result of a material breach by the Company or Sunlight of any covenant contained in the Commitment & Transaction Support
Agreement or any other obligations of the Company or Sunlight set forth in the Agreement that remains uncured for a period of 5 business
days after receipt of written notice; |
| ● | if the representations or warranties made by the Company or Sunlight were untrue in any material respect when made; |
| ● | if the Definitive Documents and any amendments, modifications, or supplements thereto include terms that are materially inconsistent
with the Transaction Term Sheet and are not otherwise reasonably acceptable to the Bank Partner and such event remains unremedied for
a period of 5 business days following receipt of notice; |
| ● | as a result of the issuance by any governmental authority of any ruling, judgment, or order declaring the Agreement to be unenforceable,
enjoining the consummation of the Transactions; |
| ● | if the Company or Sunlight validly terminates the Commitment & Transaction Support Agreement as to themselves; or |
| ● | if the Transactions have not been consummated by the Outside Closing Date. |
The Commitment & Transaction Support Agreement may be terminated
by the Company and Sunlight as follows:
| ● | as a result of a material breach by the Bank Partner of any undertakings, representations, warranties, or covenants set forth in the
Commitment & Transaction Support Agreement that remains uncured for a period of 5 business days after receipt of written notice; |
| ● | if the Independent
Committee, Board(s), or members (as applicable) of the Company Parties reasonably determine in good faith and based upon the advice of
outside counsel that continued performance under the Commitment & Transaction Support Agreement or pursuit of the Transactions
is inconsisent with their fiduciary duties under applicable law; |
| ● | as a result of issuance by any governmental authority of any ruling, judgment, or order declaring the Commitment & Transaction
Support Agreement to be unenforceable, enjoining the consummation of the Transactions, or rendering illegal the Commitment &
Transaction Support Agreement or the Transactions, and either (a) such ruling, judgment or order has been issued at the request of
or with the acquiescence of a Company Party, or (b) such ruling, judgment, or order has not been not stayed, reversed, or vacated
within 25 calendar days after issuance; |
| ● | if the Bank Partner (a) publicly announces its intention not to support the Transactions or (b) validly terminates the Agreement
as to themselves; or |
| ● | if the Transactions have not been consummated by the Outside Closing Date. |
The Transaction Term Sheet Provides for the following:
Amendments to the Bank Partner Agreements
The amendments to the Bank Partner Agreements agreed to in the Commitment &
Transaction Support Agreement provide, among other things, for:
| ● | the Company to establish a pricing and capital markets committee responsible for setting dealer discounts, interest rates, capital
markets activity, policies relating to hedging, and other terms related to the Company’s loan products and executing any sales of
loans held by the Bank Partner pursuant to the Amended Bank Partner Agreements and the Bank
Partner will have observer rights and a right to attend all meetings held by the committee, subject to exclusions where the Bank Partner
is the purchaser. |
| ● | modifications to the procedures for submitting credit approvals. |
| ● | a modification to the cap on the total loans held by the Bank Partner at any time as provided below, measured on the last day of the
calendar month, with a grace period election for loan sales executed during the seven (7) business days following the last day of
a calendar month. The Company will be entitled to six (6) grace period elections in
any twelve-month period: |
| Period |
Bank Cap |
| Month ending April 30, 2023 |
Waived |
| Month ending May 31, 2023 |
$650 million |
|
Months ending June 30, 2023 and July 31,
2023
|
$550 million |
|
Months ending August 31, 2023, September
30, 2023 and October 31, 2023
|
$500 million |
| Month ending November 30, 2023 and each month thereafter |
$400 million (plus up to $100
million of additional capacity, subject to the Company posting 5% of such additional capacity as Cash collateral at the Bank Partner) |
| ● | modifications to the maximum “Loan Purchase Trigger Date” related to each loan held on the Bank Partner’s balance
sheet. |
| ● | a revised tiered fee structure and provision for certain fees accrued through June 30, 2023 to be payable in additional Tranche
1 Loans (as defined below). |
| ● | the Company will use best efforts to amend the Master Services Agreement dated January 13, 2020, between the Bank Partner, the
Company, and Turnstile Capital Management, LLC (the “Servicer”) on or before July 1, 2023 to cause the Servicer to remit
various cash payments associated with loans into an account held by the Bank Partner. |
| ● | effective on the closing date and continuing until full repayment to the Bank Partner of all outstanding obligations, the Company
will provide the Bank Partner with a pari passu first lien security interest in all assets of the Company as defined in the Secured Term
Loan. |
| ● | waiver by the Bank Partner of (i) any defaults arising from providing annual audited financial statements for fiscal year 2022
with a “going concern” or like qualification and any other potential defaults in connection therewith and (ii) any existing
defaults that are continuing under the Bank Partner Agreements. |
Secured Term Loan with the Bank Partner
The Secured Term Loan agreed to in the Commitment & Transaction
Support Agreement consists of loan commitments for two tranches of loans providing for Tranche 1 Loans and Tranche 2 Loans (each as defined
below). The Secured Term Loan, and all other obligations of Sunlight to the Bank Partner are secured by a first lien perfected security
interest in all of the Company’s assets. The Secured Term Loan will be guaranteed by the Company, to the same extent as the existing
credit facility with SVB (the “SVB Facility”). The Secured Term Loan will mature thirty months after the closing date.
The Secured Term Loan provides loan commitments under two sub- facilities.
The $38.8 million Tranche 1 facility (the “Tranche 1 Loans”) will be used to repay all outstanding borrowings under the SVB
Facility, pay fees and accrued interest due under the Loan Program Agreements and for general corporate purposes. The $49.8 million Tranche
2 facility (the “Tranche 2 Loans” and, collectively with the “Tranche 1 Loans” the “Facility Loans”)
will be used for deferred proceeds.
No scheduled principal payments are due until the first anniversary
of the closing date. Commencing on the first anniversary of the closing date, Sunlight is required to make equal monthly principal payments
in an amount equal to 4% of the aggregate amount of the Facility Loans funded or deemed funded through the first anniversary of the Closing
Date. Thirty (30) months after the closing date, all remaining unpaid amounts of principal and interest must be repaid in full.
An upfront fee equal to three percent (3.0%) of the total Secured Term
Loan amount, payable upon the closing date of the Secured Term Loan will be paid in kind and added to the outstanding amount of applicable
loans. An unused fee will be payable monthly in kind and added to the outstanding amount of Tranche 2 Loans.
The aggregate principal outstanding amount of loans under the Secured
Term Loan (including capitalized or accrued and unpaid interest and any fees, the upfront fee and the unused fee) shall not exceed $100
million.
The Secured Term Loan is subject to mandatory prepayment under certain
conditions, which prepayments may be allocated to Tranche 1 or Tranche 2 loans at the option of the Company and Sunlight. Additionally,
the Company and Sunlight will be required to prepay the Secured Term Loan in full upon a liquidation, winding up, change of control, merger,
sale of all or substantially all of the assets of the Sunlight or any Guarantor, or a transaction that results in the Company or Sunlight
becoming privately held. The Company or Sunlight may, at its option, prepay the Secured Term Loan and/or permanently reduce and terminate
unused loan commitments, in each case, in part or full at any time prior to the maturity date with no penalties; which prepayments and/or
commitment reductions may be allocated to Tranche 1 Loans and/or Tranche 2 loans at the option of the Company and Sunlight.
The foregoing descriptions in this Item 1.01 are qualified in their
entirety by reference to the full text of the Commitment & Transaction Support Agreement which is filed as Exhibit 10.1
attached hereto, and the terms of which are incorporated herein by reference.
Warrants to be Issued to the Bank Partner
The Company will issue Warrants to the Bank Partner representing 19.9%
of the lower of (i) the outstanding voting power of the Company before issuance of the Warrants or (ii) the outstanding shares
of the Company’s Common Stock before issuance of the Warrants (such lower amount, the “Common Stock Interests”). The
Warrants will be exercisable at any time, in whole or in part, at an exercise price equal to $0.01 per share of Common Stock, will contain
all of the rights and protections customary for a financing of this nature, including customary anti-dilution protections and net cashless
exercise, and will be subject to the following vesting provisions:
| ● | Warrants representing the right to purchase approximately 13 million shares of Common Stock, or 10% of the Common Stock Interests,
will vest on the closing date; and |
| ● | the remaining Warrants, representing 9.9% of the Common Stock Interests, will vest in equal increments on a monthly basis commencing
on the date that is one month after the closing date and ending on the earliest to occur of (x) the date that is ten months after
the closing date, (y) the payment in full of the Secured Term Loan and (z) the occurrence of a “change of control”
transaction. |
The foregoing descriptions in this Item 1.01 are qualified in their
entirety by reference to the full text of the Commitment & Transaction Support Agreement, which is filed as Exhibit 10.1
attached hereto, and the terms of which are incorporated herein by reference.