Sezzle Inc. current report, 28 February 2022

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Business Context and Reporting Period

Company: Sezzle Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: February 28, 2022
Primary Event: Entry into a Material Definitive Agreement (Agreement and Plan of Merger) with Zip Co Limited ("Parent") and Miyagi Merger Sub, Inc. ("Merger Sub").

Sezzle Inc. is an emerging growth company incorporated in Delaware. The filing announces a proposed merger where Sezzle will become an indirect wholly-owned subsidiary of Zip Co Limited, an Australian public company.

Key Financial Metrics and Transaction Terms

Merger Consideration:

  • Exchange Ratio: 0.98 Parent Ordinary Shares (or Parent ADRs) for each Sezzle common share.
  • Equity Awards: Unvested RSUs and Options convert to Parent equivalents at the Exchange Ratio. Vested awards are cancelled in exchange for Merger Consideration.

Termination Fees:

  • Sezzle Termination Fee: AUD 7,800,000 payable to Parent under specific conditions (e.g., Superior Proposal, breach of non-solicitation).
  • Parent Termination Fee: AUD 31,400,000 payable to Sezzle under specific conditions (e.g., Parent Superior Proposal, breach of non-solicitation).
  • Regulatory Reimbursement: Parent may reimburse Sezzle up to $5,000,000 (or $8,000,000 if extended) for out-of-pocket expenses if terminated due to regulatory failure.

Receivables Purchase Agreement (RPA):

  • Agreement to negotiate an RPA within 30 days.
  • Parent to purchase receivables up to an aggregate of AUD 50,000,000.

Debt and Liquidity:

  • The filing does not provide specific current revenue, profit, cash flow, or debt balance figures.
  • Sezzle entered into Amendment No. 3 to its Revolving Credit Agreement and Amendment No. 1 to its Limited Guaranty on February 25, 2022, to adjust financial covenant thresholds and clarify cure periods related to the Merger.

Material Changes and Conditions

Conditions to Closing:

  • Approval by a majority of Sezzle stockholders and Parent stockholders.
  • SEC effectiveness of registration statements (Form F-4 and F-6).
  • Listing of Parent ADRs on a U.S. Exchange and Parent Ordinary Shares on the ASX.
  • Receipt of required regulatory approvals (including antitrust) without "Burdensome Conditions."
  • Tax opinion confirming Parent is not treated as a U.S. domestic corporation.

Termination Date: November 28, 2022, with a mutual right to extend to February 28, 2023.

Support Agreements:

  • Sezzle Stockholders: Charles Youakim and Paul Paradis (approx. 48% of voting power) agreed to vote in favor of the Merger.
  • Parent Stockholders: Larry Diamond and Peter Gray (approx. 12% of voting power) agreed to vote in favor of the Merger.

Guidance, Outlook, and Risks

Management Commentary:

  • Management expects the transaction to create value through the combination of Sezzle and Zip Co.
  • Both parties agreed to operate in the ordinary course of business until the Effective Time.

Risks and Contingencies:

  • Transaction Failure: Risk that the Merger is not completed due to failure to satisfy conditions, regulatory denial, or stockholder rejection.
  • Operational Disruption: Potential distraction of management, loss of key employees, or disruption of merchant relationships.
  • Regulatory Scrutiny: Increased scrutiny of the Buy-Now Pay-Later (BNPL) industry.
  • Financial Risks: Exposure to consumer bad debts, merchant insolvency, and exchange rate fluctuations.
  • Competing Proposals: Risk of a Superior Proposal leading to termination and payment of fees.

Unusual Items: The filing includes standard forward-looking statement disclaimers regarding the uncertainty of the transaction's completion and future performance.

Investor Verification Checklist

  • Merger Agreement Details: Review the full text of the Agreement and Plan of Merger (Exhibit 2.1) for specific representations, warranties, and covenants.
  • Stockholder Approval: Monitor upcoming proxy statements/prospectuses for the required votes by Sezzle and Parent stockholders.
  • Regulatory Status: Track the status of antitrust reviews and SEC registration statement effectiveness.
  • Financial Covenants: Verify the specific adjusted financial covenant thresholds in the Credit Agreement Amendment (Exhibit 10.3).
  • Termination Triggers: Understand the specific scenarios triggering the AUD 7.8M and AUD 31.4M termination fees.
  • Support Agreements: Confirm the voting commitments of the major shareholders (48% Sezzle, 12% Parent) remain in effect.