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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-K
 
 
 
 
(MARK ONE)
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2018
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 001-36779
 
 
 
 
On Deck Capital, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
 
Delaware
42-1709682
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1400 Broadway, 25th Floor
New York, New York 10018
(Address of principal executive offices)
(888) 269-4246
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Name of each exchange on which registered
Common Stock, par value $0.005 per share
New York Stock Exchange
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  ý
Indicate by check mark whether the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES  ¨    NO  ý
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  ý    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  ý    NO  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§232.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
 
¨

 
Accelerated filer
 
x
Non-accelerated filer
 
¨

 
Smaller reporting company
 
¨

 
 
 
 
Emerging growth company
 
x
 
 
 
 
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.
 
x

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

The aggregate market value of the common stock by non-affiliates of the registrant, based on the closing price of a share of the registrant’s common stock on June 30, 2018 (the last business day of the registrant's most recently completed second fiscal quarter) as reported by the New York Stock Exchange on such date was $357,933,625. Shares of the registrant’s common stock held by each executive officer, director and holder of 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This calculation does not reflect a determination that certain persons are affiliates of the registrant for any other purpose.
The number of shares of the registrant’s common stock outstanding as of February 20, 2019 was 75,638,940.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement for its 2019 Annual Meeting of Stockholders are incorporated by reference in Part III of this Annual Report on Form 10-K. Such Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K.
 


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On Deck Capital, Inc.
Table of Contents
 
 
 
Page
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
 
 
 
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
 
 
Item 15.
 


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and other legal authority. These forward-looking statements concern our operations, economic performance, financial condition, goals, beliefs, future growth strategies, objectives, plans and current expectations.
Forward-looking statements appear throughout this report including in Item 1. Business, Item 1A. Risk Factors, Item 3. Legal Proceedings and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, including but not limited to statements under the subheading "2019 Outlook." Forward-looking statements can generally be identified by words such as “will,” “enables,” “expects,” "intends," "may," “allows,” "plan," “continues,” “believes,” “anticipates,” “estimates” or similar expressions.
Forward-looking statements are neither historical facts nor assurances of future performance. They are based only on our current beliefs, expectations and assumptions regarding the future of our business, anticipated events and trends, the economy and other future conditions. As such, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and in many cases outside our control. Therefore, you should not rely on any of these forward-looking statements. Our expected results may not be achieved, and actual results may differ materially from our expectations.
Important factors that could cause or contribute to such differences include risks relating to: our ability to attract potential customers to our platform and broaden our distribution capabilities and offerings; the degree to which potential customers apply for loans, are approved and borrow from us; anticipated trends, growth rates, loan originations, volume of loans sold and challenges in our business and in the markets in which we operate; the ability of our customers to repay loans and our ability to accurately assess creditworthiness; our ability to adequately forecast and reserve for loan losses; the impact of our decision to tighten our credit policies; our liquidity and working capital requirements, including the availability and pricing of new debt facilities, extensions and increases to existing debt facilities, increases in our corporate line of credit and securitizations to fund our existing operations and planned growth, including the consequences of having inadequate resources to fund additional loans or draws on lines of credit; our reliance on our third-party service providers and the effect on our business of originating loans without third-party funding sources; the impact of increased utilization of cash or incurred debt to fund originations; the effect on our business of utilizing cash for voluntary loan purchases from third parties; our enterprise risk management efforts misaligning with our strategic objectives; the effect on our business of the current credit environment, increases in interest rate benchmarks and our ability to manage our liquidity, losses and revenue growth to sustain any changes in a credit cycle; any failure of our operating controls, procedures and security measures; our ability to hire and retain necessary qualified employees in a competitive labor market; practices and behaviors of members of our funding advisor channel and other third parties who may refer potential customers to us; changes in our product distribution channel mix and/or our funding mix; our ability to anticipate market needs and develop new and enhanced offerings to meet those needs; lack of customer acceptance of possible increases in interest rates and origination fees on loans; maintaining and expanding our customer base; the impact of competition in our industry and innovation by our competitors; our anticipated and unanticipated growth and growth strategies, including the introduction of new products or features, such as our plans to expand the availability of our platform to other lenders through our wholly-owned ODX subsidiary, expand in in new or existing international markets and enter the equipment finance market, and our ability to effectively manage that growth; the substantial investments we will be required to make to fund our growth strategies and their negative impact on our financial performance unless and until our strategies are successful; our decision to enter into any hedging transactions; our reputation and possible adverse publicity about us or our industry; the availability and cost of our funding, including challenges in replacing existing debt facilities and arranging funding for new types of loans; the impact of funding loans from our cash reserves; locating funding sources for new types of loans that are ineligible for funding under our existing credit or securitization facilities and the possibility of reducing originations of these loan types; the effect of potential selective pricing increases; our failure to anticipate or adapt to future changes in our industry; the impact of the Tax Cuts and Jobs Act of 2017 and any related Treasury regulations, rules or interpretations, if and when issued; our ability to offer loans to our small business customers that have terms that are competitive with alternative sources of capital; our ability to issue new loans to existing customers that seek additional capital; the evolution of technology affecting our offerings and our markets; our compliance with applicable local, state and federal and non-U.S. laws, rules and regulations and their application and interpretation, whether existing, modified or new; our ability to adequately protect our intellectual property; the effect of litigation or other disputes to which we are or may be a party; the increased expenses, disclosures and administrative workload associated with being a public company and our loss of emerging growth company effective 2020; the unenforceability of choice of law provisions in our loan agreements and any potential violation of state interest rate limit laws; our ability to successfully evaluate, consummate and integrate acquisitions; failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud; the estimates and estimate methodologies used in preparing our consolidated financial statements; failure to detect or prevent violations of our codes of conduct by our employees or funding advisor partners; the future trading prices of our common stock and the impact of securities analysts’ reports and shares eligible for future sale on these prices; our ability to prevent or discover security breaches, disruption in service and comparable events that could compromise the personal and confidential information held in our data

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systems, reduce the attractiveness of our platform or adversely impact our ability to service our loans; the impact of our cost rationalization programs; and other risks, including those described in this report in Item 1A. Risk Factors and other documents that we file with the Securities and Exchange Commission, or SEC, from time to time which are or will be available on the SEC website at www.sec.gov.
Except as required by law, we undertake no duty to update any forward-looking statements. Readers are also urged to carefully review and consider all of the information in this report, as well as the other documents we make available through the SEC’s website.
 
 
 
 
In this report, when we use the terms “OnDeck,” the “Company,” “we,” “us” or “our,” we are referring to On Deck Capital, Inc. and its consolidated subsidiaries, and when we use the term "ODX" we are referring to our wholly-owned subsidiary ODX, LLC, in each case unless the context requires otherwise.

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PART I
 
Item 1.
Business
Our Company
On Deck Capital, Inc. is the proven leader in transparent and responsible online lending to small business. We were founded in 2006 and pioneered the use of data analytics and digital technology to make real-time lending decisions and deliver capital rapidly to small businesses online. Our mission is to help small businesses succeed. Today, we offer a wide range of term loans and lines of credit customized for the needs of small business owners. We also offer bank clients a comprehensive technology and services platform to help them digitize their small business lending process through ODX, a wholly-owned subsidiary. In December 2018, we announced our intention to enter the equipment finance market. OnDeck has provided over $10 billion in loans to customers in 700 different industries across the United States, Canada and Australia. We have an A+ rating with the Better Business Bureau and are rated 5 stars by Trustpilot.
We are a leading platform for online small business lending and continue to transform small business lending by making it efficient and convenient for small businesses to access working capital through innovative lending experiences and financial products. Our platform touches every aspect of the customer life cycle, including customer acquisition, sales, scoring and underwriting, funding, and servicing and collections. Enabled by our proprietary technology and analytics, we aggregate and analyze thousands of data points from dynamic, disparate data sources, and the relationships among those attributes, to assess the creditworthiness of small businesses rapidly and accurately. The data points include customer activity shown on their bank statements, business and personal credit bureau reports, government filings, tax and census data. Small businesses can apply for a term loan or line of credit, 24 hours a day, 7 days a week, on our website in minutes and, using our proprietary OnDeck Score®, we can make a funding decision immediately and fund as fast as 24 hours.
We also offer bank clients a comprehensive technology and services platform that facilitates online lending to small business customers through our subsidiary, ODX. In 2018, we established ODX in response to the growing demand from banks for third-party digital origination solutions. ODX will strive to provide bank and financial institution clients a best-in-class solution package consisting of platform-as-a-service technology modules, consultative analytics and business process services, and real-time origination services support to enable digital small business origination solutions. Over time, we believe ODX can become a significant contributor to OnDeck’s financial growth and profitability, especially given ODX’s wide range of potential bank and non-bank partners. However, we do not expect ODX to be profitable in the coming year as our near-term focus is on expanding our capabilities and scaling the business.
Since we made our first loan in 2007, we have originated more than $10 billion of loans and as of December 31, 2018, our total assets were $1.2 billion and our loans held for investment, net, was $1.0 billion.
In 2018, 2017 and 2016, we originated $2.5 billion, $2.1 billion and $2.4 billion of loans, respectively. Our originations have been supported by a diverse and scalable set of funding sources, including committed debt facilities, securitization facilities and, prior to 2018, OnDeck Marketplace, our whole loan sale platform for institutional investors. In 2018, 2017 and 2016, we recorded gross revenue of $398.4 million, $351.0 million and $291.3 million, respectively. In 2018, we generated $27.7 million of net income attributable to On Deck Capital, Inc common stockholders compared to net losses of $11.5 million and $83.0 million in 2017 and 2016, respectively. Our Adjusted Net Income (Loss), a non-GAAP financial measure, was $45.4 million, $4.2 million and $(67.0) million over the same three-year period. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures for a discussion and reconciliation of Adjusted Net Income to net income (loss).
We were incorporated in the state of Delaware on May 4, 2006. We operate from our headquarters in New York, New York and also have offices in Arlington, Virginia, Denver, Colorado, Sydney, Australia and Toronto, Canada. Additional information about us is available on our website at http://www.ondeck.com. The information on our website is not incorporated herein by reference and is not a part of this report.
OnDeck, the OnDeck logo, OnDeck Score, OnDeck Marketplace, ODX and other trademarks or service marks of OnDeck appearing in this report are the property of OnDeck. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders, including FICO®, a registered trademark of Fair Issac Corporation. We have generally omitted the ® and TM designations, as applicable, for the trademarks used in this report.

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Our Market and Solution
The small business lending market is vast and underserved. OnDeck’s vision is to be the first-choice lending partner for underserved small businesses. According to the FDIC, there were $219 billion in outstanding business loans in the U.S. with balances of $250,000 or below at June 30, 2018 across 24.3 million loans.
We offer a suite of financing options, currently through term loans and lines of credit, tailored to meet the needs of small businesses throughout their life cycle. Since we made our first loan in 2007, we have originated more than $10 billion of loans across more than 700 industries in all 50 states, as well as Canada and Australia. The top five states in which we, or our issuing bank partner, originated loans in 2018 were California, Florida, Texas, New York and New Jersey, representing approximately 15%, 9%, 9%, 7% and 4% of our total loan originations, respectively. As of December 31, 2018, our customers had a median annual revenue of approximately $681,005, with 90% of our customers having between $148,699 and $4.2 million in annual revenue, and have been in business for a median of 9 years, with 90% in business between 2 and 28 years. During 2018, the average size of a term loan we made was $55,490 and the average size of a line of credit extended to our customers was $33,689.
We believe our scale offers significant benefits, including lower customer acquisition costs, access to a broader dataset, better underwriting decisions and a lower cost of capital, compared to certain smaller online lending businesses.
We believe our customers choose us because we provide the following key benefits sought by small business borrowers:
Tailored Solutions. We offer small businesses a suite of financing choices with our term loans and lines of credit that we believe can be tailored to effectively address small businesses' particular funding needs. We believe that small businesses prefer to work with providers with whom they can build long-term relationships and that the range of our offerings makes us an ideal lending partner. Our term loans are available from $5,000 up to $500,000 with maturities of three to 36 months and our lines of credit range from $6,000 to $100,000 and are repayable within six or twelve months of the date of most recent draw. We believe this provides a wider range of term lengths, pricing alternatives and repayment options than any other online small business lender. We also report customer performance to several business credit bureaus, which can help small businesses build their business credit.
Simple. Small businesses can submit an application on our website in as little as minutes. We are able to provide many loan applicants with an immediate decision and, if approved, fund as fast as 24 hours. Because we require no in-person meetings, collect comprehensive information electronically and have an intuitive online application form, we have been able to significantly increase the convenience and efficiency of the application process without burdensome documentation requirements.
Human. Being “human” is about understanding our customers and treating them with respect. We employ a hybrid approach to deliver a "human" experience, where people and technology complement one another. Our internal sales force and customer service representatives provide assistance throughout the application process and the life of the loan. Our U.S-based representatives support customers in the U.S., and currently also Canada, and our separate Sydney-based representatives support customers in Australia. Our representatives are available Monday through Saturday before, during and after regular business hours to accommodate the busy schedules of small business owners. Our website enables our customers to complete the loan application process online, but they may also elect to mail, fax or securely email us their application and related documentation. We believe that our inclusion of the human element differentiates us from many digital lenders that attempt to complete transactions with no human interaction as well as from banks that, we believe, have a poor history of customer service and satisfaction.

Our Loan Distribution Channels
We source our lending customers through three diverse distribution channels: Direct Marketing, Strategic Partners and Funding Advisors.
Through our direct marketing channel, we make contact with prospective customers utilizing direct mail, outbound calling, social media and other online marketing.
In our strategic partner channel we enter into agreements with third parties that serve or otherwise have access to the small business community, who then introduce us to prospective customers. Strategic partners include, among others, small business-focused service providers, other financial institutions, financial and accounting solution providers, payment processors, independent sales organizations and other websites. Strategic partners conduct their own marketing activities which may include email marketing, leveraging existing business relationships and direct mail. Our business development team is dedicated to expanding our network of strategic partners and leveraging their relationships with small businesses to acquire new customers. In general, if a strategic partner refers a customer that takes a loan from us, we pay that strategic partner a referral fee based on the amount of the originated loan. Strategic partners differ from funding advisors (described below) in that strategic partners generally provide a referral to our direct sales team and our

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direct sales team is the main point of contact with the customer. On the other hand, funding advisors serve as the main points of contact with the customer on its initial loan and may help a customer access multiple funding options besides those we offer. As a result, funding advisors' commissions generally exceed strategic partners' referral fees. We generally do not recover these commissions or fees upon default of a loan. Generally, no other fees are paid to strategic partners.
Through our funding advisor program, we make contact with prospective customers by entering into relationships with third party independent advisors, known as funding advisor program partners, or FAPs, that typically offer a variety of financial services to small businesses. FAPs conduct their own marketing activities, which may include direct mail, online marketing, paid leads, television and radio advertising or leveraging existing business relationships. FAPs include independent sales organizations, commercial loan brokers and equipment leasing firms. FAPs act as intermediaries between potential customers and lenders by brokering business loans on behalf of potential customers. As part of our FAP strategy, we require a detailed certification process, including background checks, to approve a FAP, and annual recertifications in order to remain a FAP. We also employ a senior compliance officer whose responsibilities include overseeing compliance matters involving our funding advisor program channel. Our relationships with FAPs provide for the payment of a commission at the time the term loan is originated or line of credit account is opened. We generally do not recover these commissions upon default of a loan. As of December 31, 2018, we had active relationships with more than 400 FAPs, and in 2018, 2017 and 2016, no single FAP was associated with more than 2.0%, 1.7%, and 2.1% of our total originations, respectively.

Our Competitive Strengths
We believe the following competitive strengths differentiate us and serve as barriers for others seeking to enter our market:
 
Singular Focus and Visibility. We are passionate about small businesses. Since we began lending in 2007, we have focused exclusively on assessing and delivering credit to small businesses. We believe this passion, focus and small business credit expertise provides us with significant competitive advantages, including deep insight into small businesses and their financing needs. Our partnerships with well-known companies such as JPMorgan Chase Bank, National Association, or JPM, PNC Bank, National Association, or PNC, Intuit Inc., and others also help increase our visibility and validate our brand.
Significant Scale. We have originated over $10 billion in loans across more than 700 industries since we made our first loan in 2007. We believe our extensive experience and significant scale allow us to obtain and analyze large and growing amounts of data, which provides us with greater insight to identify, understand and meet the needs of our customers and prospective customers as well as better manage our business. For business reasons and because of our scale we were able to become an NYSE listed company, which requires us to meet high standards of transparency, governance, financial reporting and other legal requirements. We believe this differentiates us from non-listed small business lenders.
Diversified Distribution Channels. We have established distribution capabilities through diversified channels, including direct marketing, strategic partnerships and funding advisors. Having multiple distribution channels enables us to optimize our targeting efforts and resource allocation in response to fluctuations in customer demand and marketing costs and the overall competitive landscape by channel. Moreover, each channel provides its own set of complimentary benefits. Our direct marketing includes direct mail, outbound calling, social media and other online marketing, enhances brand awareness and fosters customer retention and loyalty. Our strategic partners, including small business-focused service providers, payment processors, and other financial institutions, offer us access to their base of small business customers and data that can be used to enhance our targeting capabilities. Our relationships with a large network of funding advisors, including businesses that provide loan brokerage services, expand our reach in identifying and serving more customers and aid brand awareness.
Proprietary Small Business Credit Evaluation. We use data, analytics and technology to optimize our business operations and the customer experience. Our loan decision process, including our proprietary OnDeck Score, provide us with significant visibility and predictability to assess the creditworthiness of small businesses and allow us to better serve more customers across more industries. With each loan application, each originated loan and each payment received, our dataset expands and our loan decision process improves. We are able to lend to more small businesses than if we relied on personal credit scores alone. We are also able to use our proprietary data and analytics engine to pre-qualify customers and market to those customers we believe are predisposed to take a loan and have a higher likelihood of approval. When we believe it is warranted, we may also utilize our hybrid approach which utilizes our online platform together with our judgmental underwriting to help tailor the right financial solution for our customers. We believe that our technology and decisioning process allow us to more quickly and dynamically make credit adjustments in changing environments compared to certain smaller or less experienced lenders.

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End-to-End Integrated Technology Platform. We built our integrated platform specifically to meet the financing needs of small businesses. Our platform touches every aspect of the customer life cycle, including customer acquisition, sales, scoring and underwriting, funding, and servicing and collections. This purpose-built infrastructure is enhanced by robust fraud protection, multiple layers of security and proprietary application programming interfaces. It enables us to deliver a superior customer experience and facilitates agile decision making.
High Customer Satisfaction and Repeat Customer Base. Our strong value proposition has been validated by our customers. We achieved an overall Net Promoter Score of 81 for the year ended December 31, 2018 based on our internal survey of U.S. customers in all three of our distribution channels. The Net Promoter Score is a widely used index ranging from negative 100 to positive 100 that measures customer loyalty. Our score places us at the upper end of customer satisfaction ratings and compares favorably to the average Net Promoter Score of 35 for the financial services industry. We have also consistently achieved an A+ rating from the Better Business Bureau. We believe that high customer satisfaction has played an important role in repeat borrowing by our customers. In 2018, 2017, and 2016, 52%, 52% and 53%, respectively, of loan originations were by repeat term loan customers, who either replaced their existing term loan with a new, usually larger, term loan or took out a new term loan after paying off their existing OnDeck term loan in full. Repeat customers generally demonstrate improvements in key metrics such as revenue and bank balance when they return for an additional loan. Approximately 29% percent of our origination volume from repeat customers in 2018 was due to unpaid principal balances rolled from existing loans directly into new loans. Generally each repeat customer seeking another term loan must meet the following standards:
the business must be approximately 50% paid down on its existing loan;
the business must be current on its outstanding OnDeck loan with no material delinquency history; and
the business must be fully re-underwritten and determined to be of adequate credit quality.
Differentiated Funding Platform. We source funding principally through debt facilities and securitizations with a diverse group of banks, insurance companies and other institutional lenders. This diversity provides us with a mix of scalable funding sources, significant capital commitments and access to flexible funding for growth. In addition, because we contribute a portion of the capital for each loan we fund via our debt facilities and securitizations, we are able to align interests with our lenders.
Durable Business Model. Since we began lending in 2007, we have successfully operated our business through both strong and weak economic environments. The diversity of our portfolio including loans to over 97,000 small businesses in over 700 industries results in minimal portfolio concentrations and reduces sensitivity to industry specific downturns or events. Our real-time data, short duration loans, automated daily and weekly collections, risk management capabilities and unit economics enable us to react rapidly to changing market conditions.
Our Strategy for Responsible Growth and Improved Profitability
Our vision is to become the first choice lender to underserved small businesses while growing responsibly and increasing profitability. In doing so, and to accomplish this, we intend to:
Expand in Each of our Distribution Channels and Optimize our Funnel. We plan continued efficient investment in direct marketing to increase our brand awareness and add new customers. As our dataset expands, we will continue to pre-qualify and market to those customers we believe are predisposed to take a loan and have a higher likelihood of approval. We have seen success from this strategy as the direct marketing channel continued to originate more dollar volume than any other channel in 2018. We also intend to grow originations by broadening our indirect distribution capabilities through expanding our strategic partner and funding advisor networks. Our strategic partner channel offers our lowest customer acquisition cost while enhancements to our funding advisor network has led to increased application volume and conversion rates. We regularly seek to improve our efficiency in attracting new and repeat customers to apply for loans from us, to increase the number of completed loan applications and improve the conversion rate of completed applications into funded loans for qualified small businesses. This includes many aspects of our business from marketing, sales and customer support, underwriting, funding and servicing. By optimizing our sales funnel, we seek to reduce customer acquisition costs, responsibly increase loan originations and improve profitability.
Continue to Optimize Decisioning Models. We continually update our decisioning models based on additional data and use that information to refine and optimize our marketing and lending decisions. For example, during 2018 as in prior years, in the ordinary course of business, we conducted numerous underwriting tests of discreet pools of loans with defined characteristics to assess the profitability of the sample. Testing included specific sectors, credit profiles and loan terms. We incorporate the learnings from these tests, both positive and negative, into our underwriting which we believe will lead to increased originations and profitability.

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Expand Loan Offerings and Features. We will continue to develop financing solutions and enhancements for underserved small businesses throughout their life cycle. We offer lines of credit with limits up to $100,000 and term loans up to $500,000 with terms up to 36-months. In 2018, we launched a line of credit instant funding option to small businesses via their debit cards through our agreements with Ingo Money and Visa and announced our intention to enter into the equipment finance market. We regularly evaluate and explore new ideas including variations of existing loans through test pilot programs before new loans or loan enhancements are fully introduced. We believe expanded offerings and features will help retain existing customers, attract new customers and ultimately increase customer lifetime value.
Grow International Businesses. We continue to grow our business in both Canada and Australia where we believe the markets for online small business loans are still relatively new and underserved. This growth includes our recently announced intention to combine our Canadian business with Evolocity Financial Group, or Evolocity, a private, Montréal-based online small business lender. As we grow our international business, we will closely monitor and adjust our pricing and costs, including the costs of integrating businesses with Evolocity. We believe there are other promising international markets, although our near-term plans do not include expansion of OnDeck lending into additional countries.
Grow ODX. We believe the opportunity exists to further expand ODX, which offers bank clients a comprehensive technology and services platform to facilitate online lending to their small business customers. We have existing agreements with JPM and PNC, each of which uses ODX services to support the origination and underwriting processes for a portion of their small business customers. We intend to work with our existing bank clients to increase the volume and scope of our business together and are actively seeking to expand the ODX customer base to include other banks and small business lenders. ODX was previously known as OnDeck-as-a-Service.
Extend Customer Lifetime Value. We believe we have an opportunity to increase revenue and loyalty from new and existing customers, thereby extending customer lifetime value. We continue to add benefits to our customer offerings to increase engagement and usage of our platform.  For example, in 2018, we introduced line of credit instant funding, which allows our customers to more quickly access funds, and we continuously explore ways to enhance our loan offerings and features. Our publicly announced plans to enter the equipment finance market are driven by our goal of offering both new and existing customers another lending solution to match their needs.
Our Loans and Loan Pricing
We offer term loans and lines of credit to eligible small businesses. We currently offer term loans from $5,000 to $500,000. The original term of each individual term loan ranges from 3 to 36 months. Customers repay our term loans through fixed, automatic ACH collections from their business bank account on either a daily or weekly basis. We offer a revolving line of credit with fixed 6 or 12 month level-yield amortization on amounts outstanding and automated weekly ACH payments. We currently offer lines of credit from $6,000 to $100,000. In addition to originating our own loans, we also purchase certain term loans and lines of credit from our issuing bank partner who originates those loans.
Our term loan and line of credit sizes and pricing are based on a risk assessment generated by our proprietary data and analytics engine, which includes the OnDeck Score. Pricing is determined primarily based on the customer’s OnDeck Score, the business owner's FICO® score, loan term and origination channel. Loans originated through direct marketing and strategic partners are generally priced lower than loans originated through FAPs due to the commission structure of the FAP program as well as the relative risk profile of the borrowers within the channel. Additionally, we may offer discounts to qualified repeat customers as part of our loyalty program.
For all of our term loans and lines of credit, our customers are quoted multiple pricing metrics to provide transparency and help them better understand the cost of their loan, including:
the total repayment amount in dollars;
the annual percentage rate, or APR;
the average monthly payment amount; and
the “Cents on Dollar,” or COD, which expresses the total amount of interest that will be paid per dollar borrowed. 
In order to provide our customers with pricing transparency, during the fourth quarter of 2016, we adopted the SMART Box™ - which stands for “Straightforward Metrics Around Rate and Total cost,” a model pricing disclosure and comparison tool introduced by the Innovative Lending Platform Association, or ILPA, of which we are a founding member. The SMART Box presents prospective customers with the key terms of their loan and several standardized pricing metrics to evaluate the cost of the term loan or line of credit, including the total cost of capital, APR, the average monthly payback amount, and the COD cost of the loan.

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Cents on Dollar borrowed reflects the monthly interest paid by a customer to us for a loan, and does not include the loan origination fee and the repayment of the principal of the loan. As of December 31, 2018, the APRs of our term loans ranged from 9.1% to 99.8% and the APRs of our lines of credit ranged from 11.0% to 63.2%. Because many of our loans are short term in nature and APR is calculated on an annualized basis, we believe that small business customers tend to evaluate these short term loans primarily on a Cents on Dollar borrowed basis rather than APR.
We believe that our product pricing has historically been higher than traditional bank loans to small businesses and lower than certain non-bank small business financing alternatives such as merchant cash advances. The weighted average APR for our term loans and lines of credit declined from 54.4% in 2014 to 41.4% in 2016. During the same period, the weighted average COD per dollar borrowed per month for our term loans declined from 2.32 cents to 1.82 cents. Since mid 2016, we implemented price increases which increased our weighted average COD and weighted average APR. For the year ended December 31, 2018, our weighted average COD per dollar borrowed per month and weighted average APR were 2.14 cents and 46.9%, respectively. For the year ended December 31, 2017, our weighted average COD per dollar borrowed per month and weighted average APR were 1.95 cents and 43.7%, respectively. We intend to continue to manage the pricing of our loans to optimize between risk-adjusted yields and loan origination volume. See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations —Key Factors Affecting Our Performance—Pricing.
Our Risk Management
Our management team has operated the business through both strong and weak economic environments and has developed significant risk management experience and protocols.
Risk is overseen by the risk management committee, which is comprised of certain members of our board of directors and meets regularly to examine our credit and enterprise risks. The risk management committee also has established management committees that are comprised of members of our management team that monitor key risks and we have teams within the company that monitor and report on various enterprise risks. Credit risk is the most fundamental and significant risk faced by the Company.
We make credit decisions based on real-time performance data about our small business customers. We believe that the data and analytics powering the OnDeck Score can predict the creditworthiness of a small business better than models that rely solely on the personal credit score of the small business owner. Our analysis suggests that the current iteration of our proprietary credit-scoring model has become more accurate than previous versions at identifying credit risk in small businesses across a range of credit risk profiles than personal credit scores alone.
In addition, because our loans generally require automated payment of principal and interest either daily or weekly and allow for ongoing data collection, we obtain early-warning indicators that provide a higher degree of visibility not just on individual loans, but also on macro portfolio trends. Insights gleaned from such real-time performance data provide the opportunity for us to be agile and adapt to changing conditions. For the year ended December 31, 2018, the average length of a term loan at origination was approximately 11.8 months compared to 12.1 months for the year ended December 31, 2017. We believe the rapid amortization and recovery of amounts from the short duration of our portfolio helps to mitigate our overall loss exposure.
Our credit risk team is responsible for portfolio management, allowance for loan losses, or ALLL, credit model validation and underwriting performance. This team engages in numerous risk management activities, including reporting on performance trends, and monitoring of portfolio concentrations.
We also focus on a variety of other enterprise risks and processes, including but not limited to:
Liquidity and Market Risks. Liquidity risk is the risk that we will not maintain adequate financial resources to meet our financial obligations. We mitigate liquidity risk by using a funding strategy that allows us to access debt facilities and the securitization markets through a diverse set of banks, insurance companies and other institutional lenders, which reduces our dependence on any one source of capital. Market risks relate to potential implications of fluctuating interest rate or currency exchange rates on our operations or financial results. Liquidity and market risks are monitored by an asset liability committee.
Operational Risks including: (1) ensuring our IT systems, security protocols and business continuity plans are maintained, reviewed and tested; (2) establishing and testing internal controls with respect to financial reporting; (3) recruiting and retaining talent and (4) other risks associated with developing and executing business strategies.
Regulatory Risks. Regulatory risk involves regularly reviewing the legal and regulatory environment to ensure compliance with existing laws and anticipate future legal or regulatory changes that may impact us.
Competitive Risks including threat of new and existing market entrants.

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Our Subsidiaries
We conduct certain of our operations through subsidiaries that support our business. We offer bank clients a comprehensive technology and services platform that facilitates online lending to small business customers through our ODX subsidiary. Several of our other subsidiaries are special purpose vehicles acting as the borrower in different asset-backed revolving debt facilities and one other subsidiary is a special purpose vehicle acting as the issuer under our current asset-backed securitization vehicle.
See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources and Note 8 of Notes to Consolidated Financial Statements elsewhere in this report for more information regarding our subsidiaries.
Our Information Technology and Security
Our Information Security program is based on principles that reflect our goals and that form the foundation of the policies, standards and procedures of our Information Security Policy. These underlying principles expand on traditional confidentiality, integrity and availability models to provide a framework for: safeguarding critical and sensitive company, customer and other information we maintain in many formats including databases, electronic mail and paper documents; protecting critical company business applications, both those under development and those in live production environments; securing many types of computing devices including data center assets through desktop and laptop computers; protecting company communications networks including wireless, voice over IP and Internet connectivity; and facilitating discussions with third parties when establishing contracts or service level agreements governing information security arrangements.
Our network is configured with multiple layers of security with the goal of detecting, preventing, and responding to unauthorized access to or probing of our information. In addition to regular internal vulnerability scans, we submit to external penetration testing to validate our defenses and to identify areas for improvement.
Our applications are engineered with a focus on security and protected using a number of preventative controls in addition to in-code measures.  We also use security protocols for communication among applications.  All of our public Application Programming Interfaces, or APIs, and websites use Transport Layer Security Applications and are analyzed for security flaws internally by a dedicated team in order to maintain our security posture through continued development and functional improvement.
Our systems infrastructure is deployed on a private cloud hosted in co-located redundant data centers in New Jersey and Colorado. We believe that we have enough physical capacity to support our operations for the foreseeable future. We have multiple layers of redundancy to support the reliability of network service and achieved 99.9% monthly uptime. We also have a working data redundancy model with comprehensive backups of our databases and software.
Our Intellectual Property
We protect our intellectual property through a combination of trademarks, trade dress, domain names, copyrights and trade secrets, as well as contractual provisions and restrictions on access to our proprietary technology.
We have registered trademarks in the United States, Canada and Australia for “OnDeck,” “ODX,” “OnDeck Score,” “OnDeck Marketplace,” the OnDeck logo and many other trademarks. We also have filed other trademark applications in the United States and certain other jurisdictions and will pursue additional trademark registrations to the extent we believe it will be beneficial.

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Our Employees
As of December 31, 2018, we had 587 full-time employees in our New York, Denver, Virginia, Sydney, Australia, and Toronto, Canada offices as well as employees who work remotely.
In 2018 we refreshed our core values to help us focus even more on helping our small business customers succeed:
One Team
 
We know that the best outcomes happen when we work together.
 
 
 
Switched On
 
We are passionate about small businesses, our company, and each other.
 
 
 
Driven to Win
 
Every decision counts in our journey to lend responsibly and win with integrity.
 
 
 
Focused Innovation
 
We invent where it differentiates us and leverage existing solutions where it doesn't.
 
 
 
Strike the Right Balance
 
Our entrepreneurial culture keeps us nimble and standards and processes keep us well-managed.
We consider our relationship with our employees to be satisfactory and we have not had any work stoppages. None of our employees are represented by a labor union or covered by a collective bargaining agreement.
Government Regulation
We and our bank partners are affected by laws and regulations, and judicial interpretations of those laws and regulations, that apply to businesses in general, as well as to commercial lending. This includes a range of laws, regulations and standards that address information security, privacy, fair lending and anti-discrimination, fair sales/marketing practices, transparency, credit bureau reporting, anti-money laundering and sanctions screening, licensing and interest rates, among other things. Because we are not a bank and are engaged in commercial lending, we are not subject to certain of the laws and rules that only apply to banks and that has federal preemption over certain state laws and regulations. However, we purchase term loans and lines of credit from our issuing bank partner that is subject to laws and rules applicable to banks and commercial lenders. We may consider, among other regulatory alternatives, full, limited or other special purposes state bank charters; the U.S. Office of the Comptroller of the Currency’s full service national bank charter or its special purpose national bank charter for FinTech companies; or other alternatives or chartering regimes.
State Lending Regulations
Interest Rate Regulations
Although the federal government does not regulate the maximum interest rates that may be charged on commercial loan transactions, some states have enacted commercial rate laws specifying the maximum legal interest rate at which commercial loans can be made in their state. We only offer commercial loans. All loans originated directly by us provide that they are to be governed by Virginia law. Virginia does not have rate limitations on commercial loans of $5,000 or more or licensing requirements for commercial lenders making such loans. Our underwriting team and senior members of our credit risk team are headquartered in Arlington, Virginia, and that is where our commercial loan contracts are made. With respect to loans where we work with a partner or issuing bank, the issuing bank may utilize the law of the jurisdiction applicable to the bank in connection with its commercial loans.
Licensing Requirements
In states and jurisdictions that do not require a license to make commercial loans, we typically make term loans and extend lines of credit directly to customers pursuant to Virginia law, which is the governing law we require in the underlying loan agreements with our customers. There are five states that have licensing requirements where we do not make any term loans and instead purchase term loans made by an issuing bank partner: California, Nevada, North Dakota, South Dakota and Vermont. Beginning in 2016, we began to acquire line of credit draws under lines of credit extended by our issuing bank partner in those states. Due to regulatory limitations, we do not originate lines of credit directly in those five states. In addition to those five states, there are other states and jurisdictions that require a license or have other requirements or restrictions applicable to commercial loans, including both term loans and lines of credit, and may not honor a Virginia choice of law. In these other states, historically we have originated some term loans and lines of credit directly but purchased other term loans and lines of credit from issuing bank partners, the foregoing depending on the requirements or restrictions of these other states. Those other states assert either that their own licensing laws and requirements or requirements should generally apply to commercial loans made by nonbanks, or

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apply to commercial loans made by nonbanks of certain principal amounts, with certain interest rates, to certain business entity types or based on other terms. In such other states and jurisdictions and in some other circumstances, term loans and lines of credit are made by an issuing bank partner that is not subject to such state law, and may be sold to us. Certain lines of credit are extended by an issuing bank partner in all 50 states in the U.S. and we may purchase extensions under those lines of credit. For the years ended December 31, 2018, 2017 and 2016, loans made by issuing bank partners constituted 18.9%, 22.6% and 22.2%, respectively, of our total loan originations (including both term loans and draws on lines of credit).
The issuing bank partner establishes its underwriting criteria for the issuing bank partner program in consultation with us. We recommend commercial loans to the issuing bank partner that meet the bank partner's underwriting criteria, at which point the issuing bank partner may elect to fund the term loan or extend the line of credit. If the issuing bank partner decides to fund the loan (including term loans and line of credit extensions), it retains the economics on the loan for the period that it owns the loan. The issuing bank partner earns origination fees from the customers who borrow from it and retains the interest paid during the period that the issuing bank partner owns the loan. In exchange for recommending loans to an issuing bank partner, we earn a marketing referral fee based on the loans recommended to, and originated by, that issuing bank partner. Historically, we have been the purchaser of the loans that we refer to issuing bank partners. Our agreement with our issuing bank partner also provides for a collateral account, which is maintained at the issuing bank. The account serves as cash collateral for the performance of our obligations under the relevant agreements, which among other things may include compliance with certain covenants, and also serves to indemnify the issuing bank partner for breaches by us of representations and warranties where it suffers damages as a result of the loans that we refer to it. Our current agreement with our issuing bank partner, Celtic Bank, or Celtic, expires October 2019 and the agreement automatically extends for one-year periods unless terminated by either party. Celtic is an industrial bank chartered by the state of Utah and makes small business and certain other loans. The agreement with Celtic may not be assigned without the prior written consent of the non-assigning party. We may in the future and from time to time work with a different bank partner, or multiple bank partners.
We are not required to have licenses to make commercial loans under any state laws as currently in effect and our operations as presently conducted. Virginia, unlike some other jurisdictions, does not require licensing of commercial lenders. Because we make loans from Virginia in accordance with the Virginia choice of law in our loan agreements, we are not required, with respect to any loans we originate, to be licensed as a lender in other jurisdictions that honor the Virginia choice of law.
Federal Lending Regulations
We are a commercial lender and as such there are federal laws and regulations that affect our lending operations. These laws include, among others, portions of the Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, Economic and Trade Sanctions rules, the Electronic Signatures in Global and National Commerce Act, the Service Members Civil Relief Act, the Telephone Consumer Protection Act of 1991, and Section 5 of the FTC Act prohibiting unfair and deceptive acts or practices.  In addition, there are other federal laws that do not directly govern our business but with respect to which we have established certain procedures, including procedures to designed to protect our platform from being used to launder money.
Competition
The small business lending market is highly competitive and fragmented and we expect it to remain so in the future. Our principal competitors include traditional banks, legacy merchant cash advance providers, and newer, technology-enabled FinTech lenders. We believe the principal factors that generally determine a company’s competitive advantage in our market include the following:
 
ease of process to apply for a loan;
brand recognition and trust;
loan features, including amount, rate, term and repayment method;
loan product fit for business purpose;
transparent description of key terms;
effectiveness of underwriting;
speed of funding;
effectiveness of operational processes;

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effectiveness of customer acquisition; and
customer experience.
See Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Key Factors Affecting Our Performance - Competition.
Disclosure of Information
We recognize that in today’s environment, our current and potential investors, the media and others interested in us look to social media and other online sources for information about us. We believe that these sources represent important communication channels for disseminating information about us, including information that could be deemed to constitute material non-public information. As a result, in addition to our investor relations website (http://investors.ondeck.com), filings made with the SEC, press releases we issue from time to time, and public webcasts and conference calls, we have used, and intend to continue to use, various social media and other online sources to disseminate information about us and, without limitation, our general business developments; financial performance; product and service offerings; research, development and other technical updates; relationships with customers, platform providers and other strategic partners and others; and market and industry developments.
We intend to use the following social media and other websites for the dissemination of information:
Our blog: https://www.ondeck.com/resources
Our Twitter feed: http://twitter.com/ondeckcapital
Our Facebook page: http://www.facebook.com/ondeckcapital
Our corporate LinkedIn page: https://www.linkedin.com/company/ondeck
We invite our current and potential investors, the media and others interested in us to visit these sources for information related to us. Please note that this list of social media and other websites may be updated from time to time on our investor relations website and/or filings we make with the SEC.
Copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or Exchange Act, are available, free of charge, on our investor relations website as soon as reasonably practicable after we file such materials electronically with or furnish it to the SEC.  Information contained on, or that can be accessed through, our website or the social media and other websites noted above, do not constitute part of this Annual Report on Form 10-K and the inclusion of our website address and social media addresses in this Annual Report is an inactive textual reference only. The SEC also maintains a website that contains our SEC filings at www.sec.gov.
Industry and Market Data
This report contains estimates, statistical data, and other information concerning our industry that are based on industry publications, surveys and forecasts. The industry and market information included in this report involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such information.
The sources of industry and market data contained in this report are listed below:
 
FDIC, Loans to Small Businesses and Farms, FDIC-Insured Institutions 1995-2018, Q2 2018.
The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in Item 1A. Risk Factors and elsewhere in this report. These and other factors could cause our actual results to differ materially from those expressed in the estimates made by the independent parties and by us.

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Item 1A.
Risk Factors
Our current and prospective investors should carefully consider the following risks and all other information contained in this report, including our consolidated financial statements and the related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Cautionary Note Regarding Forward-Looking Statements,” before making investment decisions regarding our securities. The risks and uncertainties described below are not the only ones we face, but include the most significant factors currently known by us. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, also may become important factors that affect us. If any of the following risks materialize, our business, financial condition and results of operations could be materially harmed. In that case, the trading price of our securities could decline, and you may lose some or all of your investment.
We have a history of losses prior to 2018 and may not achieve consistent profitability in the future.
While we generated net income in 2018 of $25.3 million, we generated net losses of $14.3 million and $85.5 million 2017 and 2016, respectively. As of December 31, 2018, we had an accumulated deficit of $195.2 million. We will need to generate and sustain increased revenue levels, and control costs and credit losses, in future periods in order to maintain or increase our level of profitability. We intend to continue to expend significant funds on our marketing and sales operations, increasing our investment in technology and analytics capabilities including investments in our wholly-owned ODX subsidiary, increasing our customer service and general loan servicing capabilities, meeting the increased compliance requirements associated with our operation as a public company that will cease to qualify as an "emerging growth company" after 2019 and changing regulatory requirements, and upgrading our technology infrastructure and expanding in existing or possibly new markets. In addition, we record our loan loss provision as an expense to account for the possibility that loans we intend to hold may not be repaid in full. Because we incur a given loan loss expense at the time that we issue the loans we intend to hold, we expect the aggregate amount of this expense to grow as we increase the total amount of loans we make to our customers.
Our efforts to grow our business may be more costly than we expect, and we may not be able to increase our revenue enough to offset our higher operating expenses. Future profitability may decline or be volatile, and we may incur significant losses in the future for a number of reasons, including the other risks described in this report, and unforeseen expenses, difficulties, complications and delays, and other unknown events. If profitability declines or is volatile, or we are unable to sustain profitability, the market price of our common stock may significantly decrease.
Our recent growth may not be indicative of our future growth and, if we continue to grow, we may not be able to manage our growth effectively.
Our gross revenue grew to $398.4 million in 2018 from $351.0 million in 2017 and from $291.3 million in 2016. We expect that, in the future, even if our revenue continues to increase, our rate of revenue growth may decline.
In addition, we expect to continue to expend substantial financial and other resources on:
 marketing, including expenses relating to increased direct marketing efforts;
expanding product offerings;
product development, including the continued development of our platform and OnDeck Score;
technology and analytics, including through ODX;
diversification of funding sources;
broadening distribution capabilities through strategic partnerships and funding advisors;
general administration, including legal, accounting and other compliance expenses related to being a public company and the loss of emerging growth company status at the end of 2019; and
expansion in Canada and Australia, and possibly into new international geographies.
In addition, our historical growth has placed, and may continue to place, significant demands on our management and our operational and financial resources. Finally, as our business grows, we will need to continue to improve our operational, financial and management controls as well as our reporting systems and procedures. If we cannot manage our growth effectively, our financial results will suffer.

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Our current level of interest rate spread may decline in the future. Any material reduction in our interest rate spread could harm our business, results of operations and financial condition.
We earn a majority of our revenues from interest payments on the loans we make to our customers. Financial institutions and other funding sources provide us with the funding for these term loans and lines of credit and charge us interest on the funds that we utilize. In the event that the spread between the interest rate at which we lend to our customers and the interest rate at which we borrow from our lenders decreases, our financial results and operating performance will be harmed. The interest rates we charge to our customers and pay to our lenders could each be affected by a variety of factors, including access to capital based on our business performance, the volume of loans we make to our customers, competition and regulatory requirements. These interest rates may also be affected by a change over time in the mix of the types of loans we provide to our customers and sell to our investors, the mix of new and renewal loans and a shift among our channels of customer acquisition.
Our funding mix and loan structure increase the risk that out interest rate spread will decline in periods of rising interest rates. We lend to our customers at a fixed rate of interest while a majority of our borrowings that fund our lending are at a variable rate of interest.  To the extent that underlying market interest rates rise, our interest rate spread will likely narrow. We may not be able to successfully mitigate this risk either partially or at all. Any interest rate hedging we enter into may not be effective and we may not be able to successfully raise the interest rates we charge customers on new originations due to competitive and other factors.
Interest rate changes may adversely affect our business forecasts and expectations and are highly sensitive to many macroeconomic factors beyond our control, such as inflation, recession, the state of the credit markets, changes in market interest rates, global economic disruptions, unemployment and the fiscal and monetary policies of the federal government and its agencies. Any material reduction in our interest rate spread could have a material adverse effect on our business, results of operations and financial condition.
Worsening economic conditions may result in decreased demand for our loans, cause our customers’ default rates to increase and harm our operating results.
Uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets, historically have created a difficult environment for companies in the lending industry. Many factors, including factors that are beyond our control, may have a detrimental impact on our operating performance. These factors include general economic conditions, unemployment levels, energy costs and interest rates, as well as events such as natural disasters, acts of war, terrorism and catastrophes.
Our customers are small businesses and some customers have a limited operating history. As of December 31, 2018, approximately 24.4% of our total loans outstanding related to customers with fewer than five years of operating history. Accordingly, our customers historically have been, and may in the future remain, more likely to be affected or more severely affected than large enterprises by adverse economic conditions. These conditions may result in a decline in the demand for our loans by potential and existing customers, and higher default rates by existing customers. If a customer defaults on a loan payable to us, the loan enters a collections process where our systems and collections teams initiate contact with the customer for payments owed. In the past when we charged off a loan, we had generally sold the loan to a third-party collection agency in exchange for only a small fraction of the remaining amount payable to us. In 2018, we began expanding our in-house collection efforts up to and including litigation with the goal of achieving higher net recoveries over time. We expect to continue this strategy. At year-end 2018, we retained all or substantially all of our delinquent loans, which contributed to an increase in our Reserve Ratio and 15+ Day Delinquency Ratio. There is no assurance that this strategy will be successful, and it could result in lower recoveries than we have realized historically from selling charged-off loans. It may also lead to increased litigation, negative publicity and harm to our reputation.
There can be no assurance that economic conditions will remain favorable for our business or that demand for our loans or default rates by our customers will remain at current levels. Reduced demand for our loans would negatively impact our growth and revenue, while increased default rates by our customers may inhibit our access to capital, including debt warehouse facilities and securitizations, and negatively impact our profitability. Furthermore, we have received a large number of applications from potential customers who do not satisfy the requirements for an OnDeck loan. If an insufficient number of qualified small businesses apply for our loans, our growth and revenue could decline.
An increase in customer default rates may reduce our overall profitability and could also affect our ability to attract institutional funding. Further, historical default rates may not be indicative of future results.
Customer default rates may be significantly affected by economic downturns or general economic conditions beyond our control and beyond the control of individual customers. In particular, loss rates on customer loans may increase due to factors such as prevailing interest rates, the rate of unemployment, the level of consumer and business confidence, commercial real estate values, the value of the U.S. dollar, energy prices, changes in consumer and business spending, the number of personal and business

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bankruptcies, disruptions in the credit markets and other factors. We offer both our term loan and line of credit loans to the same customers, subject to customary credit and loan underwriting procedures. To the extent that our customers borrow from us under both types of loans and default, our losses could be greater than if we had offered them only one type of loan. In addition, as of December 31, 2018, approximately 24.4% of our total loans outstanding related to customers with fewer than five years of operating history. While our loan decisioning process is designed to establish that, notwithstanding such limited operating and financial history, customers would be a reasonable credit risk, our loans may nevertheless be expected to have a higher default rate than loans made to customers with more established operating and financial histories. In addition, if default rates, delinquency rates or certain performance metrics reach certain levels, the principal of our securitized notes or other borrowings may be required to be paid down, and we may no longer be able to borrow from our debt facilities to fund future loans.
Even in favorable economic conditions, supply and demand driven changes in credit can place downward pressure on our loan pricing, which may have a material adverse effect on our business.
We believe that favorable economic conditions are generally helpful to OnDeck’s business because historically small business and consumer optimism tends to encourage investments in small businesses and to promote related borrowing activity. However, these conditions can also tend to expand risk levels acceptable to legacy financial institutions and to increase capital availability for newer FinTech competitors. These forces, combined with the lower switching costs that online platforms provide, could place downward pressure or create volatility on our loan pricing, reducing our ability to generate growth from current and prospective price-sensitive customers. This could be particularly damaging to us because of our size relative to larger small business lenders. We may not be able to adequately reduce our marginal costs if our loan pricing were to decline, which could have a material adverse effect on our business.
We operate in a cyclical industry. In an economic downturn, we may not be able to grow our business or maintain levels of liquidity, loss, and revenue growth to sustain our business and remain viable through the credit cycle.
The timing, severity, and duration of an economic downturn have can have significant negative impacts on small businesses and our ability to generate adequate revenue and to absorb expected and unexpected losses.
We do not have all of the elements necessary to ensure sustainability of our business in all circumstances. In making a decision whether to extend credit to a new or existing customer, or determine appropriate pricing for a loan, our decision structure relies on robust data collection, our proprietary credit scoring model, market expertise and judgmental underwriting. An economic downturn will place financial stress on our customers, potentially impacting our decision structure’s ability to make accurate decisions. Small businesses are typically impacted before and more severely than large businesses. Our early warning and portfolio management capabilities’ ability to adapt in a manner that balances future revenue production and loss minimization will be tested in a downturn. The longevity and severity of a downturn will also place pressure on our lenders, who provide financing to us through our debt warehouses and our securitization. There can be no assurance that our financing arrangements will remain available to us through any particular business cycle. The timing and extent of a downturn may also require us to change, postpone or cancel our strategic initiatives or growth plans to pursue shorter-term sustainability. The longer and more severe an economic downturn, the greater the adverse impact on us, which could be material.
We rely on our proprietary decision structure to make credit decisions, set loan prices and forecast loss rates. If we do not make accurate credit and pricing decisions or effectively forecast our loss rates, our business and financial results will be harmed, and the harm could be material.
In making a decision whether to extend credit to prospective customers, we rely upon data to assess credit handling ability, debt servicing capacity, and overall risk level to determine lending exposure and loan pricing. If the components or analytics are either unstable, biased, or missing key pieces of information, the wrong decisions will be made which will negatively affect our financial results. If our proprietary decision structure fails to adequately predict the creditworthiness of our customers, including a failure to predict a customer’s true credit risk profile and/or ability to repay their loan, we have in the past recorded, and may in the future need to record, additional provision expense and/or experience higher than forecasted losses. Additionally, if any portion of the information pertaining to the prospective customer is false, inaccurate or incomplete, and our systems did not detect such falsities, inaccuracies or incompleteness, or any or all of the other components of our credit decision process fails, we may experience higher than forecasted losses. Furthermore, if we are unable to access the third-party data used in our decision structure, or our access to such data is limited, our ability to accurately evaluate potential customers will be compromised, and we may be unable to effectively predict probable credit losses inherent in our loan portfolio, which would negatively impact our results of operations, which could be material.
Additionally, if we make errors in the development and validation of any of the underwriting models or tools that we use for the loans securing our debt warehouses or our securitization, such loans may experience higher delinquencies and losses, which could result in the principal of our securitized notes or other borrowings being required to be paid down, and we may no longer

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be able to borrow from those debt facilities to fund future loans. Moreover, if future performance of our customers’ loans differs from past experience (driven by factors, including but not limited to, macroeconomic factors, policy actions by regulators, lending by other institutions and reliability of data used in the underwriting process), which experience has informed the development of the underwriting procedures employed by us, delinquency rates and losses to investors of our securitized debt from our customers’ loans could increase, which could result in the principal of our securitized notes or other borrowings being required to paid down, and we may no longer be able to borrow from those debt facilities to fund future loans. This inability to borrow from our debt facilities, which could further hinder our growth and harm our financial performance.
Our allowance for loan losses is determined based upon both objective and subjective factors and may not be adequate to absorb loan losses.
We face the risk that our customers will fail to repay their loans in full. We reserve for such losses by establishing an allowance for loan losses, the increase of which results in a reduction of our earnings as we recognize a provision expense for loan losses. We have established an evaluation process designed to determine the adequacy of our allowance for loan losses. While this evaluation process uses historical and other objective information, the classification of loans and the forecasts and establishment of loan losses are also dependent on our subjective assessment based upon our experience and judgment. Actual losses are difficult to forecast, especially if such losses stem from factors beyond our experience, and unlike traditional banks, we are not subject to periodic review by bank regulatory agencies of our allowance for loan losses. In addition, for our line of credit product we estimate probable losses on unfunded loan commitments in a process similar to that used for the allowance for loan losses. 
As a result, there can be no assurance that our allowance for loan losses or expense accrual for probable losses on unfunded line of credit commitments will be comparable to that of traditional banks subject to regulatory oversight or sufficient to absorb losses or prevent a material adverse effect on our business, financial condition and results of operations.
If the information provided by customers to us is incorrect or fraudulent, we may misjudge a customer’s qualification to receive a loan and our operating results may be harmed.
Our lending decisions are based partly on information provided to us by loan applicants. To the extent that these applicants provide information to us in a manner that we are unable to verify, our loan decisioning process, including the OnDeck Score, may not accurately reflect the associated risk. In addition, data provided by third-party sources is a significant component of our loan decisioning and this data may contain inaccuracies. Inaccurate analysis of credit data that could result from false loan application information could harm our reputation, business and operating results.
In addition, we use identity and fraud checks analyzing data provided by external databases to authenticate each customer’s identity. From time to time in the past, these checks have failed and there is a risk that these checks could also fail in the future, and fraud, which may be significant, may occur. We may not be able to recoup funds underlying loans made in connection with inaccurate statements, omissions of fact or fraud, in which case our revenue, operating results and profitability will be harmed. Fraudulent activity or significant increases in fraudulent activity could also lead to regulatory intervention, negatively impact our operating results, brand and reputation, and require us to take steps to reduce fraud risk, which could increase our costs.
Our enterprise risk management efforts may misalign with our strategic objectives, which can result in us failing to achieve our objectives.
We are exposed to credit, market, liquidity, and operational risks related to our business, assets and liabilities. To manage these risks, we have developed enterprise risk management capabilities with the goal of supporting our growth objectives, client reach, risk targets and operational complexities while balancing the needs of stockholders, customers and employees. In order to be effective, among other things, our enterprise risk management capabilities must adapt and align to support any new product or loan features, capability, strategic development, or external change. We could incur substantial losses and our business operations could be disrupted to the extent our business model, operational processes, control functions, technological capabilities, risk analyses, and business/product knowledge do not adequately identify and manage potential risks associated with our strategic initiatives.
We have a limited operating history in an evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.
We have a limited operating history in an evolving industry that may not develop as expected. Assessing our business and future prospects is challenging in light of the risks and difficulties we may encounter. These risks and difficulties include our ability to:
increase the number and total volume of term loans and lines of credit we extend to our customers;

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improve the terms on which we lend to our customers as our business becomes more efficient;
increase the effectiveness of our direct marketing, as well as our strategic partner and funding advisor program customer acquisition channels;
maintain or increase repeat borrowing by existing customers;
successfully develop and deploy new types of loans and new loan features including equipment finance loans;
successfully expand ODX, our comprehensive technology and services platform that facilitates online lending to small business customers, to additional banks and other small business lenders;
successfully maintain our diversified funding strategy, including through debt warehouse facilities and possible future securitization transactions;
favorably compete with other companies that are currently in, or may in the future enter, the business of lending to small businesses including traditional lenders and so-called "closed-loop lenders;"
successfully navigate economic conditions and fluctuations in the credit market;
effectively manage the growth of our business;
obtain debt or equity capital on attractive terms;
successfully expand internationally; and
anticipate and react to changes in an evolving regulatory environment.
We may not be able to successfully address these risks and difficulties, which could harm our business and cause our operating results to suffer.
To date, we have derived our revenue from a limited number of financing options and markets. Our efforts to expand our market reach and financing options may not succeed and may reduce our revenue growth.
We offer term loans and lines of credit to our customers in the United States and Canada and term loans to our customers in Australia. Many of our competitors offer a more diverse set of financing options to small businesses and in additional international markets. There can be no assurance that we will be successful in broadening the scope of financing options that we offer to our customers. Failure to broaden the scope of financing options we offer to potential customers may inhibit the growth of repeat business from our customers and harm our operating results. There also can be no guarantee that we will be successful with respect to our current efforts in Canada and Australia, as well as any further expansion beyond the United States, Canada and Australia, if we decide to attempt such expansion at all, which may also inhibit the growth of our business.
Demand for our loans may decline if we do not continue to innovate or respond to evolving technological changes.
We operate in a nascent industry characterized by rapidly evolving technology and frequent product introductions. We rely on our proprietary technology to make our platform available to customers, determine the creditworthiness of loan applicants, and service the loans we make to customers. In addition, we may increasingly rely on technological innovation as we introduce new types of loans, expand our current loans into new markets, and continue to streamline the lending process. The process of developing new technologies and products is complex, and if we are unable to successfully innovate and continue to deliver a superior customer experience, customers’ demand for our loans may decrease and our growth and operations may be harmed.
Customer complaints or negative publicity could result in a decline in our customer growth and our business could suffer.
Our reputation is very important to attracting new customers to our platform as well as securing repeat lending to existing customers. There can be no assurance that we will continue to maintain a good relationship with our customers or avoid negative publicity. Any damage to our reputation, whether arising from our conduct of business, negative publicity, regulatory, supervisory or enforcement actions, matters affecting our financial reporting or compliance with SEC and New York Stock Exchange listing requirements, security breaches or otherwise could have a material adverse effect on our business.
Failure of operating controls could produce a significant negative outcome, including customer experience degradation, legal expenses, increased regulatory cost, significant internal and external fraud losses and vendor risk.
We are subject to the Fair Credit Reporting Act, anti-money laundering rules and rules relating to unfair, deceptive, or abusive acts or practices, as well as regulations of the Financial Crimes Enforcement Network. Losses from operational failures can be

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material. These losses can arise from a wide range of breaches in controls, procedures, processes and security. Breaches in any of these controls, procedures, processes or security measures could lead to significant legal expense and, even, punitive damages. Internal fraud, including the stealing and dissemination of client personally identifiable information, can create significant client distrust and result in serious legal action against us. Breaches in client onboarding and servicing processes can degrade customer experience and place current and future revenues at risk. The continued proliferation and technological advances in first and third-party fraud can result in large losses over a short period of time if undetected. While we seek to enhance and develop our operational risk strategy and control structure, there can be no assurance that our efforts will be successful and that we will avoid material operational losses. These potential operational risk loss scenarios are not exhaustive and we could experience a significant loss in any scenario if our operational risk enhancements do not keep pace with our business, capabilities or our continued organizational growth and complexity. In addition, operational failures could have a significant effect on our reputation which could cause additional material harm to our business and prospects.
Our strategy to expand the availability of our platform to other lenders through our wholly-owned subsidiary, ODX, relies on an unproven business model in an emerging industry, which makes it difficult to evaluate the prospects for that strategy and the risks and challenges we may encounter.
Part of our growth strategy is to expand the availability of our platform to other lenders through our wholly-owned subsidiary, ODX.  This strategy relies on an unproven business model in an emerging industry.  As a result, the revenue and income potential of offering our platform through ODX and the related market opportunity are uncertain. In order to pursue this strategy we will be required to make significant investments over time, attract new customers and retain existing ones. Future demand and market acceptance of our platform through ODX are unpredictable. The sales cycle to attract a lender to our platform is long and complex, and once a lender is attracted, the integration and ramp up can also be long, complex and expensive.  As a result, it is difficult to evaluate the prospects for this strategy or the timing or degree of its potential success.  It is also difficult to assess the risks and challenges we may encounter in pursuing this strategy.  Many of these risks and challenges are in categories similar to those we face in our online small business lending activities as described in this Item 1A. - Risk Factors and elsewhere in this report.  Others may be in addition to, or greater than, those we face in our online small business lending activities. Additional or greater risks and challenges to expanding the availability of our platform to other lenders through ODX may include:
lack of acceptance of our platform through ODX by other lenders;
reluctance of other lenders to share their customer data with us, or impacts of data and security breaches if they do;
unwillingness of other lenders to use our platform through ODX because we are doing business with their competitors, or for other reasons;
the possible preference of other lenders to build and use their own platforms, or platforms offered by existing or new competitors of ours, for online small business lending;
our ability to charge fees for services commensurate with the total cost of providing those services;
the amount of time it may take us to integrate new lenders;
our ability to fund investment to expand and customize our platform in advance of earning fee revenue related to that investment;
our ability to provide customized solutions that meet the needs of lenders;
our ability to meet the performance criteria that customers or prospective customers require;
the inability to retain one or more customers and the impact of that customer loss on other existing or prospective customers;  
our ability to scale our platform through ODX to make it economically viable; and
our ability to compete effectively with third parties seeking to provide similar services.
We may not be able to successfully address these risks and challenges, which could cause our strategy to fail, harm our business and cause our operating results to suffer.  In addition, offering our platform through ODX, has placed, and if we are able to expand it will continue to place, significant demands on our management and our operational and financial resources.  If we cannot effectively manage the growth of this opportunity, our financial results will suffer.



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Expanding our operations internationally could subject us to new challenges and risks.
We currently operate in the United States, Canada and Australia and may seek to expand our business further internationally. Additional international expansion, whether in our existing or new international markets, will require additional resources and controls. Such expansion could subject our business to substantial risks including:
adjusting our proprietary loan platform, and our loan decisioning process, to account for the country-specific differences in information available on potential small business borrowers;
conformity with applicable business customs, including translation into foreign languages and associated expenses;
changes to the way we do business as compared with our current operations;
the need to support and integrate with local third-party service providers;
competition with service providers that have greater experience in the local markets than we do or that have pre-existing relationships with potential borrowers and investors in those markets;
difficulties in staffing and managing foreign operations in an environment of diverse culture, laws and customs, and the increased travel, infrastructure and legal and compliance costs associated with international operations;
difficulties in securing financing in international markets in local currencies;
compliance with multiple, potentially conflicting and changing governmental laws and regulations, including banking, securities, employment, tax, privacy and data protection laws and regulations;
compliance with U.S. and foreign anti-bribery laws, such as the Foreign Corrupt Practices Act and comparable laws in Canada, Australia and other non-U.S. markets into which we might expand in the future;
difficulties in collecting payments in foreign currencies and associated foreign currency exposure;
restrictions on repatriation of earnings;
compliance with potentially conflicting and changing laws of taxing jurisdictions where we conduct business and applicable U.S. tax laws as they relate to international operations, the complexity and adverse consequences of such tax laws and potentially adverse tax consequences due to changes in such tax laws; and
regional economic and political conditions.
As a result of these risks, any potential future international expansion efforts that we may undertake may not be successful.
We may evaluate, and potentially consummate, acquisitions, which could require significant management attention, disrupt our business, and adversely affect our financial results.
Our success will depend, in part, on our ability to grow our business. In some circumstances, we may determine to do so through the acquisition of complementary assets, businesses and technologies rather than through internal development. For example, in December 2018 we announced that we had entered a definitive agreement to combine our Canadian lending business with that of another Canadian company. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified acquisitions. We also have never made these types of acquisitions before and therefore lack experience in integrating such acquisitions, new technology and personnel. The risks we face in connection with acquisitions include:
diversion of management time and focus from operating our business to addressing acquisition integration challenges;
coordination of technology, product development and sales and marketing functions;
transition of the acquired company’s customers to our platform;
retention of employees from the acquired company;
cultural challenges associated with integrating employees from the acquired company into our organization;
integration of the acquired company’s accounting, management information, human resources and other administrative systems;
the need to implement or improve controls, procedures and policies at a business that prior to the acquisition may have lacked effective controls, procedures and policies;
potential write-offs of loans or intangibles or other assets acquired in such transactions that may have an adverse effect our operating results in a given period;

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liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities; and
litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders or other third parties.
Our failure to address these risks or other problems encountered in connection with our future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities and harm our business, generally. Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, amortization expenses or the write-off of goodwill, any of which could harm our financial condition. Also, the anticipated benefits of any acquisitions may not materialize.
Our proposed entry into the equipment financing market may be unsuccessful or may not provide the expected contributions to our growth strategy.  Our failure to successfully offer equipment finance loans or realize the benefits of these loans could adversely impact our business and financial results.
As part of our growth strategy, we began and then in mid-2018 expanded a limited pilot referral program to offer equipment finance loans to our customers. Under the pilot program, we refer customers seeking equipment financing loans to a third party that originates and services the loans.  In 2019, we plan to begin making our own equipment finance loans ranging from $5,000 to $150,000, with terms ranging from 24 to 60 months. These loans will be secured by new and used equipment. We have no prior experience offering equipment finance loans which could involve significant challenges and risks including:
our inability to launch and scale our equipment finance offering beyond our limited pilot program in offering equipment finance loans;
our inability to effectively underwrite and price equipment finance transactions, and evaluate the initial and residual value of the loan collateral;
our failure to develop or acquire the technology needed to support the offering of equipment finance loans;
inadequately training sales and customer service personnel to handle the offering of equipment finance loans;
possible delays in our ability to launch the offering of equipment finance loans;
customer acceptance;
intense competition from other equipment finance providers, many of whom have much more experience and greater financial resources than we do, and risks of innovation by our competitors;
actual losses exceeding expected losses for the offering of equipment finance loans;
worsening economic conditions that may result in decreased demand and increase our customers' default rates;
the effectiveness of our risk management efforts; and
repossessing equipment collateral and liquidating it, including possible reputational and publicity risks associated with our collection efforts.
Any failure on our part to successfully offer equipment finance loans or realize the expected benefits could adversely impact our business and financial results.
The lending industry is highly regulated. Changes in regulations or in the way regulations are applied to our business could adversely affect our business.
Over the last few years, federal and state regulatory and other policymaking entities have taken an increased interest in marketplace and online lending, including online small business lending.   Activity in various states has also increased, including in the states of California and New York. In December 2015, the California Department of Business Oversight announced an inquiry into the marketplace lending industry and requested information from fourteen marketplace and online lenders including OnDeck. In March 2018, the New York Department of Financial Services conducted its own survey of marketplace and online lending by sending a survey to numerous online lenders, including us, requesting information about their respective lending activities and business practices in the State of New York. These initiatives were presented as information gathering projects to assist federal and state officials in better understanding, among other things, the methods, role and impact of online lending on credit markets and our merchants. These initiatives either have resulted, or are expected to result, in policy recommendations that could impact our business practices and operations if the recommendations result in new laws or regulations.  For example, if New York were to enact legislation requiring licensure by commercial lenders or imposing interest rate limitations or other provisions inconsistent with our current business practices and alternative solutions were not available, we could be required to change our

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business practices and operations in a manner that adversely impacts our business in New York.  Originations in the State of New York by us and/or our issuing bank partner made up approximately 7% of our 2018 total originations. Additionally, California recently passed legislation which requires us to provide pricing disclosures with respect to loans made by us and our issuing bank partner in California.
We expect these and other types of legislative and regulatory activities to continue in the future as marketplace and online lending grows and becomes the subject of greater public interest.  For example, with the prospect of easing regulatory burdens at the federal level under the current administration, some states have indicated their intention to take more aggressive regulatory action. We cannot predict the outcome of these or other comparable future activities, when or whether they will lead to new laws, regulations or other actions or what they might be. However, the impact and cost of any possible future changes to laws or regulations could be substantial and could also require us to change our business practices and operations in a manner that adversely impacts our business, including by increasing compliance costs or requiring us to limit or modify our lending activities to comply. Additionally, there are a number of possible risks we face in Australia with respect to the Royal Commission's investigation into financial services. We cannot predict the outcome of the investigation, however, it is possible it could require us to change our business practices and operations in a manner that may adversely impact our business.
Changes in laws or regulations, including recent changes under the Tax Cuts and Jobs Act of 2017, or the regulatory application or judicial interpretation of the laws and regulations applicable to us could adversely affect our ability to operate in the manner in which we currently conduct business or make it more difficult or costly for us to make additional loans, or for us to collect payments on loans by subjecting us to additional licensing, registration and other regulatory requirements or restrictions in the future. For example, if our loans were determined for any reason not to be commercial loans or interest rate limitations were imposed on commercial loans, or if the validity of our relationship with an issuing bank partner were successfully challenged under a “true lender” theory or by similar arguments as made in the Madden case, we would be subject to many additional requirements, and our fees and interest arrangements could be challenged by regulators, attorneys general or our customers.
A material failure to comply with any such laws or regulations could result in regulatory actions, lawsuits, penalties and damage to our reputation, which could have a material adverse effect on our business and financial condition and our ability to originate and service loans and perform our obligations to investors and other constituents.
A proceeding relating to one or more allegations or findings of our violation of such laws could result in modifications in our methods of doing business that could impair our ability to collect payments on our loans or to acquire additional loans or could result in the requirement that we pay damages and/or cancel the balance or other amounts owing under such loans. We cannot assure that such claims will not be asserted against us in the future. To the extent it is determined that the loans we make to our customers were not originated in accordance with all applicable laws, we could be obligated to repurchase from the entity holding the applicable loan any such loan that fails to comply with legal requirements. We may not have adequate resources to make such repurchases.
In addition, we do business with third parties who are not part of our funding advisor program, including third parties who may refer potential customers to us or to whom we may refer potential customers for their business. We may refer applicants who do not satisfy our credit requirements to a network of strategic partners who may offer commercial financing opportunities to those applicants. In general, if we refer an applicant that takes a loan from one of our strategic partners, that strategic partner pays us a commission based on the amount of the originated loan. Some strategic partners lend directly to such referred applicants, while other strategic partners may help the referred applicant access multiple commercial funding options on a comparison platform. The partners determine whether to extend credit to referred applicants using their own credit models and criteria. 
Certain states require a license to broker commercial loans or apply other restrictions to loan brokering activities, including applying interest rate limits to certain brokered loans. We believe that our strategic referral program would not be considered loan brokering under those state laws and, as such, would not require us to obtain a license. There is a risk that states could adopt new laws or amend or interpret existing laws to require us to obtain a broker license, impose penalties for noncompliance, or otherwise prevent us from making further referrals and collecting commissions from our referral partners.  Challenges to our program could also result in costly and time-consuming litigation, damage to our reputation and harm our operating results.
If the choice of law provisions in our loan agreements are found to be unenforceable, we may be found to be in violation of state interest rate limit laws.
Although the federal government does not currently regulate the maximum interest rates that may be charged on commercial loan transactions, many states have enacted laws specifying the maximum legal interest rate at which loans can be made in their state. We apply Virginia law to the underlying agreement for loans that we originate because our loans are underwritten and entered into in the state of Virginia, where our underwriting, risk and technology teams function.
Virginia law does not limit interest rates on commercial loans of $5,000 or more. Assuming a court were to recognize and respect this choice of law provision for loans that we originate, Virginia law would be applied to a dispute between the customer

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and us regardless of where the customer is located. We intend for Virginia law to control over any state interest rate limit laws that would otherwise be applicable to these loans. We are not aware of any broad-based legal challenges to date to the applicability of Virginia law to the loans we originate. However, many lending laws were adopted prior to the advent of the internet and related technologies and, as a result, do not expressly contemplate or address the unique issues of the applicability of state laws to online transactions, including in our case, the origination of loans. In addition, laws that do reference the internet are being interpreted by the courts, but their applicability and scope remain uncertain. As a result, we cannot predict whether a court may seek to apply a different state's law to our loans or to otherwise invalidate the applicability of Virginia law to the loans we originate.
If the applicability of Virginia law to these loans were challenged, and these loans were found to be governed by the laws of another state, and such other state has a law that prohibits the effective interest rate of such loans, the obligations of our customers to pay all or a portion of the interest and principal on these loans could be found unenforceable. A judgment that the choice of law provisions in our loan agreements is unenforceable also could result in costly and time-consuming litigation, penalties, damage to our reputation, trigger repurchase obligations, negatively impact the terms of our future loans and harm our operating results. Likewise, a judgment that the choice of law provision in other commercial loan agreements is unenforceable could result in challenges to our choice of law provision and that could result in costly and time-consuming litigation.
In February 2017, in the Madden v. Midland case described in more detail immediately below, the U.S. District Court for the Southern District of New York held that applying the Delaware choice of law specified in the consumer loan contract at issue in the case, which would have resulted in the application of Delaware law that has no limit on allowable interest rates, would violate a fundamental public policy of New York's criminal usury statute. The court then concluded that the New York usury law, and not Delaware law, applied to the loan. That decision, or possible future decisions that similarly invalidate choice of law provisions in loan agreements, could cause us to change the way we do business in particular states and to incur substantial additional expense to comply with the laws of various states, including either licensing as a lender in the various states, altering the terms of our loans, curtailing loan originations, or requiring us to place more loans through our issuing bank partner.
In August 2019, the California Supreme Court held in De La Torre v. CashCall, Inc. that an interest rate on a consumer loan of $2,500 or more in California could be deemed unconscionable even though such loans are not subject to California’s usury laws. Although the California Finance Code sets interest rate caps only on consumer loans less than $2,500, the California Supreme Court did not accept CashCall's position that the statute setting those rates implies that a court may never declare the interest rate on such loans to be unconscionable. While the California Supreme Court did not specifically find that CashCall’s loans were unconscionable, the case was remanded back to the lower courts to make that determination.
While the De La Torre decision applies only to consumer loans in the State of California, we cannot predict whether other courts might reach a similar decision regarding commercial loans. Many other states have adopted the Uniform Commercial Code (UCC) and have directly incorporated the UCC's unconscionability prohibition into their lending statutes. As in California, this broad unconscionability prohibition would permit a merchant in those states to argue that a high interest rate loan is invalid on the basis of unconscionability, even if those states do not otherwise impose interest rate caps on such loans. Such a decision could cause us to change the way we do business in particular states and to incur substantial additional expense to alter the terms of our loans, curtail loan originations, or require us to place more loans through our issuing bank partner.
As a result of court decisions in Madden v. Midland, in some circumstances, federal preemption and application of an out-of-state choice of law provision will not, or may not, be available for the benefit of certain non-bank purchasers of loans to defend against a state law claim of usury.
Over the past few years there have been several litigation and enforcement actions aimed at issuing banks and their non-bank lending partners. These actions have primarily challenged the validity of the issuing bank partner model that is used by many non-bank lenders, including by OnDeck as described in greater detail above.
In May 2015, the U.S. Court of Appeals for the Second Circuit held in Madden v. Midland Funding, LLC that federal law did not preempt a state’s interest rate limitations when applied to a non-bank debt buyer of a consumer credit card loan seeking to collect interest at the rate originally contracted for by a national bank. The Second Circuit did not decide, and remanded to the U.S. District Court for the Southern District of New York, the question of whether New York law (the law of the state where the debtor lived) or Delaware law (the governing law stated in the loan agreement) governed the terms of the loan agreement.  Although the Second Circuit case was appealed, in June 2016 the United States Supreme Court declined to review the case, which had the effect of leaving the decision of the Second Circuit intact.
In February 2017, the U.S. District Court for the Southern District of New York on remand held that applying the Delaware choice of law specified in the loan contract, which would have resulted in the application of Delaware law that has no applicable limit on allowable interest rates, would violate a fundamental public policy of New York's criminal usury statute. The court then concluded that the New York usury law, and not Delaware law, applied to the consumer loan at issue in the case.

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The Second Circuit’s holding in the Madden case is binding on federal courts in the states included in the Second Circuit - New York, Connecticut and Vermont. If the Second Circuit's decision were extended and upheld by courts outside of the Second Circuit, it could pose a challenge to the federal preemption of state interest rate limitations for loans made by issuing bank partners in those states. Additionally, if the decision by the U.S. District Court for the Southern District of New York applying the law of the state of the borrower (rather than the governing law stated in the loan agreement) were applied by a state or federal court outside of the Southern District of New York, then loans originated by us (or a portion of the principal and/or interest on such loans) might be unenforceable, and penalties could apply depending if the terms of such loans were deemed contrary to the law of the state of the borrower. There could be other related liabilities and reputational harm if OnDeck or a subsequent transferee of a bank-issued loan were to seek to collect on those amounts deemed to be in violation of applicable state law. In addition, the U.S. District Court in the Madden case certified a class action to pursue other remedies against the defendants in that case. It is possible that other out-of-state lenders making loans to borrowers in New York, including us, may be subject to similar claims.
While the Madden decision suggests that non-bank purchasers may not be entitled to utilize federal preemption of state interest rate limitations for loans made by issuing bank partners in those states, there have also been numerous litigation and enforcement actions that challenge the status of the issuing bank partner as the “true lender” of the loan in question. These actions primarily rely on the reasoning set forth in CashCall, Inc. v. Morrisey. In that case, the court held that the non-bank consumer lending platform, CashCall, and not its bank partner, was the “true lender” for certain loans made to West Virginia residents. The court relied on a “predominate economic interest” test that sought to determine which party (as between the issuing bank and the non-bank lending platform) retained the most economic risk in the loan transaction and should, therefore, be deemed the “true lender” of the loan. The CashCall decision and other similar actions challenge whether the loans should be subject to the interest rate limitations in the state where the consumer is located rather than in the bank’s home state because the non-bank lending platform, and not the bank, is the “true lender.” The state law remedies with respect to the "true lender" actions vary depending on the jurisdiction in which the action is filed.
The U.S. District Court’s decision in the Madden case, if extended to apply to our loans, and the various "true lender" actions referenced above, could limit the interest rates we can charge on certain of our loans in New York and possibly in the other states that have criminal usury caps, namely Florida, Georgia, Louisiana, Massachusetts, Michigan, New Jersey, Ohio, and Pennsylvania. In those circumstances, we may need to alter the terms of certain loans we make in those states or otherwise change the way we do business in those states, we may be subject to litigation and we may suffer an adverse impact on our business.
If our relationship with our issuing bank partner was to end or the legal structure supporting such relationship was to be successfully challenged, then we may have to comply with additional laws, regulations, and restrictions, and certain states may require us to obtain a lending or similar license.
In states that do not require a license to make commercial loans, we make term loans and extend lines of credit directly to customers pursuant to Virginia law, which is the governing law we require in the underlying loan agreements with our customers. However, some states and jurisdictions require a license to make or solicit certain commercial loans in that state or jurisdiction and/or may not honor a Virginia choice of law. These states assert either that their own licensing laws and requirements should generally apply to commercial loans made by nonbanks to residents of their state or apply to commercial loans made by nonbanks to residents of their state of certain principal amounts or with certain interest rates or other terms. In such states and jurisdictions and in some other circumstances, term loans and lines of credit are made by our issuing bank partner, which is not subject to state licensing. For the years ended December 31, 2018, 2017 and 2016, loans made by our issuing bank partner constituted 18.9%, 22.6%, and 22.2%, respectively, of the loans made during such periods. These loans are not governed by Virginia law, but rather the laws of the issuing bank partner’s home state, which is Utah law in the case of our issuing bank partner, Celtic Bank. The remainder of our term loans and lines of credit provide that they are to be governed by Virginia law. Our issuing bank partner currently originates all loans in California, Nevada, North Dakota, South Dakota and Vermont as well as some loans in other states and jurisdictions. Although such states and jurisdictions may have licensing requirements and/or interest rate limits that purport to apply to some or all commercial loans, all such licensing requirements and/or interest rate limits that would otherwise be applicable are federally preempted when these loans are originated by a federally chartered or state chartered issuing bank partner. Loans originated by our issuing bank partner are generally priced the same as loans originated by us under Virginia law. While the other U.S. states where we originate loans currently honor our Virginia choice of law, future legal changes could result in any one or more of those states no longer honoring our Virginia choice of law. In that case, we could potentially address the legal change by altering the terms of our loans, curtailing our originations, or placing more loans through our issuing bank partner.
If we were otherwise not able to work with an issuing bank partner or if we were to seek to make loans directly in those states referenced above, we would have to attempt to comply with the laws of these states in other ways, including through obtaining the appropriate licenses. Compliance with the laws of such states could be costly, and if we are unable to obtain such licenses, our lending activity could substantially decrease or cease entirely and our revenues, growth and profitability would be harmed. In addition, if our activities under the current arrangement with our issuing bank partner were deemed to constitute lending or solicitation within any such jurisdiction that would require a license to engage in such activities, we could be found to have engaged

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in impermissible lending activities within such jurisdictions. As a result, we could be subjected to fines and other penalties, all or a portion of the principal and interest charged on the applicable loans could be found to be unenforceable and, to the extent it is determined that such loans were not originated in accordance with all applicable laws, we could be obligated to repurchase any loans from our debt facilities and OnDeck Marketplace participants that failed to comply with such legal requirements. Any finding that we engaged in unlicensed lending or solicitation in states for which a license was required could lead to litigation and fines, harm our reputation and negatively impact our operating results.
Security breaches of customers’ confidential information that we store may harm our reputation and expose us to liability.
We store our customers’ bank information, credit information and other sensitive data. Any accidental or willful security breaches or other unauthorized access could cause the theft and criminal use of this data. Security breaches or unauthorized access to confidential information could also expose us to liability related to the loss of the information, time-consuming and expensive litigation and negative publicity. If security measures are breached because of third-party action, employee error, malfeasance or otherwise, or if design flaws in our software are exposed and exploited, and, as a result, a third party obtains unauthorized access to any of our customers’ data, our relationships with our customers will be severely damaged, and we could incur significant liability.
Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched against a target, we and our third-party hosting facilities may be unable to anticipate these techniques or to implement adequate preventative measures. In addition, many states have enacted laws requiring companies to notify individuals of data security breaches involving their personal data. These mandatory disclosures regarding a security breach are costly to implement and often lead to widespread negative publicity, which may cause our customers to lose confidence in the effectiveness of our data security measures. Any security breach, whether actual or perceived, would harm our reputation and we could lose customers.
The collection, processing, use, storage, sharing and transmission of personal data could give rise to liabilities as a result of federal, state and international laws and regulations, as well as our failure to adhere to the privacy and data security practices that we articulate to our customers.
We collect, process, store, use, share and/or transmit a large volume of personally identifiable information and other sensitive data from current, past and prospective customers. There are federal, state, and foreign laws regarding privacy and the collection, use, storage, protection, sharing and/or transmission of personally identifiable information and sensitive data. Additionally, many states continue to enact legislation on matters of privacy, information security, cybersecurity, data breach and data breach notification requirements. For example, California recently passed legislation which entitles California residents with the right to know about what personal information on them is being collected.
Any violations of these laws and regulations may require us to change our business practices or operational structure, including limiting our activities in certain states and/or jurisdictions, address legal claims, and sustain monetary penalties, reputational damage and/or other harms to our business.
Furthermore, our online privacy policy and website make certain statements regarding our privacy, information security, and data security practices with regard to information collected from our customers. Failure to adhere to such practices may result in regulatory scrutiny and investigation, complaints by affected customers, reputational damage and other harm to our business. If either we, or the third party service providers with which we share customer data, are unable to address privacy concerns, even if unfounded, or to comply with applicable laws and regulations, it could result in additional costs and liability, damage our reputation, and harm our business.
Our ability to collect payment on loans and maintain accurate accounts may be adversely affected by computer malware, social engineering, phishing, physical or electronic break-ins, technical errors and similar disruptions.
The automated nature of our platform may make it an attractive target for hacking and potentially vulnerable to computer viruses, physical or electronic break-ins and similar disruptions. It is possible that we may not be able to anticipate or to implement effective preventive measures against all security breaches of these types, in which case there would be an increased risk of fraud or identity theft, and we may experience losses on, or delays in the collection of amounts owed on, a fraudulently induced loan. Security breaches could occur from outside our company, and also from the actions of persons inside our company who may have authorized or unauthorized access to our technology systems. In addition, the software that we have developed to use in our daily operations is highly complex and may contain undetected technical errors that could cause our computer systems to fail. Because each loan that we make involves our proprietary automated underwriting process, any failure of our computer systems involving our automated underwriting process and any technical or other errors contained in the software pertaining to our automated underwriting process could compromise our ability to accurately evaluate potential customers, which would negatively impact

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our results of operations. Furthermore, any failure of our computer systems could cause an interruption in operations and result in disruptions in, or reductions in the amount of, collections from the loans we make to our customers.
Additionally, if a hacker were able to access our secure files, he or she might be able to gain access to the personal information of our customers. If we are unable to prevent such activity, we may be subject to significant liability, negative publicity and a material loss of customers, all of which may negatively affect our business.
Our business is subject to the risks of hurricanes, earthquakes, fires, floods and other natural disasters, power outages, telecommunications failures and similar events, and to interruption by man-made problems such as terrorism, cyberattack, and other actions. Comparable risks may also impact the demand for our loans or our customers’ ability to repay their loans.
Events beyond our control may damage our ability to accept our customers’ applications, underwrite loans, maintain our platform or perform our servicing obligations. Such events include, but are not limited to, hurricanes, earthquakes, fires, floods and other natural disasters, power outages, telecommunications failures and similar events. Despite any precautions we may take, system interruptions and delays could occur if there is a natural disaster, if a third-party provider closes a facility we use without adequate notice for financial or other reasons, or if there are other unanticipated problems at our leased facilities. As we rely heavily on our servers, computer and communications systems and the internet to conduct our business and provide high-quality customer service, such disruptions could harm our ability to run our business and cause lengthy delays which could harm our business, results of operations and financial condition. We currently are not able to switch instantly to our backup center in the event of failure of the main server site. This means that an outage at one facility could result in our system being unavailable for a significant period of time. Man-made problems such as terrorism, cyberattack, and other criminal, tortious or unintentional actions could also give rise to significant disruptions to our operations. Our business interruption insurance may not be sufficient to compensate us for losses that may result from interruptions in our service as a result of system failures or other disruptions. Comparable natural and man-made risks may reduce demand for our loans or cause our customers to suffer significant losses and/or incur significant disruption in their respective operations, which may affect their ability to repay their loans.  All of the foregoing could materially and adversely affect our business, results of operations and financial condition.
We rely on data centers to deliver our services. Any disruption of service at these data centers could interrupt or delay our ability to deliver our service to our customers.
We currently serve our customers from two third-party data center hosting facilities in New Jersey and Colorado, as well as "cloud" data centers which delivers service over the internet. The continuous availability of our service depends on the operations of these facilities and cloud services, on a variety of network service providers, on third-party vendors and on data center operations staff. In addition, we depend on the ability of our third-party facility and cloud service providers to protect the facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts and similar events. If there are any lapses of service or damage to these facilities and cloud services, we could experience lengthy interruptions in our service as well as delays and additional expenses in arranging new facilities and services. Even with current and planned disaster recovery arrangements, our business could be harmed.
We designed our system infrastructure and procure and own or lease the computer hardware used for our services. Design and mechanical errors, failure to follow operations protocols and procedures could cause our systems to fail, resulting in interruptions in our platform. Any such interruptions or delays, whether as a result of third-party error, our own error, natural disasters or security breaches, whether accidental or willful, could harm our relationships with customers and cause our revenue to decrease and/or our expenses to increase. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue and subject us to liability, which could materially adversely affect our business.
We are obligated to maintain internal control over financial reporting and our management is required to report annually on the effectiveness of these internal controls. After December 2019 our independent registered public accounting firm will also be required to formally attest to the effectiveness of our internal control over financial reporting. Any determination that these internal controls are not effective may adversely affect investor confidence in our company and, as a result, the value of our common stock.
We are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting as of December 31, 2018 and as of subsequent year ends. However, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, until after we lose “emerging growth company" status effective December 31, 2019. As a result the audit of our of our financial statements as of and for the year ending December 31, 2019 will be the first time that our independent registered public accounting firm will be required to formally attest to the effectiveness of our internal control over financial reporting.

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Management's assessment of internal control over financial reporting, and next year, the attestation of our independent registered public accounting firm, needs to include disclosure of any material weaknesses identified in our internal control over financial reporting.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.
We cannot assure you that we will not in the future have material weaknesses. Because we are still an "emerging growth company" under the JOBS Act, our independent registered public accounting firm has not formally evaluated the measures we have taken to address any deficiencies. We will cease to be an "emerging growth company" effective December 31, 2019. In preparation for the additional disclosure and regulatory requirements associated with our loss of "emerging growth company" status, we are continuing in our efforts to transition to a more developed internal control environment that incorporates increased automation, risk management procedures, and quality assurance testing. The actions we have taken and plan to take are subject to ongoing senior management review and audit committee oversight.
We also may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting that we are unable to remediate before the end of the same fiscal year in which the material weakness is identified or if we are otherwise unable to maintain effective internal controls over financial reporting, we will be unable to assert that our internal controls are effective. If we are unable to assert that our internal control over financial reporting is effective, or beginning next year if our auditors are unable to attest to management’s report on the effectiveness of our internal controls, we could lose investor confidence in the accuracy and completeness of our financial reports, which would cause the price of our common stock to decline.
We are also required to disclose material changes made in our internal controls and procedures on a quarterly basis. To comply with the requirements of being a public company, we may need to undertake various actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff.
We will incur increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our results of operations and our ability to attract and retain qualified executives and board members.
As a public company we incur significant legal, accounting, and other expenses that we did not incur as a private company. These expenses are increasing in preparation for when we cease to be an “emerging growth company” effective December 31, 2019 and will continue to increase thereafter. In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the SEC and the New York Stock Exchange, or NYSE, impose various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, we expect these rules and regulations and future regulations will continue to increase our legal, accounting and financial compliance costs and will make some activities more time consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or to incur substantial costs to maintain the same or similar coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.
In addition, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, we are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. As long as we remain an “emerging growth company," which will cease effective December 31, 2019, we may elect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an “emerging growth company” and, when our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we are not able to comply with the requirements of Section 404 applicable to us in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.

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Furthermore, investor perceptions of our company may suffer if deficiencies are found, and this could cause a decline in the market price of our stock. Irrespective of compliance with Section 404, any failure of our internal control over financial reporting could have a material adverse effect on our stated operating results and harm our reputation. We expect to have in place accounting, internal audit and other management systems and resources that will allow us to maintain compliance with the requirements of the Sarbanes-Oxley Act at the end of any phase-in periods permitted by the NYSE, the SEC and the JOBS Act. If we are unable to implement these changes effectively or efficiently, it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal control from our independent registered public accounting firm.
Our business may be adversely affected by disruptions in the credit markets, our failure to comply with our debt agreements, or the termination or expiration of, or our inability to replace, our debt agreements, any of which could result in reduced access to credit and other financing. This could materially and adversely effect our business and our prospects
Historically, we have depended on debt facilities and other forms of debt in order to finance most of the loans we make to our customers. However, we cannot guarantee that these financing sources will continue to be available beyond the current maturity date of each debt facility, on reasonable terms or at all. As the volume of loans that we make to customers on our platform increases, we may require the expansion of our borrowing capacity of our existing debt facilities and other debt arrangements or the addition of new sources of capital. The availability of these financing sources depends on many factors, some of which are outside of our control. We may also experience the occurrence of events of default or breaches of financial performance or other covenants under our debt agreements, which could reduce or terminate our access to institutional funding.
We also rely on securitization as part of our funding strategy and have executed three securitization transactions, one of which, with $225 million of capacity, is currently outstanding under which cash flow can be used to purchase additional loans through March 2020. There can be no assurance that we will be able to successfully access the securitization markets again. In the event of a sudden or unexpected shortage of funds in the banking and financial system, we cannot be sure that we will be able to maintain necessary levels of funding without incurring high funding costs, a reduction in the term of funding instruments or the liquidation of certain assets.
Furthermore, two of our debt facilities are scheduled to mature in March 2019, representing an aggregate of $339 million of debt capacity. We may not be able to extend or renew these maturing debt facilities.
Accordingly, if we are unable to renew or otherwise replace these facilities or generally arrange new or alternative methods of financing, our ability to finance additional loans utilizing these financing sources will end. The interest rates and other costs of new, renewed or amended facilities may also be higher than those currently in effect. If we are unable to renew or otherwise replace these facilities or generally arrange new or alternative methods of financing on favorable terms, we may be forced to curtail our origination of loans or reduce operations, which would have a material adverse effect on our business, financial condition, operating results and cash flow. It is possible that we may require capital in excess of amounts we currently anticipate.  Depending on market conditions and other factors, we may not be able to obtain additional capital for our current operations or anticipated future growth on reasonable terms or at all.
In addition, in July 2017 the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our results of operations cannot yet be determined. In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market value for or value of any LIBOR-linked loans, and other financial obligations or extensions of credit held by us and could have a material adverse effect on our business, financial condition and results of operations.
Increases in customer default rates could make us and our loans less attractive to lenders under debt facilities and investors in securitizations and institutional purchasers in OnDeck Marketplace which may adversely affect our access to financing and our business.
We principally rely on credit facilities and securitizations to fund our loans.  Increases in customer default rates could make us and our loans less attractive to our existing (or prospective) funding sources.  If our existing funding sources do not achieve their desired financial returns or if they suffer losses, they (or prospective funding sources) may increase the cost of providing future financing or refuse to provide future financing on terms acceptable to us or at all.
Our debt facilities at our subsidiaries and our securitization are non-recourse to On Deck Capital, Inc. and are collateralized by our loans.  If the loans securing such debt facilities and securitization fail to perform as expected, the lenders under our credit facilities and investors in our securitization, or future lenders or investors in similar arrangements, may increase the cost of providing financing or refuse to provide financing on terms acceptable to us or at all.

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If we were to be unable to arrange new or alternative methods of financing on favorable terms, we may have to curtail or cease our origination of loans, which could have a material adverse effect on our business, financial condition, operating results and cash flow.
We are exposed to financial risks that may be partially mitigated but cannot be eliminated by our hedging activities, which carry their own risks.
We have used, and may in the future use, financial instruments for hedging and risk management purposes in order to protect against possible fluctuations in interest rates, foreign currencies or for other reasons that the we deem appropriate. For example, in December 2018 we entered into an interest rate cap to manage the risk on a portion of our variable-rate debt. The interest rate cap matures in January 2021 and would entitle us to receive payments from the counterparty if interest rates rise above a predetermined rate. However, our interest rate cap, and any future hedges we enter into, will not completely eliminate the risk associated with rising interest rates and our hedging activities may prove to be ineffective. Any such failure to eliminate the risks associated with rising interest rates may cause the amounts due under our debt facilities and other debt arrangements to increase due to changes in interest rates. Similar risks would be associated with attempts to hedge foreign currency exposure, and we would always be exposed to counterparty risk.
The success of our hedging strategy will be subject to our ability to correctly assess counterparty risk and the degree of correlation between the performance of the instruments used in the hedging strategy and any changes in interest rates or foreign currency exchange rates, along with our ability to continually recalculate, readjust and execute hedges in an efficient and timely manner. Therefore, though we may enter into transactions to seek to reduce risks, unanticipated changes may create a more negative consequence than if we had not engaged in any such hedging transactions. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the debt facilities, other debt arrangements or foreign currencies being hedged. Any such imperfect correlation may prevent us from achieving the effect of the intended hedge and expose us to risk of loss.  Any failure to manage our hedging positions properly or inability to enter into hedging instruments upon acceptable terms could affect our financial condition and results of operations.
We require substantial capital and in the future may require additional capital to pursue our business objectives and profitability strategy and, in particular, our ability to fund loan originations. If adequate capital is not available to us, our business, operating results and financial condition may be harmed.
Since our founding, we have raised substantial equity and debt financing to support the growth of our business. Because we intend to continue to make investments to support the growth of our business, we may require additional capital to pursue our business objectives and growth strategy and respond to business opportunities, challenges or unforeseen circumstances, including lending to our customers, increasing our marketing expenditures to attract new customers and improving our brand awareness, developing and offering loans with new characteristics, introducing new loans or services, further expanding internationally in existing or new countries or further improving existing offerings and services, enhancing our operating infrastructure and potentially acquiring complementary businesses and technologies. Accordingly, on a regular basis we need, or we may need, to engage in equity or debt financings to secure additional funds. However, additional funds may not be available when we need them, in amounts we need, or permitted to be applied to specific use cases, on terms that are acceptable to us or at all. In particular, we may require additional access to capital support our lending operations. Volatility in the credit markets in general or in the market for small business or internet loans in particular may also have an adverse effect on our ability to obtain debt financing. Furthermore, the cost of our borrowing may increase due to market volatility, changes in the risk premiums required by lenders or if traditional sources of debt capital are unavailable. Volatility or depressed valuations or trading prices in the equity markets may similarly adversely affect our ability to obtain equity financing. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock.
We expect that we will continue to use our available cash to fund a portion of our loan book, fund the portion of loans that exceeds the maximum percentage of collateral that may be financed through existing debt facilities, and to support our growth initiatives and general operations. To supplement our cash resources, we may seek to expand or modify our existing debt facilities to provide additional capacity, increase the maximum percentage of collateral that may be financed, as well as expand loan eligibility; add new debt facilities or replace or renew debt facilities scheduled to expire; enter into additional securitizations; increase the size of, or replace, our corporate debt facility; and other potential options. If we are unable to adequately maintain our cash resources, we may delay non-essential capital expenditures; implement cost cutting procedures; delay or reduce future hiring; or reduce our rate of future originations compared to current level. There can be no assurance that we can obtain sufficient sources of external capital to support the growth of our business. Delays in doing so or failure to do so may require us to reduce loan originations or reduce our operations, which would harm our ability to pursue our business objectives as well as harm our business, operating results and financial condition.

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We may not have adequate funding capacity in the event that an unforeseen number of customers to whom we have extended a line of credit decide to draw their lines at the same time.
Our current capacity to fund our customers’ lines of credit through existing debt facilities is limited. Accordingly, we maintain cash available to fund our customers’ lines of credit based on the amount that we foresee these customers drawing down. For example, if we make available a line of credit for $15,000 to a small business, we may only reserve a portion of this amount at any given time for immediate draw down. We base the amount that we reserve on our analysis of aggregate portfolio demand and the historical activity of customers using these lines of credit. However, if we inaccurately predict the number of customers that draw down on their lines of credit at a certain time, or if these customers draw down in greater amounts than we forecast, we may not have enough funds available to lend to them. Failure to provide funds drawn down by our customers on their lines of credit may lead to negative customer experience, damage our reputation and inhibit our growth.
Our agreements with our lenders contain a number of early payment triggers and covenants. A breach of such triggers or covenants or other terms of such agreements could result in an early amortization, default, and/or acceleration of the related funding facilities which could materially impact our operations.
Primary funding sources available to support the maintenance and growth of our business include, among others, an asset-backed securitization facility, other asset-backed revolving debt facilities and corporate debt. Our liquidity would be materially adversely affected by our inability to comply with various covenants and other specified requirements set forth in our agreements with our lenders which could result in the early amortization, default and/or acceleration of our existing facilities. Such covenants and requirements include financial covenants, portfolio performance covenants and other events. For a description of these covenants, requirements and events, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.
During an early amortization period or occurrence of an event of default, principal collections from the loans in our asset-backed facilities would be applied to repay principal under such facilities rather than being available on a revolving basis to fund purchases of newly originated loans. During the occurrence of an event of default under any of our facilities, the applicable lenders could accelerate the related debt and such lenders’ commitments to extend further credit under the related facility would terminate. Our asset-backed securitization trust would not be able to issue future series out of such securitization if an early amortization event occurred. If we were unable to repay the amounts due and payable under such facilities, the applicable lenders could seek remedies, including against the collateral pledged under such facilities. An acceleration of the debt under one facility could also lead to a default under other facilities due to cross-acceleration provisions.
An early amortization event or event of default would negatively impact our liquidity, including our ability to originate new loans, and require us to rely on alternative funding sources, which might increase our funding costs or which might not be available when needed. If we were unable to arrange new or alternative methods of financing on favorable terms, we might have to curtail the origination of loans, which could have a material adverse effect on our business, financial condition, operating results and cash flow, which in turn could have a material adverse effect on our ability to meet our obligations under our facilities.
We act as servicer with respect to our facilities. If we default in our servicing obligations, an early amortization event or default could occur with respect to the applicable facility and we could be replaced as servicer.
In connection with the sale of our loans to our subsidiaries, we make representations and warranties concerning the loans we sell. If those representations and warranties are not correct, we could be required to repurchase the loans. In addition, we may, from time to time, voluntarily purchase loans previously sold to third parties. Any significant required repurchases and/or voluntary purchases could have an adverse effect on our ability to operate and fund our business.
In our asset-backed securitization facility and our other asset-backed revolving debt facilities, we transfer loans to our subsidiaries and make numerous representations and warranties concerning the loans we transfer, including representations and warranties that the loans meet the eligibility respective requirements of such facilities. If the representations and warranties that the loans meet the eligibility requirements are incorrect, we may be required to repurchase the loans not satisfying the eligibility requirements. Failure to repurchase any loans when required would constitute an event of default under the securitization and other asset-backed facilities. At the request of a loan purchaser, we may voluntarily decide to purchase loans sold to third parties. There is no assurance, however, that we would have adequate resources to make such purchases or, if we did make the purchases, that such event might not have a material adverse effect on our business. From 2016 through 2018, we voluntarily purchased $21.3 million of loans for strategic business reasons and we may, from time to time, do so again in the future. The purchase of loans in large quantities, both on a mandatory or voluntary basis, may have an adverse impact on our liquidity and our ability to originate loans, especially if we are unable to refinance such loans and elect to rely on available cash to purchase them.

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Financial regulatory reform relating to asset-backed securities has not been fully implemented and there is uncertainty regarding its continuation, both of which could have a significant impact on our ability to access the asset-backed market.
We rely upon asset-backed financing for a significant portion of our funds with which to carry on our business. Asset-backed securities and the securitization markets were heavily affected by the Dodd-Frank Act, which was signed into law in 2010, and have also been a focus of increased regulation by the SEC. However, some of the regulations to be implemented under the Dodd-Frank Act have not yet been finalized and other asset-backed regulations that have been adopted by the SEC have delayed effective dates. For example, the Dodd-Frank Act mandates the implementation of rules requiring securitizers or originators to retain an economic interest in a portion of the credit risk for any asset that they securitize or originate. In October 2014, the SEC adopted final rules in relation to such risk retention, but such rules did not become effective with respect to our transactions until late in 2016. In addition, the SEC previously proposed separate rules which would affect the disclosure requirements for registered as well as unregistered issuances of asset-backed securities. The SEC has recently adopted final rules which affect the disclosure requirements for registered issuances of asset-backed securities backed by residential mortgages, commercial mortgages, auto loans, auto leases and debt securities. However, final rules that would affect the disclosure requirements for registered issuances of asset-backed securities backed by other types of collateral or for unregistered issuances of asset-backed securities have not been adopted. Additionally, there is general uncertainty regarding what changes, if any, may be implemented with regards to the Dodd-Frank Act. Any new rules or changes to the Dodd-Frank Act (or the current rules thereunder), if implemented could adversely affect our ability to access the asset-backed market or our cost of accessing that market.
Our business depends on our ability to fund our loans and collect payment on and service the loans we make to our customers.
We rely on unaffiliated banks for the Automated Clearing House, or ACH, transaction process used to disburse the proceeds of newly originated loans to our customers and to automatically collect scheduled payments on the loans. As we are not a bank, we do not have the ability to directly access the ACH payment network, and must therefore rely on an FDIC-insured depository institution to process our transactions, including loan payments. We also rely on the facilities of third parties for our line of credit instant funding option via small businesses debit cards. If we cannot continue to obtain such services from our current institutions or elsewhere, or if we cannot transition to another processor quickly, our ability to fund loans and process payments will suffer. If we fail to fund loans promptly as expected, we risk loss of customers and damage to our reputation which could materially harm our business. If we fail to adequately collect amounts owing in respect of the loans, as a result of the loss of direct debiting or otherwise, then payments to us may be delayed or reduced and our revenue and operating results will be harmed.
We rely on our management team and need additional key personnel to grow our business, and the loss of key employees or inability to hire key personnel could harm our business.
We believe our success has depended, and continues to depend, on the efforts and talents of our executives and employees, including Noah Breslow, our Chief Executive Officer. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. In addition, the loss of any of our senior management or key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Our executive officers and other employees are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business could be materially and adversely affected.
Competition for our employees is intense, and we may not be able to attract and retain highly skilled employees whom we need to support our business. Additionally, uncertainty about significant changes to immigration policy by the current administration has created uncertainty about the future of sponsoring current or prospective employees.
Competition for our employees, including and especially highly skilled engineering, data analytics and risk management professionals, is extremely intense reflecting a tight labor market, particularly in New York City. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive financial terms of employment. In addition, candidates making employment decisions often consider the value of any equity they may receive in connection with their employment. Any significant volatility or performance issues in the price of our stock may adversely affect our ability to attract or retain highly skilled technical, financial, marketing and other personnel. In in order to pursue our growth strategy, we will be required to hire additional highly skilled engineering, data analytics and risk management personnel.
In addition, we also invest significant time and expense in engaging and developing our employees, which increases their value to other companies that may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in

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hiring, engaging and developing their replacements and the quality of our services and our ability to serve our customers could diminish, resulting in a material adverse effect on our business.
The current administration has called for significant changes to immigration policy. In this regard, there is significant uncertainty with respect to legislation, regulation and government policy at the federal level, as well as the state and local levels, as it relates to immigration. For example, recent U.S. immigration policy has made it more difficult for qualified foreign nationals to obtain or maintain work visas under the HB-1 classification. These HB-1 visa limitations make it more difficult and/or more expensive for us to hire the skilled professionals we need to execute our growth strategy, especially engineering, data analytics and risk management personnel, and may adversely impact our business.
We face increasing competition and, if we do not compete effectively, our operating results could be harmed.
We compete with other companies that lend to small businesses. These companies include traditional banks, merchant cash advance providers, newer, technology-enabled lenders and so-called "closed-loop lenders" that both process sales and/or payments transactions for small businesses and offer loans to those small businesses. In addition, other technology companies that primarily lend to individual consumers have been focusing, or may in the future focus, their efforts on lending to small businesses. Competition has intensified in small business lending and this trend may continue.
In some cases, our competitors focus their marketing on our industry sectors and seek to increase their lending and other financial relationships with specific industries such as restaurants. In other cases, some competitors may offer a broader range of financial products to our clients, and some competitors may offer a specialized set of specific products or services. Many of these competitors have significantly more resources and greater brand recognition than we do and may be able to attract customers more effectively than we do. In addition, as more and more competitors market to the same small businesses, it may be more difficult and expensive for us to build our brand and achieve or maintain favorable customer response rates.
When new competitors seek to enter one of our markets, or when existing market participants seek to increase their market share, they sometimes undercut the pricing and/or credit terms prevalent in that market, which could adversely affect our market share and/or ability to exploit new market opportunities. Our pricing and credit terms could deteriorate if we act to meet these competitive challenges. Further, to the extent that the commissions we pay to our strategic partners and funding advisors are not competitive with those paid by our competitors, whether on new loans or renewals or both, these partners and advisors may choose to direct their business elsewhere. Those competitive pressures could also result in us reducing the origination fees or interest we charge to our customers. In addition, increased competition for customer response could require us to incur higher customer acquisition costs and make it more difficult for us to grow our loan originations in both unit and volume for both new as well as repeat customers. All of the foregoing could adversely affect our business, results of operations, financial condition and future growth.
Our success and future growth depend in part on our successful marketing efforts and increased brand awareness. As part of our cost rationalization program, we have reduced our investment in our brand. Failure to effectively use our brand to convert sales may negatively affect our growth and our financial performance.
We believe that an important component of our growth will be continued market penetration through marketing directly to small businesses. To achieve this growth, we anticipate relying on marketing and advertising while controlling customer acquisition cost. As part of our 2017 cost rationalization program, we reduced our investment in brand advertising while seeking to gain marketing efficiencies. While our goal remains to increase the strength, recognition and trust in the OnDeck brand, drive more unique visitors to submit loan applications on our website, and ultimately increase the number of loans made to our customers, our decision to reduce spending in this area and seek greater efficiencies could adversely affect our growth. We incurred expenses of $44.1 million and $52.8 million on sales and marketing in the years ended December 31, 2018 and 2017, respectively.
Our business model relies on our ability to continue to scale and to decrease incremental customer acquisition costs as we grow. If we are unable to recover our marketing costs through increases in the number of loans we make, or if we maintain recent levels of brand investment or continue to reduce or discontinue our broad marketing campaigns, it could have a material adverse effect on our growth, results of operations and financial condition.
To the extent that funding advisor program partners, other third parties or internal sales representatives mislead loan applicants or engage or previously engaged in disreputable behavior, our reputation may be harmed and we may face liability.
We rely on third-party independent advisors, including commercial loan brokers, which we call funding advisor program partners, or FAPs, for a significant portion of the customers to whom we issue loans. In 2018, 2017 and 2016, loans issued to customers whose applications were submitted to us via the FAP channel constituted 29.4%, 26.9% and 27.3% of our total loan originations, respectively. As a consequence of their status as independent contractors who provide services for multiple lenders,

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we have less control of FAP sales activities versus our internal sales representatives.  In early 2015, we took a number of steps to enhance our then existing efforts to mitigate the risks associated with the FAP channel, as discussed below.
Because FAPs earn fees on a commission basis, FAPs may have an incentive to mislead loan applicants, facilitate the submission by loan applicants of false application data or engage in other disreputable behavior so as to earn additional commissions. In addition, it is possible that some FAPs may attempt to charge additional fees despite our contractual prohibitions. We also rely on our direct sales agents for customer acquisition in our direct marketing channel, who may also be motivated to engage in disreputable behavior to increase our customer base because such direct sales agents are paid on a commission basis. If FAPs or our direct sales agents mislead our customers or engage in any other disreputable behavior, our customers are less likely to be satisfied with their experience and to become repeat customers, and we may be subject to costly and time-consuming disputes, including lawsuits and fines from regulators, which could harm our reputation and operating performance. Negative publicity relating to FAPs or internal sales representatives could impair our ability to continue to increase our revenue and our business could otherwise be materially and negatively impacted.
In early 2015, we significantly enhanced the nature and scope of the due diligence conducted on both prospective and existing FAPs.  We update such due diligence on all existing FAPs on an annual basis and continue to conduct enhanced due diligence on new prospective FAPs. We also implemented certain enhanced contractual provisions and compliance-related measures related to our funding advisor program, including FAP training, issuing a FAP code of conduct and conducting welcome calls or distributing welcome surveys to customers who worked with FAPs to survey the FAPs’ practices (which, if in violation of our code or contract, could lead to termination). While these measures were intended to improve certain aspects and reduce the risks of how we work with funding advisors and how they work with our customers, we cannot assure that these measures will work or continue to work as intended, that other compliance-related concerns will not emerge in the future, that the funding advisors will comply with these measures, and that these measures will not negatively impact our business from this channel, including our financial performance, or have other unintended or negative impacts on our business beyond the FAP channel, such as with existing or potential strategic partners, customers or funding sources.
In addition, we do business with third parties who are not part of our funding advisor program, including third parties who may refer potential customers to us. Although such third parties are not supposed to sell or make representations about OnDeck products, but instead refer to our internal processes including our direct sales force, we are exposed to the risks of potential misleading or disreputable behavior from these third parties as well as from our FAPs.
As to our sales force, we provide our internal sales representatives with sales scripts that have been reviewed by our compliance team.  Sales representatives receive rigorous training, including in-person training conducted by our compliance team on avoiding unfair, abusive, and deceptive practices.  In addition, internal sales representative calls are recorded and monitored for purposes of compliance and quality assurance, and there is a quality assurance team dedicated to these efforts, which efforts have continued to be refined and enhanced. Despite these controls, we cannot assure that that they will work as intended or that all of our internal sales representatives will comply with our procedures. Failure of our internal sales representatives to do so would expose us to the same, or worse, consequences than those relating to the FAP channel because our direct sales channel is larger than our FAP channel and we have more direct control over our internal sales representatives than we have over our FAP channel. We also refer merchants to third party lenders. It is conceivable that we are exposed to risk if such third party lenders engage in wrongful behavior.
We pay commissions to our strategic partners, other third parties and FAPs upfront and generally do not recover them in the event the related term loan or line of credit is eventually charged off.
We pay commissions to strategic partners and FAPs on the term loans and lines of credit we originate through these channels. We pay these commissions at the time the term loan is originated or line of credit is opened. However, we generally do not require that this commission be repaid to us in the event of a default on a term loan or line of credit. While we generally discontinue working with strategic partners and FAPs that refer customers to us that ultimately have unacceptably high levels of defaults, to the extent that our strategic partners and FAPs are not at risk of forfeiting their commissions in the event of defaults, they may, to an extent, be indifferent to the riskiness of the potential customers that they refer to us.
Many of our strategic partnerships are nonexclusive and subject to termination options that, if terminated, could harm the growth of our customer base and negatively affect our financial performance. Additionally, these partners are concentrated and the departure of a significant partner could have a negative impact on our operating results. Lastly, any termination of agreements governing our services platform that facilitates online lending to small business customers through ODX could have a negative impact on our ability to grow this part of our business and negatively impact our operating results.
We rely on strategic partners for referrals of an increasing portion of our customers and our growth depends in part on the growth of these referrals. Over the last five years, loans issued to customers referred to us by our strategic partners have grown to

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become an increasingly significant percentage of our total loan originations, a trend which we expect to continue as we are concentrated on this part of our business.  
Many of our strategic partnerships do not contain exclusivity provisions that would prevent such partners from providing leads to competing companies. In addition, the agreements governing these partnerships contain termination provisions that, if exercised, would terminate our relationship with these partners. Some segments of our partner base have agreements which do not contain a requirement that a partner refer us any minimum number of leads. There can be no assurance that these partners will not terminate our relationship with them or continue referring business to us in the future, and a termination of the relationship or reduction in leads referred to us would have a negative impact on our revenue and operating results.
In addition, a small number of strategic partners refer to us a significant portion of the loans made within this channel. In 2018, 2017 and 2016, loans issued to customers referred to us by our top four strategic partners constituted 11.6%, 11.1% and 12.0% of our total loan originations, respectively. In the event that one or more of these significant strategic partners terminated our relationship or reduced the number of leads provided to us, without some growth offset with other strategic partners, our business would be harmed.
Additionally, we have continued exploring ways to expand the availability of our services platform that facilitates online lending to small business customers through ODX to appropriate partners that could use our platform to make loan decisions. The agreements governing these services contain termination provisions that, if exercised, would terminate our agreement with these partners. A termination of any such agreements may affect our reputation as we seek to expand ODX, and/or have a negative impact on our revenue and operating results.
Any violations of our Code of Business Conduct and Ethics, or the failure to detect any such violations, may cause our business, financial condition or results of operations to be adversely affected.
Our Code of Business Conduct and Ethics prohibits us and our employees from engaging in unethical business practices. In addition, our FAPs are required to comply with a code of conduct, or the FAP Code, tailored to their brokering services. We refer to our Code of Business Conduct and Ethics and the FAP Code collectively referred to as the “Code”. However, there can be no assurance that all of our employees, agents, or contractors will refrain from acting in violation of our Code, or that we will be able to detect any such violations. The investigation into potential violations of our Code, or even allegations of such violations, could disrupt our operations, involve significant management distraction, and lead to significant costs and expenses, and such expenses may have a material adverse effect on our financial results. If we, or our employees, agents or contractors, are found to have engaged in practices that violate our Code, we could suffer severe fines, penalties or other consequences that may have a material adverse effect on our business, financial condition or results of operations. In addition, negative public opinion could result from actual or alleged conduct by us, or our employees, agents or contractors acting on our behalf, in any number of activities or circumstances in violation of our Code, including employment related offenses, such as harassment (sexual or otherwise) and discrimination, regulatory compliance and the use and protection of data and systems, or from actions taken by regulators or others in response to such conduct.
It may be difficult and costly to protect our intellectual property rights, and we may not be able to ensure their protection.
Our ability to lend to our customers depends, in part, upon our proprietary technology, including our loan decisioning process and the OnDeck Score. We may be unable to protect our proprietary technology effectively which would allow competitors to duplicate our business processes and know-how, and adversely affect our ability to compete with them. A third party may attempt to reverse engineer or otherwise obtain and use our proprietary technology without our consent. The pursuit of a claim against a third party for infringement of our intellectual property could be costly, and there can be no guarantee that any such efforts would be successful.
In addition, our platform may infringe upon claims of third-party intellectual property, and we may face intellectual property challenges from such other parties. We may not be successful in defending against any such challenges or in obtaining licenses to avoid or resolve any intellectual property disputes. The costs of defending any such claims or litigation could be significant and, if we are unsuccessful, could result in a requirement that we pay significant damages or licensing fees, which would negatively impact our financial performance. Furthermore, our technology may become obsolete, and there is no guarantee that we will be able to successfully develop, obtain or use new technologies to adapt our platform to compete with other lending platforms as they develop. If we cannot protect our proprietary technology from intellectual property challenges, or if the platform becomes obsolete, our ability to maintain our platform, make loans or perform our servicing obligations on the loans could be adversely affected.


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Some aspects of our platform include open source software, and any failure to comply with the terms of one or more of these open source licenses could negatively affect our business.
We incorporate open source software into our proprietary platform and into other processes supporting our business. Such open source software may include software covered by licenses like the GNU General Public License and the Apache License or other open source licenses. The terms of various open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that limits our use of the software, inhibits certain aspects of the platform and negatively affects our business operations.
Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use. If portions of our proprietary platform are determined to be subject to an open source license, or if the license terms for the open source software that we incorporate change, we could be required to publicly release the affected portions of our source code, re-engineer all or a portion of our platform or change our business activities. In addition to risks related to license requirements, the use of open source software can lead to greater risks than the use of third-party commercial software, as open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with the use of open source software cannot be eliminated, and could adversely affect our business.
Risks Related to the Securities Markets and Ownership of Our Common Stock
The price of our common stock may be volatile and the value of your investment could decline.
Stocks of emerging growth companies have experienced high levels of volatility. The trading price of our common stock may fluctuate substantially. The market price of our common stock may be higher or lower than the price you pay, depending on many factors, some of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our common stock. Factors that could cause fluctuations in the trading price of our common stock include the following:
announcements of new types of loans, services or technologies, relationships with strategic partners, acquisitions or other events by us or our competitors;
changes in economic conditions;
changes in prevailing interest rates;
price and volume fluctuations in the overall stock market from time to time;
significant volatility in the market price and trading volume of technology companies in general and of companies in our industry;
fluctuations in the trading volume of our shares or the size of our public float;
the impact of securities analysts’ reports or other publicity regarding our business or industry;
actual or anticipated changes in our operating results or fluctuations in our operating results;
quarterly fluctuations in demand for our loans;
whether our operating results meet the expectations of securities analysts or investors;
actual or anticipated changes in the expectations of investors or securities analysts;
regulatory developments in the United States, foreign countries or both;
major catastrophic events;
sales of large blocks of our stock; or
departures of key personnel.
In addition, if the market for financial or technology stocks or the stock market in general experiences loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, operating results or financial condition. The trading price of our common stock might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. In the past we were subject to two putative securities class action litigations. While those cases were voluntarily dismissed, there can be no assurance that any future cases would ave a similar result.

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If our stock price continues to be volatile, we may become the target of additional securities litigation in the future. Securities litigation could result in substantial costs and divert our management’s attention and resources from our business. This could have a material adverse effect on our business, operating results and financial condition.
Sales of substantial amounts of our common stock by us or our stockholders in the public markets, or the perception that they might occur, could reduce the price that our common stock might otherwise attain. In addition, issuances and sales by us of newly issued shares of our common stock can dilute your voting power and your ownership interest in us.
Sales of a substantial number of shares of our common stock in the public market by us or our stockholders, or the perception that these sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. At December 31, 2018, we had 75,375,341 shares of common stock outstanding and as of that date stockholders known to us who beneficially owned 5% or more of our common stock owned in the aggregate 28,779,454 shares or 38%.
We may issue our shares of common stock or securities convertible into our common stock from time to time in connection with financings, acquisitions, investments or otherwise. We have also registered the offer and sale of all shares of common stock that we may issue under our 2014 Equity Incentive Plan and 2014 Employee Stock Purchase Plan. Any such issuance could result in substantial dilution to our existing stockholders, reduce proportionate voting power and cause the trading price of our common stock to decline.
Insiders and large stockholders have or could have substantial control over us, which could limit your ability to influence the outcome of key transactions, including a change of control.
Our directors, executive officers and each of our stockholders who own greater than 5% of our outstanding common stock and their affiliates, in the aggregate, own approximately 40% of the outstanding shares of our common stock, based on the number of shares outstanding as of December 31, 2018. As a result, these stockholders, if acting together, will be able to influence or control matters requiring approval by our stockholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock increases.
The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.
As a public company, we are subject to the reporting requirements of the Exchange Act, the listing standards of the New York Stock Exchange and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company” as defined in the JOBS Act effective December 31, 2019. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and operating results and maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could harm our business, results of operations and financial condition. Although we have already hired additional employees to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses.
In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time-consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expense and a diversion of management’s time and attention from revenue-

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generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
Once we lose our "emerging growth company” status, we may no longer take advantage of certain exemptions from various requirements that are applicable to public companies that are not “emerging growth companies.” As a result, we will be required to comply with the independent auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, increased disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and requirements to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
We also expect that these new rules, regulations and standards may make it more expensive for us as a public company to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and qualified members of our board of directors, particularly to serve on our Audit Committee, Compensation Committee, Corporate Governance and Nominating Committee, and Risk Management Committee.
We are an “emerging growth company” until December 31, 2019 and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, until December 31, 2019. While we are an "emerging growth company" we are taking advantage of certain exemptions from various reporting requirements that are applicable to public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile and may decline.
If securities or industry analysts do not publish or cease publishing research or reports about our business, or publish inaccurate or unfavorable research reports about our business, our share price and trading volume could decline.
The trading market for our common stock depends, to some extent, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If one or more of the analysts who cover us should downgrade our shares, change their opinion of our shares or provide more favorable relative recommendations about our competitors, our share price would likely decline. If one or more of these analysts should cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.
Our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change in control of our company. These provisions could also make it difficult for stockholders to elect directors that are not nominated by the current members of our board of directors or take other corporate actions, including effecting changes in our management. These provisions include:
a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;
the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror;
the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

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the requirement that a special meeting of stockholders may be called only by the chairman of our board of directors, our president, our secretary or a majority vote of our board of directors, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;
the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation relating to the issuance of preferred stock and management of our business or our amended and restated bylaws, which may inhibit the ability of an acquiror to effect such amendments to facilitate an unsolicited takeover attempt;
the ability of our board of directors, by majority vote, to amend the bylaws, which may allow our board of directors to take additional actions to prevent an unsolicited takeover and inhibit the ability of an acquiror to amend the bylaws to facilitate an unsolicited takeover attempt; and
advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time.
Item 1B.
Unresolved Staff Comments
None.
 
Item 2.
Properties
Our principal locations, their purposes and the expiration dates for the leases on facilities at those locations as of December 31, 2018 are shown in the table below.
Location
 
Purpose
 
Approximate
Square Feet
 
Lease
Expiration Date
New York, NY
 
Corporate Headquarters, technology and direct sales
 
80,700
 
2026
Denver, CO
 
Direct sales and operations
 
44,400
 
2026
Arlington, VA
 
Underwriting, loan origination and technology
 
18,600
 
2022

We lease all of our facilities. We do not own any real property. We currently have excess capacity in our New York offices and we are continuing to explore options for subletting and/or divesting ourselves of excess space. See Note 13 of Notes to Consolidated Financial Statements elsewhere in this report for details on the termination of a portion of our office space in New York and Denver in 2018. We believe our facilities are suitable and adequate for our current and near-term needs. Our leases are further described in Note 13 of Notes to Consolidated Financial Statements elsewhere in this report.
Item 3.
Legal Proceedings
From time to time we are subject to legal proceedings and claims in the ordinary course of our business. The results of such matters cannot be predicted with certainty. However, we believe that the final outcome of any such current matters will not result in a material adverse effect on our consolidated financial condition, consolidated results of operations or consolidated cash flows.

Item 4.
Mine Safety Disclosures
None.


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PART II
 

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for our Common Equity
Our common stock is traded on the New York Stock Exchange, or the NYSE, under the symbol “ONDK.” Trading on the NYSE began on December 17, 2014 in connection with our initial public offering of our common stock. Prior to that date, there was no public market for our common stock.
Holders of Record
As of February 20, 2019, there were approximately 36 holders of record of our common stock. This record holder figure does not include, and we are not able to estimate, the number of holders whose shares are held of record by banks, brokers and other financial institutions.
Dividends
We have never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions, contractual restrictions and other factors that our board of directors may deem relevant.
Issuer Purchases of Equity Securities
During the quarter and year ended December 31, 2018, we did not purchase any of our equity securities that are registered under Section 12(b) of the Exchange Act.
Performance Graph
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of On Deck Capital, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.
The following graph compares the cumulative total stockholder return since December 31, 2014 with the S&P 500 Index and the NYSE Financial Sector Index through December 31, 2018. The graph assumes that the value of the investment in our common stock and each index was $100 at market close on December 17, 2014. The returns shown are historical and are not intended to suggest future performance.


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chart-stockgraph18.jpg
Sales of Unregistered Equity Securities
None.

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Item 6.
Selected Consolidated Financial Data
The following selected consolidated financial data are derived from our audited financial statements. The consolidated balance sheet data as of December 31, 2018 and 2017 and the consolidated statement of operations data for the years ended December 31, 2018, 2017 and 2016 are derived from our audited consolidated financial statements and related notes that are included elsewhere in this Form 10-K. The consolidated balance sheet data as of December 31, 2016, 2015 and 2014 and the consolidated statement of operations data for the years ended December 31, 2015 and 2014 are derived from our audited consolidated financial statements and related notes which are not included in this report. The information set forth below should be read in conjunction with our historical financial statements, including the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this report.
(in thousands, except share and per share data)
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
2015
 
2014
Consolidated Statements of Operations Data
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
 
Interest income
$
383,579

 
$
334,575

 
$
264,844

 
$
195,048

 
$
145,275

Gross revenue
398,376

 
350,950

 
291,317

 
254,767

 
158,064

Total cost of revenue
195,616

 
199,125

 
182,825

 
95,413

 
85,030

Net revenue
202,760

 
151,825

 
108,492

 
159,354

 
73,034

Net income (loss)
25,270

 
(14,345
)
 
(85,482
)
 
(2,231
)
 
(18,708
)
Net income (loss) attributable to On Deck Capital, Inc. common stockholders
$
27,681

 
$
(11,534
)
 
$
(82,958
)
 
$
(1,273
)
 
$
(31,592
)
Net income (loss) per share attributable to On Deck Capital, Inc. common stockholders:
 
 
 
 
 
 
 
 
 
Basic
$
0.37

 
$
(0.16
)
 
$
(1.17
)
 
$
(0.02
)
 
$
(0.60
)
Diluted
$
0.35

 
$
(0.16
)
 
$
(1.17
)
 
$
(0.02
)
 
$
(0.60
)
Weighted-average common shares outstanding:
 
 
 
 
 
 
 
 
 
Basic
74,561,019

 
72,890,313

 
70,934,937

 
69,545,238

 
52,556,998

Diluted
78,549,940

 
72,890,313

 
70,934,937

 
69,545,238

 
52,556,998

Consolidated Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
59,859

 
$
71,362

 
$
79,554

 
$
159,822

 
$
220,433

Loans held for investment
1,169,157

 
952,796

 
1,000,445

 
552,742

 
504,107

Total assets
1,161,570

 
996,044

 
1,064,091

 
745,025

 
724,265

Debt
816,231

 
692,254

 
754,605

 
378,585

 
394,554

Total liabilities
857,281

 
729,988

 
800,494

 
415,603

 
413,660

Total On Deck Capital, Inc. stockholders' equity (deficit)
$
299,756

 
$
262,045

 
$
259,525

 
$
322,813

 
$
310,605

 


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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this report. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Cautionary Note Regarding Forward-Looking Statements” and Item 1A. Risk Factors sections of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview

We are a leading online small business lender. We make it efficient and convenient for small businesses to access financing. Enabled by our proprietary technology and analytics, we aggregate and analyze thousands of data points from dynamic, disparate data sources to assess the creditworthiness of small businesses rapidly and accurately. Small businesses can apply for a term loan or line of credit on our website in minutes and, using our loan decision process, including our proprietary OnDeck Score®, we can make a funding decision immediately and, if approved, fund as fast as 24 hours. Qualified customers may have both a term loan and line of credit concurrently, which we believe provides opportunities for repeat business, as well as increased value to our customers. We originated approximately $2.5 billion of loans in 2018 and more than $10 billion of loans since we made our first loan in 2007.
We generate the majority of our revenue through interest income and fees earned on the loans we make to our customers. Our term loans, which we offer in principal amounts ranging from $5,000 to $500,000 and with maturities of 3 to 36 months, feature fixed dollar repayments. Our lines of credit range from $6,000 to $100,000, and are generally repayable within six or twelve months of the date of the most recent draw. We earn interest on the balance outstanding and lines of credit are subject to a monthly fee unless the customer makes a qualifying minimum draw, in which case the fee is waived for the first six months. The balance of our other revenue primarily comes from our servicing and other fee income, most of which consists of marketing fees from our issuing bank partner, fees generated by ODX, and monthly fees earned from lines of credit. Prior to 2018, we also generated gains on loans sold through OnDeck Marketplace.
We rely on a diversified set of funding sources for the loans we make to our customers. Our primary source of this financing has historically been debt facilities with various financial institutions and securitizations. We have also used proceeds from operating cash flow to fund loans in the past and continue to finance a portion of our outstanding loans with these funds. As of December 31, 2018, we had $822.0 million of debt principal outstanding and $1.1 billion total borrowing capacity. No loans were sold through OnDeck Marketplace during 2018 because we determined that the expected economics of retaining our loans and funding them on balance sheet were more attractive than those available through loan sales. During the years ended 2017 and 2016, we sold loans with an unpaid principal balance of approximately $72.5 million and $368.3 million to OnDeck Marketplace purchasers.
We originate loans throughout the United States, Canada and Australia, although, to date, a majority of our revenue has been generated in the United States. These loans are originated through our direct marketing channel, including direct mail, our outbound sales team, our social media and other online marketing channels, referrals from our strategic partner channel, including small business-focused service providers, payment processors, and other financial institutions, and through our funding advisors who advise small businesses on available funding options.


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Key Financial and Operating Metrics
We regularly monitor a number of metrics in order to measure our current performance and project our future performance. These metrics aid us in developing and refining our growth strategies and making strategic decisions.
 
As of or for the Year Ended
December 31,
 
2018
 
2017
 
2016
 
(dollars in thousands)
Originations
$
2,483,596

 
$
2,114,663

 
$
2,403,796

Loan Yield
36.2
%
 
33.8
 %
 
33.2
 %
Cost of Funds Rate
6.3
%
 
6.2
 %
 
5.9
 %
Net Interest Margin
29.0
%
 
26.1
 %
 
25.4
 %
Provision Rate
6.0
%
 
7.5
 %
 
7.4
 %
Reserve Ratio
12.2
%
 
11.6
 %
 
11.2
 %
15+ Day Delinquency Ratio
7.5
%
 
6.7
 %
 
6.6
 %
Net Charge-off Rate
11.3
%
 
15.8
 %
 
12.0
 %
Efficiency Ratio
44.6
%
 
47.3
 %
 
66.6
 %
Adjusted Efficiency Ratio*
40.1
%
 
42.9
 %
 
61.1
 %
Return on Assets
2.6
%
 
(1.1
)%
 
(9.2
)%
Adjusted Return On Assets*
4.3
%
 
0.4
 %
 
(7.4
)%
Return on Equity
10.0
%
 
(4.5
)%
 
(27.7
)%
Adjusted Return On Equity*
16.5
%
 
1.6
 %
 
(22.4
)%
*Non-GAAP measure. Refer to "Non-GAAP Financial Measures" below for an explanation and reconciliation to GAAP.
For 2018, the calculation of certain metrics have changed and new metrics have been added compared to prior periods. Prior year metrics have been restated to conform to the 2018 presentation. See detailed definitions and a summary table of changes below.
Originations
Originations represent the total principal amount of the term loans we made during the period, plus the total amount drawn on lines of credit during the period. Many of our repeat term loan customers renew their term loans before their existing term loan is fully repaid. In accordance with industry practice, originations of such repeat term loans are presented as the full renewal loan principal, rather than the net funded amount, which would be the renewal term loan’s principal net of the unpaid principal balance on the existing term loan. Loans referred to, and funded by, our issuing bank partners and later purchased by us are included as part of our originations.
Loan Yield
Loan Yield is the rate of return we achieve on loans outstanding during a period. It is calculated as annualized Interest income on Loans including amortization of net deferred origination costs divided by average Loans. Annualization is based on 365 days per year and is calendar day-adjusted. Loans represents the sum of loans held for investment and loans held for sale at the end of the period. Loan Yield replaces our previous metric, Effective Interest Yield. Loan Yield is calculated using interest income on Loans, while Effective Interest Yield was calculated using Interest income.
Net deferred origination costs in loans held for investment and loans held for sale consist of deferred origination fees and costs. Deferred origination fees include fees paid up front to us by customers when loans are originated and decrease the carrying value of loans, thereby increasing Loan Yield. Deferred origination costs are limited to costs directly attributable to originating loans such as commissions, vendor costs and personnel costs directly related to the time spent by the personnel performing activities related to loan origination and increase the carrying value of loans, thereby decreasing Loan Yield.
Recent pricing trends are discussed under the subheading “Key Factors Affecting Our Performance - Pricing.”
Cost of Funds Rate
Cost of Funds Rate is calculated as Interest expense divided by average debt outstanding for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. Prior to December 31, 2018, we distinguished between debt facilities used to fund our lending activities, which we referred to as funding

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debt, and debt facilities used to fund our operating expenditures, which we referred to as corporate debt. We adopted the current presentation which combines the two into a single line item referred to as debt because we believe it better represents our funding profile. Additionally, we now present interest expense on all debt as interest expense on the consolidated statement of operations and comprehensive income. We had previously referred to interest expense related to our lending activities as funding costs while interest expense on our corporate debt was presented in other income/(expense) on our consolidated statement of operations and comprehensive income.
Net Interest Margin
Net Interest Margin is calculated as annualized net interest income divided by average Interest Earning Assets. Net Interest income represents Interest income less Interest expense during the period. Annualization is based on 365 days per year and is calendar day-adjusted. Prior to December 31, 2018, Interest Earning Assets included loans held for investment and loans held for sale. As of December 31, 2018, we modified Interest Earning Assets to include Loans, cash and cash equivalents and restricted cash.
Interest income is net of fees on loans held for investment and loans held for sale. Interest expense is the interest expense, fees, and amortization of deferred debt issuance costs we incur in connection with our debt facilities. Our Net Interest Margin metric has changed as a result of the change in our definition of Interest Earning Assets and Interest expense. All presentations of Net Interest Margin and Interest Earning Assets in this Annual Report on Form 10-K have been restated to conform with the new definitions.
Reserve Ratio
Reserve Ratio is our allowance for loan losses as of the end of the period divided by the Unpaid Principal Balance as of the end of the period.
Provision Rate
Provision Rate equals the provision for loan losses for the period divided by originations of loans held for investment for the period. Because we reserve for probable credit losses inherent in the portfolio upon origination, this rate is significantly impacted by the expectation of credit losses for the period’s originations volume. This rate may also be impacted by changes in loss expectations for loans originated prior to the commencement of the period. All other things equal, an increased volume of loan rollovers and line of credit repayments and re-borrowings in a period will reduce the Provision Rate.
The Provision Rate is not directly comparable to the net cumulative lifetime charge-off ratio because (i) the Provision Rate reflects estimated losses at the time of origination while the net cumulative lifetime charge-off ratio reflects actual charge-offs, (ii) the Provision Rate includes provisions for losses on both term loans and lines of credit while the net cumulative lifetime charge-off ratio reflects only charge-offs related to term loans and (iii) the Provision Rate for a period reflects the provision for losses related to all loans held for investment while the net cumulative lifetime charge-off ratio reflects lifetime charge-offs of term loans related to a particular cohort of term loans.
15+ Day Delinquency Ratio
15+ Day Delinquency Ratio equals the aggregate Unpaid Principal Balance for our loans that are 15 or more calendar days past due as of the end of the period as a percentage of the Unpaid Principal Balance at the end of the period. The Unpaid Principal Balance for our loans that are 15 or more calendar days past due includes loans that are paying and non-paying. Because our loans require daily and weekly repayments, excluding weekends and holidays, they may be deemed delinquent more quickly than loans from traditional lenders that require only monthly payments. 15+ Day Delinquency Ratio is not annualized, but reflects balances as of the end of the period.
Net Charge-off Rate
Net Charge-off Rate is calculated as our annualized net charge-offs for the period divided by the average Unpaid Principal Balance outstanding during the period. Net charge-offs are charged-off loans in the period, net of recoveries of prior charged-off loans in the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted.
Efficiency Ratio
Efficiency Ratio is a measure of operating efficiency and is calculated as total operating expense for the period divided by gross revenue for the period.
Adjusted Efficiency Ratio
Adjusted Efficiency Ratio is non-GAAP measure calculated as total operating expense divided by gross revenue for the period, adjusted to exclude (a) stock-based compensation expense and (b) items management deems to be non-representative of

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operating results or trends, all as shown in the non-GAAP reconciliation presentation of this metric. We believe Adjusted Efficiency Ratio is useful because it provides investors and others with a supplemental operating efficiency metric to present our operating efficiency across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically. Our use of Adjusted Efficiency Ratio has limitations as an analytical tool and you should not consider it in isolation, as a substitute for or superior to our Efficiency Ratio, which is the most comparable GAAP metric. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures for a discussion and reconciliation.
Return on Assets
Return on Assets is calculated as annualized Net income (loss) attributable to On Deck Capital, Inc. common stockholders for the period divided by average total assets for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted.
Adjusted Return on Assets
Adjusted Return on Assets is a non-GAAP measure calculated as Adjusted Net income (loss) for the period divided by average total assets for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. We believe Adjusted Return on Assets is useful because it provides investors and others with a supplemental metric to assess our performance across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically, all as shown in the non-GAAP reconciliation presentation of this metric. Our use of Adjusted Return on Assets has limitations as an analytical tool and you should not consider it in isolation, as a substitute for or superior to Return on Assets, which is the most comparable GAAP metric. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures for a discussion and reconciliation.
Return on Equity
Return on Equity is calculated as annualized Net income (loss) attributable to On Deck Capital, Inc. common stockholders for the period divided by average total On Deck Capital, Inc. stockholders’ equity for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted.
Adjusted Return on Equity
Adjusted Return on Equity is a non-GAAP measure calculated as Adjusted Net income (loss) attributable to On Deck Capital, Inc. common stockholders for the period divided by average total On Deck Capital, Inc. stockholders’ equity for the period. For periods of less than one year, the metric is annualized based on four quarters per year and is not business day or calendar day-adjusted. We believe Adjusted Return on Equity is useful because it provides investors with a supplemental metric to assess our performance across multiple periods without the effects of stock-based compensation, which is a non-cash expense based on equity grants made to participants in our equity plans at specified prices and times but which does not necessarily reflect how our business is performing, and items which may only affect our operating results periodically, all as shown in the non-GAAP reconciliation presentation of this metric. Our use of Adjusted Return on Equity has limitations as an analytical tool and you should not consider it in isolation, as a substitute or superior to Return on Equity, which is the most comparable GAAP metric. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures for a discussion and reconciliation of Adjusted Net Income to net income (loss).
As noted above a number of metrics have changed as of December 31, 2018 to better align with industry standards. The table below summarizes the metric changes and compares the metrics under the new and old definitions.
 
As of or for the Year Ended December 31,
 
Prior
 
New
 
2018
 
2017
 
2016
 
2018
 
2017
 
2016
Interest Earning Assets
$
1,144,954

 
$
936,239

 
$
980,821

 
$
1,266,795

 
$
1,067,619

 
$
1,124,431

Loan Yield (replaces EIY)
36.3
%
 
33.8
%
 
33.2
%
 
36.2
%
 
33.8
%
 
33.2
%
Net Interest Margin
32.5
%
 
29.7
%
 
29.7
%
 
29.0
%
 
26.1
%
 
25.4
%
Cost of Funds
6.3
%
 
6.3
%
 
5.9
%
 
6.3
%
 
6.2
%
 
5.9
%


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On Deck Capital, Inc. and Subsidiaries
Consolidated Average Balance Sheets
(in thousands)
 
Year Ended December 31,
 
2018
 
2017
Assets
 
 
 
Cash and cash equivalents
$
48,833

 
$
55,725

Restricted cash
54,944

 
57,053

Loans held for investment
1,057,831

 
990,285

Less: Allowance for loan losses
(126,260
)
 
(108,821
)
Loans held for investment, net
931,571

 
881,464

Loans held for sale

 
355

Property, equipment and software, net
17,949

 
26,636

Other assets
15,651

 
17,759

Total assets
$
1,068,948

 
$
1,038,992

Liabilities and equity
 
 
 
Liabilities:
 
 
 
Accounts payable
$
3,717

 
$
3,284

Interest payable
2,392

 
2,301

Debt
751,040

 
740,500

Accrued expenses and other liabilities
31,355

 
33,265

Total liabilities
788,504

 
779,350

 
 
 
 
Total On Deck Capital, Inc. stockholders' equity
275,525

 
254,641

Noncontrolling interest
4,919

 
5,001

Total equity
280,444

 
259,642

Total liabilities and equity
$
1,068,948

 
$
1,038,992

 
 
 
 
Memo:
 
 
 
Unpaid Principal Balance
$
1,037,563

 
$
972,269

Interest Earning Assets
$
1,161,608

 
$
1,103,063

Loans
$
1,057,831

 
$
990,642


Average Balance Sheet items for the period represent the average as of the beginning of the first month of the period and as of the end of each month of the period.

Non-GAAP Financial Measures
We believe that the non-GAAP metrics can provide useful supplemental measures for period-to-period comparisons of our core business and useful supplemental information to investors and others in understanding and evaluating our operating results. However, non-GAAP metrics are not calculated in accordance with GAAP, and should not be considered an alternative to any measures of financial performance calculated and presented in accordance with GAAP. Other companies may calculate these non-GAAP metrics differently than we do. The reconciliations below reconcile each of our non-GAAP metrics to their most comparable respective GAAP metric.


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Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Share
Adjusted Net income (loss) represents Net income (loss) attributable to OnDeck adjusted to exclude the items shown in the table below. Stock-based compensation includes employee compensation as well as compensation to third-party service providers. Adjusted Net income (loss) per share is calculated by dividing Adjusted Net income (loss) by the weighted average common shares outstanding during the period.
Our use of Adjusted Net income has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
 Adjusted Net income does not reflect the potentially dilutive impact of stock-based compensation; and
Adjusted Net income excludes charges we are required to incur in connection with real estate dispositions, severance obligations, debt extinguishment costs and sales tax refunds.
The following tables present reconciliations of Net income (loss) to Adjusted Net income (loss) and Net income (loss) per shares to Adjusted Net income (loss) per share for each of the periods indicated:
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(in thousands, except shares and per share data)
Reconciliation of Net Income (Loss) Attributable to OnDeck to Adjusted Net Income (Loss)
 
 
 
 
 
Net income (loss) attributable to On Deck Capital, Inc. common stockholders
$
27,681

 
$
(11,534
)
 
$
(82,958
)
Add / (Subtract):
 
 
 
 

Stock-based compensation expense
11,819

 
12,515

 
15,915

Real estate disposition charges
4,187

 

 

Severance and executive transition expenses
911

 
3,183

 

Debt extinguishment costs
1,935

 

 

Sales tax refund
(1,097
)
 

 

Adjusted Net income (loss)
$
45,436

 
$
4,164

 
$
(67,043
)
 
 
 
 
 
 
Adjusted Net income (loss) per share:
 
 
 
 
 
Basic
$
0.61

 
$
0.06

 
$
(0.95
)
Diluted
$
0.58

 
$
0.06

 
$
(0.95
)
Weighted-average common shares outstanding:
 
 
 
 
 
Basic
74,561,019

 
72,890,313

 
70,934,937

Diluted
78,549,940

 
72,890,313

 
70,934,937

Below are reconciliations of the Adjusted Net income (loss) per basic and diluted share to the most directly comparable measures calculated in accordance with GAAP.

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Year Ended December 31,
Reconciliation of Net Income (Loss) per Basic Share to Adjusted Net Income (Loss) per Basic Share
2018
 
2017
 
2016
 
(per share)
Net income (loss) per basic share attributable to On Deck Capital, Inc. common stockholders
$
0.37

 
$
(0.16
)
 
$
(1.17
)
Add / (Subtract):
 
 
 
 
 
  Stock-based compensation expense
0.16

 
0.17

 
0.22

  Real estate disposition charges
0.06

 

 

  Severance and executive transition expenses
0.01

 
0.05

 

  Debt extinguishment costs
0.02

 

 

  Sales tax refund
(0.01
)
 

 

Adjusted Net income (loss) per basic share
$
0.61

 
$
0.06

 
$
(0.95
)

 
Year Ended December 31,
Reconciliation of Net Income (Loss) per Diluted Share to Adjusted Net Income (Loss) per Diluted Share
2018
 
2017
 
2016
 
(per share)
Net income (loss) per diluted share attributable to On Deck Capital, Inc. common stockholders
$
0.35

 
$
(0.16
)
 
$
(1.17
)
Add/ (Subtract):
 
 
 
 
 
  Stock-based compensation expense
0.15

 
0.18

 
0.22

  Real estate disposition charges
0.06

 

 

  Severance and executive transition expenses
0.01

 
0.04

 

  Debt extinguishment costs
0.02

 

 

  Sales tax refund
(0.01
)
 

 

  Adjusted Net income (loss) per diluted share
$
0.58

 
$
0.06

 
$
(0.95
)


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Adjusted Return on Assets
Adjusted Return on Assets ("ROA") represents net income (loss) attributable to OnDeck adjusted to exclude the items shown in the table below divided by average Total assets.
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(in thousands)
Reconciliation of Return on Assets to Adjusted Return on Assets
 
 
 
 
 
Net income (loss) attributable to On Deck Capital, Inc. common stockholders
$
27,681

 
$
(11,534
)
 
$
(82,958
)
Average total assets
$
1,068,948

 
$
1,038,992

 
$
900,502

Return on Assets
2.6
%
 
(1.1
)%
 
(9.2
)%
Adjustments:
 
 
 
 
 
Stock-based compensation expense
$
11,819

 
$
12,515

 
$
15,915

Real estate disposition charges
4,187

 

 

Severance and executive transition expenses
911

 
3,183

 

Debt extinguishment costs
1,935

 

 

Sales tax refund
(1,097
)
 

 

Adjusted Net income (loss)
$
45,436

 
$
4,164

 
$
(67,043
)
Average total assets
$
1,068,948

 
$
1,038,992

 
$
900,502

Adjusted Return on Assets
4.3
%
 
0.4
 %
 
(7.4
)%

Adjusted Return on Equity
Adjusted Return on Equity ("ROE") represents Net income (loss) attributable to OnDeck adjusted to exclude the items shown in the table below divided by average Total On Deck Capital, Inc. stockholders' equity.
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(in thousands)
Reconciliation of Return on Equity to Adjusted Return on Equity
 
 
 
 
 
Net income (loss) attributable to On Deck Capital, Inc. common stockholders
$
27,681

 
$
(11,534
)
 
$
(82,958
)
Average OnDeck stockholders' equity
$
275,525

 
$
254,641

 
$
299,447

Return on equity
10.0
%
 
(4.5
)%
 
(27.7
)%
Adjustments:
 
 
 
 

Stock-based compensation expense
$
11,819

 
$
12,515

 
$
15,915

Real estate disposition charges
4,187

 

 

Severance and executive transition expenses
911

 
3,183

 

Debt extinguishment costs
1,935

 

 

Sales tax refund
(1,097
)
 

 

Adjusted Net income (loss)
$
45,436

 
$
4,164

 
$
(67,043
)
Average total On Deck Capital, Inc. stockholders' equity
$
275,525

 
$
254,641

 
$
299,447

Adjusted return on equity
16.5
%
 
1.6
 %
 
(22.4
)%

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Adjusted Efficiency Ratio
Adjusted Efficiency Ratio is non-GAAP measure calculated as Total operating expense divided by Gross revenue for the period, adjusted to exclude (a) stock-based compensation expense and (b) items management deems to be non-representative of operating results or trends.

 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(in thousands)
Reconciliation of Efficiency Ratio to Adjusted Efficiency Ratio
 
 
 
 
 
Total operating expense
$
177,490

 
$
166,170

 
$
193,974

Gross revenue
$
398,376

 
$
350,950

 
$
291,317

Efficiency Ratio
44.6
%
 
47.3
%
 
66.6
%
Adjustments:
 
 
 
 

Stock-based compensation expense
$
11,819

 
$
12,515

 
$
15,915

Real estate disposition charges
4,187

 

 

Severance and executive transition expenses
911

 
3,183

 

Debt extinguishment costs
1,935

 

 

Sales tax refund
(1,097
)
 

 

Operating expenses less noteworthy items
$
159,735

 
$
150,472

 
$
178,059

Gross revenue
$
398,376

 
$
350,950

 
$
291,317

Adjusted Efficiency Ratio
40.1
%
 
42.9
%
 
61.1
%



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Key Factors Affecting Our Performance
Investment in Long-Term Growth
Our primary focus remains on prudently growing the business while increasing profitability. The core elements of our growth strategy include:
Expand in each of our distribution channels to acquire new customers;
Further optimizing our decisioning models to increase originations and risk-adjusted profitability;
Expanding loan offerings and features to increase customer lifetime value;
Expanding our international businesses to capitalize on global growth opportunities; and
Building ODX capabilities and relationships to take advantage of the digitization of small business lending.
We plan to continue to invest significant resources to accomplish these goals. As a result, our total operating expense increased in absolute dollars during 2018 and we anticipate it will continue to increase through 2019. These investments are intended to contribute to our long-term growth, but they may affect our near-term financial results.
In October 2018, we announced the launch of ODX, a wholly-owned subsidiary that will focus on helping banks digitize their small business lending process.  ODX offers a combination of software, analytic insights, and professional services that allow banks to bring their small business lending process online.  At the core of the ODX solution is a modular and scalable SaaS platform that enables banks to either create a fully end-to-end digital experience for their customers or to select certain components for specific functions.  We believe ODX can help banks improve customer experiences, increase portfolio growth, and reduce processing costs.  We expect ODX results to reflect a period of net investment as it builds its infrastructure and capabilities to grow existing and develop additional bank relationships.
Originations
chart-originations2018.jpg
During the years ended December 31, 2018, 2017 and 2016, we originated $2.5 billion, $2.1 billion and $2.4 billion of loans, respectively. The increase in originations in 2018 relative to 2017 was partly driven by the tightening of our credit policies in the first half of 2017 which constrained 2017 originations. Additionally, in 2018, originations grew due to the addition of new customers, including those in newly credit-eligible industries, an increase in renewals from existing customers and the continued growth of our line of credit originations. Lending volume from our strategic and funding advisor channels continued to build as we grew our network of partners. Originations also increased in our direct channel as a result of our marketing activity and website traffic, which led to higher application volumes.

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The number of weekends and holidays in a period can impact our business. Many small businesses tend to apply for loans on weekdays, and their businesses may be closed at least part of a weekend and on holidays. In addition, our loan fundings and automated customer loan repayments only occur on weekdays (excluding bank holidays).
We anticipate that our future growth will continue to depend in part on attracting new customers. As we continue to aggregate data on existing customers and prospective customers, we seek to use that data to optimize our marketing spending and business development efforts to retain existing customers as well as to identify and attract prospective customers. We have historically relied on all three of our channels for customer acquisition. We plan to continue investing in direct marketing, increasing our brand awareness and growing our strategic partnerships.
The following table summarizes the percentage of loans made to all customers originated by our three distribution channels for the periods indicated. From time to time management is required to make judgments to determine customers' appropriate channel distribution.
All three of our distribution channels grew in absolute origination dollars in 2018 compared to 2017. Our strategic partner and funding advisor channels grew at a faster rate in 2018 than our direct channel, resulting in the direct channel contributing a smaller percentage of our origination volume than it did in 2017.
 
Year Ended December 31,
Percentage of Originations (Dollars)
2018
 
2017
 
2016
Direct
45.5
%
 
52.1
%
 
52.7
%
Strategic Partner
25.1
%
 
21.0
%
 
20.0
%
Funding Advisor
29.4
%
 
26.9
%
 
27.3
%
We originate term loans and lines of credit to customers who are new to OnDeck as well as to repeat customers. New originations are defined as new term loan originations plus all line of credit draws in the period, including subsequent draws on existing lines of credit. Renewal originations include term loans only. We believe our ability to increase adoption of our loans within our existing customer base will be important to our future growth. A component of our future growth will include increasing the length of our customer life cycle by expanding our loan offerings and features. In 2018, 2017, and 2016 originations from our repeat customers were 52%, 52% and 53%, respectively, of total originations to all customers. We believe our significant number of repeat customers is primarily due to our high levels of customer service and continued improvement in our loan features and services. Repeat customers generally show improvements in several key metrics. From our 2016 customer cohort, customers who took at least three loans grew their revenue and bank balance, respectively, on average by 32.6% and 39.9% from their initial loan to their third loan. Similarly, from our 2017 customer cohort, customers who took at least three loans grew their revenue and bank balance, respectively, on average by 30.1% and 39.1%. In 2018, 28.8% of our origination volume from repeat customers was due to unpaid principal balance rolled from existing loans directly into such repeat originations. In order for a current customer to qualify for a renewal term loan while a term loan payment obligation remains outstanding, the customer must pass the following standards:
 
the business must be approximately 50% paid down on its existing loan;
the business must be current on its outstanding OnDeck loan with no material delinquency history; and
the business must be fully re-underwritten and determined to be of adequate credit quality.
The extent to which we generate repeat business from our customers will be an important factor in our continued revenue growth and our visibility into future revenue. In conjunction with repeat borrowing activity, many of our customers also tend to increase their subsequent loan size compared to their initial loan size.
The following table summarizes the percentage of loans originated by new and repeat customers. Loans from cross-selling efforts are classified in the table as repeat loans.
 
Year Ended December 31,
Percentage of Originations (Dollars)
2018
 
2017
 
2016
New
48.5
%
 
47.6
%
 
47.0
%
Repeat
51.5
%
 
52.4
%
 
53.0
%


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Loans
chart-loans18.jpg

Loans held for investment consist of term loans and lines of credit that require daily or weekly repayments. We have both the ability and intent to hold these loans to maturity. Loans held for investment are carried at amortized cost. The amortized cost of a loan is the unpaid principal balance plus net deferred origination costs. Net deferred origination costs are comprised of certain direct origination costs, net of all loan origination fees received. Loan origination fees include fees charged to the borrower related to origination that increase the return on the loan yield. Loan origination costs are limited to direct costs attributable to originating a loan, including commissions and personnel costs directly related to the time spent by those individuals performing activities related to loan origination. Direct origination costs in excess of loan origination fees received are included in the loan balance and for term loans are amortized over the life of the term loan using the effective interest method, while for lines of credit principal amounts drawn are amortized using the straight line method over 6 months. Loans held for investment have increased from $953 million at December 31, 2017 to $1,169 million at December 31, 2018, as we increased originations from 2017 to 2018.
Pricing
Customer pricing is determined primarily based on credit risk assessment generated by our proprietary data and analytics engine and cash flow assessments of the customer's ability to repay the loan. Our decision structure also considers the OnDeck Score, FICO® Score, loan type (term loan or line of credit), term loan duration, customer type (new or repeat) and origination channel. OnDeck assesses credit risk across several dimensions, including assessing the stability and credit worthiness of both the business and the personal guarantor and of the borrower's industry. Some of the most important factors assessed relate to the borrower's ability to pay, overall levels of indebtedness, cash flow and business outlook, and their personal and commercial credit history. These factors are assessed against certain minimum requirements in our underwriting standards, as well as through multivariate regressions and statistical models. In addition, general market conditions may broadly influence pricing industry-wide. Loans originated through the direct and strategic partner channels are generally priced lower than loans originated through the funding advisor channel due to the commission structure of the FAP program as well as the relative higher risk profile of the borrowers in the FAP channel.
As of December 31, 2018, our customers pay between 0.003 and 0.043 cents per month in interest for every dollar they borrow under one of our term loans. Historically, our term loans have been primarily quoted in COD and lines of credit in APR. As of December 31, 2018, the APRs of our term loans outstanding ranged from 9.1% to 99.8% and the APRs of our lines of credit outstanding ranged from 11.0% to 63.2%. As of December 31, 2018, the COD of our term loans outstanding ranged from $1.05 to $1.58.
We believe that our product pricing has historically fallen between traditional bank loans to small businesses and certain non-bank small business financing alternatives such as merchant cash advances.

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For the Year
 
For the Quarter
 
2014
2015
2016
2017
2018
 
Q1 2018
Q1 2018
Q3
2018
Q4
2018
Weighted Average Term Loan "Cents on Dollar" Borrowed, per Month
2.32¢
1.95¢
1.82¢
1.95¢
2.14¢
 
2.08¢
2.15¢
2.17¢
2.17¢
Weighted Average APR - Term Loans and Lines of Credit
54.4%
44.5%
41.4%
43.7%
46.9%
 
46.0%
47.2%
47.5%
47.0%
The pricing decrease between 2014 and 2016 was due to increases in average loan term lengths, increased originations from our lower cost direct and strategic partner channels as a percentage of total originations, the growth of our line of credit product (which is priced at a lower APR level than our term loans), the introduction of our customer loyalty program and our efforts to pass savings on to customers. The pricing increases in 2017 and 2018 were primarily a reflection of past and expected future increases in the underlying market interest rates that we, like many other lenders in the market, are passing on to our customers. Additionally, in the past year we have increased our originations in the funding advisor channel, which typically have higher APRs than the direct and strategic partner channels.
We consider Loan Yield as a key pricing measure. Loan Yield is the rate of return we earn on loans outstanding during a period. Our Loan Yield differs from APR in that it takes into account deferred origination fees and deferred origination costs. Deferred origination fees include fees paid up front to us by customers when loans are originated and decrease the carrying value of loans, thereby increasing the Loan Yield. Deferred origination costs are limited to costs directly attributable to originating loans such as commissions, vendor costs and personnel costs directly related to the time spent performing activities related to loan origination and increase the carrying value of loans, thereby decreasing the Loan Yield.
Loan Yield
For the Year
 
For the Quarter
2014
 
2015
 
2016
 
2017
 
2018
 
Q1 2018
 
Q2 2018
 
Q3 2018
 
Q4 2018
40.4%
 
36.9%
 
33.2%
 
33.8%
 
36.2
%
 
35.6%
 
36.1%
 
36.5%
 
36.6%

In addition to individual loan pricing and the number of days in a period, there are many other factors that can affect Loan Yield, including:
Channel Mix - In general, loans originated from the strategic partner channel have lower Loan Yields than loans from the direct and funding advisor channel. This is primarily due to the strategic partner channel's higher commissions as compared to the direct channel, and lower pricing as compared to the funding advisor channel.
Term Mix - In general, term loans with longer durations have lower annualized interest rates.  Despite lower Loan Yields, total revenues from customers with longer loan durations are typically higher than the revenue of customers with shorter-term, higher Loan Yield loans because total payback is typically higher compared to a shorter length term for the same principal loan amount.  Following the introduction of our 24-month and 36-month term loans, the average length of new term loan originations had increased from 10.8 months for the year ended December 31, 2014 to 13.3 months for the year ended December 31, 2016. As part of our 2017 credit tightening, when appropriate, the offered duration of term loans to certain customers was shortened to control duration risk. For the year ended December 31, 2018, the average length of new term loan originations had decreased to 11.3 months.
Customer Type Mix - In general, loans originated from repeat customers historically have had lower Loan Yields than loans from new customers.  This is primarily because repeat customers typically have a higher OnDeck Score and are therefore deemed to be lower risk.  In addition, repeat customers are more likely to be approved for longer terms than new customers given their established payment history and lower risk profiles. Finally, origination fees can be reduced or waived for repeat customers, contributing to lower Loan Yields. 
Loan Mix - In general, lines of credit have lower Loan Yields than term loans. For the year ended 2018, the weighted average line of credit APR was 32.6%, compared to 49.2% for term loans.  Draws by line of credit customers increased to 20.6% of total originations for the year ended 2018 from 19.8% in 2017.



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Interest Expense
We source financing principally through debt facilities and securitizations with a diverse group of banks, insurance companies and other institutional lenders. Interest expense consist of the interest expense we incur on our debt, certain fees and the amortization of deferred debt issuance costs incurred in connection with obtaining this debt, such as banker fees, origination fees and legal fees and, in applicable periods, certain costs associated with our interest rate hedging activity. Cost of Funds Rate is calculated as Interest expense divided by average Debt outstanding for the period. Our Cost of Funds Rate remained relatively consistent at 6.2% for the year ended December 31, 2017 as compared to 6.3% for the year ended December 31, 2018.
Credit Performance
Credit performance refers to how credit losses on a portfolio of loans performs relative to expectations. Generally speaking, perfect credit performance is a loan that is repaid in full and in accordance with the terms of the agreement, meaning that all amounts due were repaid in full and on time. However, no portfolio is without risk and a certain amount of losses are expected. In this respect, credit performance must be assessed relative to pricing and expectations. Because a certain degree of losses are expected, pricing will be determined with the goal of allowing for estimated losses while still generating the desired rate of return after taking into account those estimated losses. When a portfolio has higher than estimated losses, the desired rate of return may not be achieved and that portfolio would be considered to have underperformed. Conversely, if the portfolio incurred lower than estimated losses, resulting in a higher than expected rate of return, the portfolio would be considered to have overperformed.
We originate and price our loans expecting that we will incur a degree of losses. When we originate our loans, we record a provision for estimated loan losses. As we gather more data as the portfolio performs, we may increase or decrease that reserve as deemed necessary to reflect our latest loss estimate. Some portions of our loan portfolio may be performing better than expected while other portions may perform below expectations. The net result of the underperforming and overperforming portfolio segments determines if we require an overall increase or decrease to our loan reserve related to those existing loans. A net decrease to the loan reserve related to the existing loans reduces provision expense, while a net increase to the loan reserve increases provision expense.
In accordance with our strategy to expand the range of our loan offerings, over time, we have expanded the offerings of our term loans by making available longer terms and larger amounts. When we begin to offer a new type of loan, we typically extrapolate our existing data to create an initial version of a credit model to permit us to underwrite and price the new type of loan. Thereafter, we begin to collect actual performance data on these new loans which allows us to refine our credit model based on actual data as opposed to extrapolated data. It often takes several quarters after we begin offering a new type of loan for that loan to be originated in sufficient volume to generate a critical mass of performance data. In addition, for loans with longer terms, it takes longer to acquire significant amounts of data because the loans take longer to season.
During 2016, we accumulated additional data on certain longer term loans as more of them began to season. We used this data to back test our estimates and model assumptions for these longer term loans. During the fourth quarter of 2016, our analysis concluded that our credit model was under predicting losses, in the aggregate, for our loans that were 15 months or more in term length at origination. Terms loans meeting this criteria made up approximately 44% of the outstanding principal balance on our balance sheet at December 31, 2016.
Each loan cohort is unique. A loan cohort refers to loans originated in the same specified time period. For a variety of reasons, one cohort may exhibit different performance characteristics over time compared to other cohorts at similar months of seasoning. For example, in their first six months of seasoning, certain of our new loans (which excludes repeat loans) originated in the first and second quarters of 2018 had higher net charge-off ratios than prior cohorts. This reflected several factors including the impact of channel mix, with a higher percentage of loans being from our funding advisor channel, and routine credit testing.
We evaluate and track portfolio credit performance primarily through four key financial metrics: 15+Day Delinquency Ratio; Net Charge-off Rate; Reserve Ratio; and Provision Rate.

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Net Charge-off Rate
chart-netchargeoffrate18.jpg
Our Net Charge-off Rate, which is calculated as our annualized net charge-offs for the period divided by the average Unpaid Principal Balance outstanding, declined from 15.8% in 2017 to 11.3% in 2018. The reduction in Net Charge-off Rate was related to credit improvements that began in early 2017. The increase in Net Charge-off Rate in 2017 compared to 2016 was primarily due to charge-offs of the term loans that were 15 months or more in term length at origination which had higher rates of delinquencies as previously discussed. Generally, the Net Charge-off Rate is expected to trail the 15+ Day Delinquency Ratio because loans become delinquent before deteriorating further to charged-off status.
Historical Charge-Offs
We illustrate below our historical loan losses by providing information regarding our net lifetime charge-off ratios by cohort. Net lifetime charge-offs are the unpaid principal balance charged off less recoveries of loans previously charged off. A given cohort’s net lifetime charge-off ratio is the cohort’s net lifetime charge-offs through December 31, 2018 divided by the cohort’s total original loan volume. Repeat loans in the denominator include the full renewal loan principal, rather than the net funded amount, which is the renewal loan’s principal net of the unpaid principal balance on the existing loan. Loans are typically charged off after 90 days of nonpayment and 30 days of inactivity. The chart immediately below includes all term loan originations, including loans sold through OnDeck Marketplace or held for sale on our balance sheet.

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Net Charge-off Ratios by Cohort Through December 31, 2018
chart-chargeoffcohort18.jpg
 
For the Year
 
For the Quarter
 
2014
2015
2016
2017
 
Q1 2018
 
Q2 2018
 
Q3 2018
 
Q4 2018
Principal Outstanding as of December 31, 2018 by Period of Origination

—%
—%
0.2%
1.5%
 
8.7%
 
25.2%
 
57.8%
 
86.0%

The following chart displays the historical lifetime cumulative net charge-off ratio by cohort for the origination periods shown. The chart reflects all term loan originations, including, if applicable, loans sold through OnDeck Marketplace or held for sale on our balance sheet. The data is shown as a static pool for each cohort, illustrating how the cohort has performed given equivalent months of seasoning.
Given that the originations in the latter half of 2018 cohort are relatively unseasoned as of December 31, 2018, these cohorts reflect low lifetime charge-off ratios in each of the new customer, repeat customer and total loans charts below. Further, given our loans are typically charged off after 90 days of nonpayment and 30 days of inactivity, all cohorts reflect approximately 0% charge offs for the first three months in the charts below.


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Net Cumulative Lifetime Charge-off Ratios
All Loans
chart-allloancumlifetime18.jpg
 
 
For the Year
 
For the Quarter
Originations
2014
2015
2016
2017
 
Q1 2018
Q2 2018
Q3 2018
Q4 2018
All term loans
(in thousands)
$
1,100,957

$
1,703,617

$
2,051,849

$
1,696,514

 
$
469,393

$
465,430

$
519,808

$
517,000

Weighted average term (months)
11.2

12.4

13.2

12.1

 
11.8

11.8

11.9

11.8


Loans we originated in 2016 demonstrated higher than historical net cumulative lifetime charge-off ratios, which were primarily related to loans with longer terms and larger loan sizes. In response and as part of our focus on achieving profitability, during the first and second quarters of 2017 we broadly tightened our credit policies to eliminate originations of loans with expected negative unit economics and to reduce those with expected marginal unit economics.
By design, the broad credit tightening resulted in a significant decline in originations for the second quarter of 2017 and a significant decline in the net cumulative lifetime charge-off ratios for loans originated in that quarter. Subsequent cohorts have incorporated measured and targeted credit optimization designed to bring our net cumulative charge-off ratios in line with business model objectives. Loans originated after the first quarter of 2018 are not yet seasoned enough for meaningful comparison.
Generally, historical net cumulative lifetime charge-off ratios are higher in new loans than in repeat loans as repeat customers generally demonstrate better credit qualities


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Net Cumulative Lifetime Charge-off Ratios
New Loans
  
chart-newcumlifetime18.jpg
 
For the Year
 
For the Quarter
Originations
2014
2015
2016
2017
 
Q1 2018
Q2 2018
Q3 2018
Q4 2018
New term loans
(in thousands)
$
521,355

$
627,494

$
777,129

$
589,487

 
$
161,494

$
174,199

$
184,437

$
172,058

Weighted average term (months)
10.8

11.8

13.3

11.9

 
11.4

11.3

11.3

11.3



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Net Cumulative Lifetime Charge-off Ratios
Repeat Loans
chart-repeatcumlifetime18.jpg

 
 
For the Year
 
For the Quarter
Originations
2014
2015
2016
2017
 
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Repeat term loans
(in thousands)
$
579,602

$
1,076,122

$
1,274,721

$
1,107,027

 
$
307,899

$
291,231

$
335,372

$
344,943

Weighted average term (months)
11.6

12.7

13.1

12.2

 
12.0

12.1

12.2

12.0



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15+ Day Delinquency Ratio
chart-15deliquent18.jpg
The 15+ Day Delinquency Ratio, which is the aggregate Unpaid Principal Balance for our loans that are 15 or more calendar days past due as of the end of the period as a percentage of the Unpaid Principal Balance.
During the past two years, the 15+ Day Delinquency Ratio peaked at 7.8% at March 31, 2017 primarily as a result of 2016 originations of term loans that were 15 months or more in term length at origination. This credit deterioration was internally driven as our credit model was underpredicting losses, in the aggregate, for loans of 15 months or more due to our relatively limited experience at that time with loans of similar terms. We took corrective action during the first half of 2017 including tightening of credit policies used to determine eligibility, pricing, loan size and term. This tightening helped reduce the 15+ Day Delinquency Ratio in the subsequent quarters of 2017. The 15+ Day Delinquency ratio increased from 6.7% at December 31, 2017 to 7.5% at December 31, 2018 driven by our decision to hold delinquent loans longer as we continue to pursue collections as opposed to selling our delinquent loans earlier in the collection cycle along with ongoing credit testing.
Reserve Ratio
chart-reserveratio2018.jpg

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The Reserve Ratio, which is the allowance for loan losses divided by the Unpaid Principal Balance as of a specific date, is a comprehensive measurement of our allowance for loan losses because it presents, as a percentage, the portion of the total Unpaid Principal Balance for which an allowance has been recorded. Our Reserve Ratio increased from 11.6% at December 31, 2017, to 12.2% at December 31, 2018. The increase in the Reserve Ratio reflects our decision to hold certain delinquent loans for a longer period and more actively pursue collections as opposed to selling these loans earlier in our collection cycle, and ongoing credit testing.
Provision Rate
chart-provisionrate18.jpg

The Provision Rate is the provision for loan losses divided by the new originations volume of loans held for investment, net of originations of sales of such loans within the period. Originations include the full renewal loan principal of repeat loans, rather than the net funded amount.
In the fourth quarter of 2016, our provision for loan loss expense included approximately $19 million of additional expense required to build our reserve based on our latest estimate of losses for loans with original maturities of 15 months or longer. The $19 million increase related almost entirely to 2016 originations. Our provision rate for 2016 was 7.4%.
In 2017, our corrective action included the tightening of credit policies used to determine eligibility, pricing and loan size for certain customers. For the full year 2017, the Provision Rate was 7.5% compared to 7.4% for 2016. We believe this represents an improvement because the 2017 Provision Rate includes additional reserve build related to 2016 originations and hurricanes Harvey and Irma.
Our Provision Rate for the full year 2018 decreased from 7.5% in 2017 to 6.0% in 2018. The 2018 provision rate improved relative to 2017 as a result of our improved credit policies, collection processes and fraud detection procedures.

Sale of Whole Loans through OnDeck Marketplace
In the past we have sold whole loans to institutional investors through OnDeck Marketplace. Marketplace originations are defined as loans that are sold through OnDeck Marketplace in the period or are held for sale at the end of the period. We chose not to sell any loans in the year ended 2018. For the years ended 2017 and 2016 approximately 3.7% and 18.4%, of total term loan originations were designated as Marketplace originations. During 2017 and 2016, we sold through OnDeck Marketplace loans with an unpaid principal balance of $72.5 million and $368.3 million, respectively.
Our OnDeck Marketplace originations come from one of the following two origination sources:
New loans which are designated at origination to be sold, referred to as “Originations of loans held for sale;” and

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Loans which were originally designated as held for investment that are subsequently designated to be sold at the time of their renewal and which are considered modified loans, referred to as “Originations of loans held for investment, modified."
The following table summarizes the initial principal of originations of the aforementioned two sources as it relates to the statement of cash flows during 2018, 2017 and 2016.
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(in thousands)
Originations of loans held for sale
$

 
$
49,813

 
$
304,258

Originations of loans held for investment, modified

 
13,252

 
72,839

    Marketplace originations
$

 
$
63,065

 
$
377,097

Economic Conditions
Changes in the overall economy may impact our business in several ways, including demand for our loans, credit performance, and interest expense.
 
Demand for Our Loans. Generally, we believe a strong economic climate tends to increase demand for our loans as consumer spending increases and small businesses seek to expand and more potential customers may meet our underwriting requirements, although some small businesses may generate enough additional cash flow that they no longer require a loan. In that climate, traditional lenders may also approve loans for a higher percentage of our potential customers.
Credit Performance. In a strong economic climate, our customers may experience improved cash flow and liquidity, which may result in lower loan losses. In a weakening economic climate or recession, the opposite may occur. We factor economic conditions into our loan underwriting analysis and reserves for loan losses, but changes in economic conditions, particularly sudden changes, may affect our actual loan losses. These effects may be partially mitigated by the short-term nature and repayment structure of our loans, which should allow us to react more quickly than if the terms of our loans were longer.
Loan Losses. Our underwriting process is designed to limit our loan losses to levels consistent with our risk tolerance and financial model. Our aggregate loan loss rates in 2014 and 2015 were consistent with our financial targets while 2016 was higher than our financial target as we incurred higher than estimated loss rates on certain larger and longer-term loans. Our 2017 loan loss levels were also higher than our financial targets largely because we were taking corrective action throughout the first half of the year to address the higher 2016 loan losses. Our 2018 loan loss levels are consistent with our financial targets. Our overall loan losses are affected by a variety of factors, including external factors such as prevailing economic conditions, general small business sentiment and unusual events such as natural disasters, as well as internal factors such as the accuracy of our loan decisioning, the effectiveness of our underwriting process and the introduction of new loan types or features with which we have less experience to draw upon when forecasting their loss rates. Our loan loss rates may vary in the future.
Interest Expense. Changes in monetary and fiscal policy may affect generally prevailing interest rates. Interest rates may also change for reasons unrelated to economic conditions. To the extent that interest rates rise, our interest expense will increase and the spread between our Loan Yield and our Cost of Funds Rate may narrow to the extent we cannot correspondingly increase the interest rates we charge our customers or reduce the credit spreads in our borrowing facilities.

Customer Acquisition Costs
Our customer acquisition costs, or CACs, differ depending upon the acquisition channel. CACs in our direct channel include the commissions paid to our internal sales force and expenses associated with items such as direct mail, social media and other online marketing activities. CACs in our strategic partner channel and funding advisor channel include commissions paid. CACs in all channels include new originations as well as renewals.
Our CACs, on a combined basis for all three acquisition channels and evaluated as a percentage of originations, increased for the year ended 2018 as compared to the year ended 2017.  The increase was primarily attributable to an increase in CACs in our funding advisor channel driven by an increase in external commissions and origination volume.

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Increased competition for customer response could require us to incur higher customer acquisition costs and make it more difficult for us to grow our loan originations in both unit and volume for both new as well as repeat customers.
Customer Lifetime Value
The ongoing lifetime value of our customers will be an important component of our future performance. We analyze customer lifetime value not only by tracking the “contribution” of customers over their lifetime with us, but also by comparing this contribution to the acquisition costs incurred in connection with originating such customers’ initial loans, whether term loan, lines of credit or both.
For illustration, we consider customers that took their first ever loan or line of credit from us during 2016 and look at all of their borrowing and transaction history from that date through December 31, 2018. The borrowing characteristics of these borrowers include:
 
Average number of loans per customer during the measurement period: 1.8
Average initial loan size: $38,660
Average amount borrowed per customer: $82,734
Total borrowings: $1.65 billion
Similarly, the borrowing characteristics of customers that took their first ever loan or line of credit from us during 2017 include:
 Average number of loans per customer during the measurement period: 1.7
Average initial loan size: $43,465
Average amount borrowed per customer: $81,550
Total borrowings: $1.08 billion
Components of Our Results of Operations
Revenue
Interest Income. We generate revenue primarily through interest and origination fees earned on the term loans and lines of credit we originate. Interest income in applicable periods also includes interest income earned on loans held for sale from the time the loan is originated until it is ultimately sold. Interest income also includes miscellaneous interest income such as interest earned on invested cash. Our interest and origination fee revenue is amortized over the term of the loan using the effective interest method. Origination fees collected but not yet recognized as revenue are netted with direct origination costs and recorded as a component of loans held for investment or loans held for sale, as appropriate, on our consolidated balance sheets and recognized over the term of the loan. Direct origination costs include costs directly attributable to originating a loan, including commissions, vendor costs and personnel costs directly related to the time spent by those individuals performing activities related to loan origination.
Gain on Sales of Loans. Prior to 2018, we chose to sell term loans to third-party institutional investors through OnDeck Marketplace. We recognize a gain or loss on the sale of such loans as the difference between the proceeds received, adjusted for initial recognition of servicing assets or liabilities obtained at the date of sale, and the outstanding principal and net deferred origination costs.
Other Revenue. Other revenue includes fees generated by ODX, marketing fees earned from our issuing bank partner, monthly fees charged to customers for our line of credit, referral fees from other lenders, servicing revenue related to loans serviced for others, and fair value adjustments to servicing rights, which are recognized as the related services are provided.
Cost of Revenue
Provision for Loan Losses. Provision for loan losses consists of amounts charged to income during the period to maintain an allowance for loan losses, or ALLL, estimated to be adequate to provide for probable credit losses inherent in our existing loan portfolio. Our ALLL represents our estimate of the credit losses inherent in our portfolio of term loans and lines of credit and is based on a variety of factors, including the composition and quality of the portfolio, loan specific information gathered through our collection efforts, delinquency levels, our historical charge-off and loss experience and general economic conditions. In general, we expect our aggregate provision for loan losses to increase in absolute dollars as the amount of term loans and lines of credit we originate and hold for investment increases.
Interest Expense. Interest expense consists of the interest expense we incur on our debt, certain fees and the amortization of deferred debt issuance costs incurred in connection with obtaining this debt, such as banker fees, origination fees and legal fees and, in applicable periods, certain costs associated with our interest rate hedging activity. Our interest expense and Cost of Funds

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Rate will vary based on a variety of external factors, such as credit market conditions, general interest rate levels and spreads, as well as OnDeck-specific factors, such as origination volume and credit quality. We expect interest expense will continue to increase in absolute dollars as we increase borrowings to fund portfolio growth.
Prior to the 4th quarter of 2018, we reported Funding Cost, which was the interest expense, fees and amortization of deferred debt issuance costs we incurred in connection with our lending activities. Funding Costs excluded the interest expense we incurred on our corporate revolving line of credit. We now report Interest expense which includes all expense related to debt.
Operating Expense
Operating expense consists of sales and marketing, technology and analytics, processing and servicing, and general and administrative expenses. Salaries and personnel-related costs, including benefits, bonuses, stock-based compensation expense and occupancy, comprise a significant component of each of these expense categories. All operating expense categories also include an allocation of overhead, such as rent and other overhead, which is based on employee headcount. We believe that continuing to invest in our business is essential to growing the business and maintaining our competitive position, and therefore, we expect the absolute dollars of operating expenses to increase.
At December 31, 2018, we had 587 employees compared to 475 at December 31, 2017 and 708 at December 31, 2016. During 2018, we increased our headcount and personnel-related costs across our business in order to support our growth strategy after reducing headcount and personnel related costs in 2017. We expect headcount to continue to increase in 2019. Given our focus on growth and profitability, we evaluate trends in our efficiency ratio as a key measure of our progress. Our efficiency ratio for the year ended December 31, 2018 was 44.6% which was an improvement from 47.3% for the year ended December 31, 2017 and significantly better than 66.6% for the year ended December 31, 2016. For the year ended December 31, 2018, our Adjusted Efficiency Ratio, which is a non-GAAP metric and excludes $6 million of noteworthy expenses, was 40.1% which was an improvement from 42.9% for the year ended December 31, 2017 and significantly better than 61.1% for the year ended December 31, 2016. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures for a discussion and reconciliation of Adjusted Efficiency Ratio.
Sales and Marketing. Sales and marketing expense consists of salaries and personnel-related costs of our sales and marketing and business development employees, as well as direct marketing and advertising costs, online and offline CACs (such as direct mail, paid search and search engine optimization costs), public relations, promotional event programs and sponsorships, corporate communications and allocated overhead.
Technology and Analytics. Technology and analytics expense consists primarily of the salaries and personnel-related costs of our engineering and product employees as well as our credit and analytics employees who develop our proprietary credit-scoring models. Additional expenses include third-party data acquisition expenses, professional services, consulting costs, expenses related to the development of new types of loans and technologies and maintenance of existing technology assets, amortization of capitalized internal-use software costs related to our technology platform and allocated overhead.
Processing and Servicing. Processing and servicing expense consists primarily of salaries and personnel related costs of our credit analysis, underwriting, funding, fraud detection, customer service and collections employees. Additional expenses include vendor costs associated with third-party credit checks, lien filing fees and other costs to evaluate, close and fund loans and overhead costs.
General and Administrative. General and administrative expense consists primarily of salary and personnel-related costs for our executive, finance and accounting, legal and people operations employees. Additional expenses include a provision for the unfunded portion of our lines of credit, consulting and professional fees, insurance, legal, travel, gain or loss on foreign exchange and other corporate expenses. These expenses also include costs associated with compliance with the Sarbanes-Oxley Act and other regulations governing public companies, directors’ and officers’ liability insurance and increased accounting costs.
Provision for Income Taxes
We have not recorded any provision for U.S. federal, state and foreign income taxes. Through December 31, 2018, we have not been required to pay any material U.S. federal or state income taxes nor any foreign income taxes because of accumulated net operating losses. As of December 31, 2018, we had approximately $3.7 million of federal net operating loss carryforwards and approximately $14.9 million of state net operating loss carryforwards available to reduce future taxable income, unless limited due to historical or future ownership changes. The federal net operating loss carryforwards will begin to expire at various dates beginning in 2027.
We expect to incur income tax expense in 2019 and thereafter as we currently estimate that we will be profitable and will exhaust our net operating losses. We may begin to recognize a portion of our deferred tax asset in 2019 if our actual and projected profitability are significant enough to support the realizability of those deferred tax assets. We anticipate releasing portions of our valuation allowance in 2019 and thereafter if we achieve our forecasted profitability levels and that profitability is deemed sufficient to support the realizability of those net deferred tax assets.

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The Internal Revenue Code of 1986, as amended, or the Code, imposes substantial restrictions on the utilization of net operating losses and other tax attributes in the event of an “ownership change” of a corporation. Events which may cause limitation in the amount of the net operating losses and other tax attributes that are able to be utilized in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period, which has occurred as a result of historical ownership changes. Accordingly, our ability to use pre-change net operating loss and certain other attributes are limited as prescribed under Sections 382 and 383 of the Code. Therefore, if we earn net taxable income in the future, our ability to reduce our federal income tax liability with our existing net operating losses is subject to limitation. Future offerings, as well as other future ownership changes that may be outside our control could potentially result in further limitations on our ability to utilize our net operating loss and tax attributes. Accordingly, achieving profitability may not result in a full release of the valuation allowance.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017, or the Tax Act, was enacted which made significant changes to the existing tax code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35% to 21% for tax years beginning after December 31, 2017, an increase in bonus depreciation and the deductibility of certain depreciable assets, limitations on the deductibility of net interest expense, changes to net operating loss carryover and carryback rules, the transition of U.S international taxation from a worldwide tax system to a territorial system, and reductions in the amount of executive pay that could qualify as a tax deduction.
As of December 31, 2018, a full valuation allowance of $37,578 was recorded against our net deferred tax assets.

Results of Operations
The following table sets forth our consolidated statements of operations data for each of the periods indicated.
 
Year Ended December 31,
 
2018
 
2017
 
2016
 
(dollars in thousands)
Revenue:
 
 
 
 
 
Interest income
$
383,579

 
$
334,575

 
$
264,844

Gain on sales of loans

 
2,485

 
14,411

Other revenue
14,797

 
13,890

 
12,062

Gross revenue
398,376

 
350,950

 
291,317

Cost of revenue:
 
 
 
 
 
Provision for loan losses
148,541

 
152,926

 
149,963

Interest expense
47,075

 
46,199

 
32,862

Total cost of revenue
195,616

 
199,125

 
182,825

Net revenue
202,760

 
151,825

 
108,492

Operating expense:
 
 
 
 
 
Sales and marketing
44,082

 
52,786

 
67,011

Technology and analytics
50,866

 
53,392

 
58,899

Processing and servicing
21,209

 
18,076

 
19,719

General and administrative
61,333

 
41,916

 
48,345

Total operating expense
177,490

 
166,170

 
193,974

Income (loss) from operations, before provision for income taxes
25,270

 
(14,345
)
 
(85,482
)
Provision for income taxes

 

 

Net income (loss)
$
25,270

 
$
(14,345
)
 
$
(85,482
)

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The consolidated statements of operations data as a percentage of gross revenue for each of the periods indicated.
 
Year Ended December 31,
 
2018
 
2017
 
2016
Revenue:
 
 
 
 
 
Interest income
96.3
%
 
95.3
 %
 
90.9
 %
Gain on sales of loans

 
0.7

 
5.0

Other revenue
3.7

 
4.0

 
4.1

Gross revenue
100.0

 
100.0

 
100.0

Cost of revenue:
 
 
 
 
 
Provision for loan losses
37.3

 
43.6

 
51.5

Interest expense
11.8

 
13.2

 
11.3

Total cost of revenue
49.1

 
56.8

 
62.8

Net revenue
50.9

 
43.2

 
37.2

Operating expense:
 
 
 
 
 
Sales and marketing
11.1

 
15.0

 
23.0

Technology and analytics
12.8

 
15.2

 
20.2

Processing and servicing
5.3

 
5.2

 
6.8

General and administrative
15.4

 
11.9

 
16.6

Total operating expense
44.6

 
47.3

 
66.6

Income (loss) from operations, before provision for income taxes
6.3

 
(4.1
)
 
(29.3
)
Provision for income taxes

 

 

Net income (loss)
6.3
%
 
(4.1
)%
 
(29.3
)%

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Comparison of Years Ended December 31, 2018 and 2017
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
2018 vs 2017
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
383,579

 
96.3
%
 
$
334,575

 
95.3
 %
 
$
49,004

 
14.6
 %
Gain on sales of loans

 

 
2,485

 
0.7

 
(2,485
)
 
(100.0
)
Other revenue
14,797

 
3.7

 
13,890

 
4.0

 
907

 
6.5

Gross revenue
398,376

 
100.0

 
350,950

 
100.0

 
47,426

 
13.5

Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
Provision for loan losses
148,541

 
37.3

 
152,926

 
43.6

 
(4,385
)
 
(2.9
)
Interest expense
47,075

 
11.8

 
46,199

 
13.2

 
876

 
1.9

Total cost of revenue
195,616

 
49.1

 
199,125

 
56.8

 
(3,509
)
 
(1.8
)
Net revenue
202,760

 
50.9

 
151,825

 
43.2

 
50,935

 
33.5

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
44,082

 
11.1

 
52,786

 
15.0

 
(8,704
)
 
(16.5
)
Technology and analytics
50,866

 
12.8

 
53,392

 
15.2

 
(2,526
)
 
(4.7
)
Processing and servicing
21,209

 
5.3

 
18,076

 
5.2

 
3,133

 
17.3

General and administrative
61,333

 
15.4

 
41,916

 
11.9

 
19,417

 
46.3

Total operating expenses
177,490

 
44.6

 
166,170

 
47.3

 
11,320

 
6.8

Loss before provision for income taxes
25,270

 
6.3

 
(14,345
)
 
(4.1
)
 
39,615

 
(276.2
)
Provision for income taxes

 

 

 

 

 

Net income (loss)
$
25,270

 
6.3
%
 
$
(14,345
)
 
(4.1
)%
 
$
39,615

 
(276.2
)%
Net income (loss)
For the year ended December 31, 2018, net income increased to $25.3 million from a loss of $(14.3) million for the year ended December 31, 2017 while adjusted net income increased to $45.4 million from $4.2 million over the same period. These increases were primarily attributable to a 13.5% increase in revenue and a decrease of 1.8% in cost of revenue, partially offset by a 6.8% increase in operating expenses. Correlating to our growth of net income, our Return on Assets increased to 2.6% from (1.1)% while our Return on Equity increased to 10.0% from (4.5)%.

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Revenue
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
2018 vs 2017
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Revenue:
 
Interest income
$
383,579

 
96.3
%
 
$
334,575

 
95.3
%
 
$
49,004

 
14.6
 %
Gain on sales of loans

 

 
2,485

 
0.7

 
(2,485
)
 
(100.0
)
Other revenue
14,797

 
3.7

 
13,890

 
4.0

 
907

 
6.5

Gross revenue
$
398,376

 
100.0
%
 
$
350,950

 
100.0
%
 
$
47,426

 
13.5
 %
Gross revenue increased by $47.4 million, or 13.5%, from $351.0 million in 2017 to $398.4 million in 2018. This growth was in part attributable to a $49.0 million, or 14.6%, increase in interest income, which was primarily driven by the higher balance of loans being held on our balance sheet as evidenced by the 7% increase in Average Loans from $1.0 billion to $1.1 billion. The increase in interest income was also driven by the increase in Loan Yield on loans outstanding from 33.8% to 36.2%.
Gain on sales of loans decreased by $2.5 million to zero as we chose not to sell any loans in 2018.
Other revenue increased by $0.9 million, or 7%, primarily attributable to an increase in ODX revenue. This was partially offset by a decrease in loan servicing fees and a decrease in marketing fees from our issuing bank partner.
Cost of Revenue
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
2018 vs 2017
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
Provision for loan losses
$
148,541

 
37.3
%
 
$
152,926

 
43.6
%
 
$
(4,385
)
 
(2.9
)%
Interest expense
47,075

 
11.8

 
46,199

 
13.2

 
876

 
1.9

Total cost of revenue
$
195,616

 
49.1
%
 
$
199,125

 
56.8
%
 
$
(3,509
)
 
(1.8
)%
Provision for Loan Losses. Provision for loan losses decreased by $4.4 million, or 3%, from $152.9 million in 2017 to $148.5 million in 2018. In accordance with GAAP, we recognize revenue on loans over their term, but provide for probable credit losses on the loans at the time they are originated. We then periodically adjust our estimate of those probable credit losses based on actual performance and changes in loss estimates. As a result, we believe that analyzing provision for loan losses as a percentage of originations held for investment, rather than as a percentage of gross revenue, provides more useful insight into our operating performance. Our provision for loan losses as a percentage of originations held for investment, or the Provision Rate, decreased from 7.5% to 6.0%. The decrease in the Provision Rate is largely attributable to the tightening of our credit policies used to determine eligibility, pricing and loan size for certain customers. The tightening of our credit policies began in early 2017 and was continually refined through 2018.
Interest Expense. Interest expense increased by $0.9 million, or 1.9%, from $46.2 million in 2017 to $47.1 million in 2018. As a percentage of gross revenue, interest expense decreased from 13.2% in 2017 to 11.8% in 2018. The increase in interest expense was primarily attributable to increases in Average Debt outstanding and benchmark rates and was partially offset by a decrease in interest rate spread (the applicable percentage rate above the benchmark interest rate charged by the lender). The Average Debt Outstanding during 2018 was $751.0 million as compared to $740.5 million during 2017 while our Cost of Funds Rate increased from 6.2% to 6.3%.
Operating Expense
Total operating expenses increased by $11.3 million, or 6.8%, from $166.2 million in 2017 to $177.5 million in 2018 driven by our increase in overall headcount, and costs associated with our growth initiatives. We also incurred a net of $5.9 million of

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expenses related to real estate disposition charges, debt extinguishment costs, sales tax refund, severance and executive transition expenses for which there were no comparable charges in 2017. Our efficiency ratio for the year ended December 31, 2018 was 44.6% which was an improvement from 47.3% for the year ended December 31, 2017. Our Adjusted Efficiency Ratio, which is a non-GAAP measure, for the year ended December 31, 2018 was 40.1% which was an improvement from 42.9% for the year ended December 31, 2017. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures for a discussion and reconciliation of Adjusted Efficiency Ratio.
Sales and Marketing
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
2018 vs 2017
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Sales and marketing
$
44,082

 
11.1
%
 
$
52,786

 
15.0
%
 
$
(8,704
)
 
(16.5
)%
Sales and marketing expense decreased by $8.7 million, or 16.5%, from $52.8 million in 2017 to $44.1 million in 2018. The decrease was primarily attributable to a $4.0 million decrease in customer acquisition costs and a $1.5 million decrease in occupancy costs due to the lease terminations which occurred during the first quarter of 2018. Additionally, radio and television advertising decreased by $1.2 million and syndication program costs decreased by $1.9 million.

Technology and Analytics
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
2018 vs 2017
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Technology and analytics
$
50,866

 
12.8
%
 
$
53,392

 
15.2
%
 
$
(2,526
)
 
(4.7
)%
Technology and analytics expense decreased by $2.5 million, or 5%, from $53.4 million in 2017 to $50.9 million in 2018. The decrease was primarily attributable to a $1.8 million decrease in personnel-related costs. Additionally, there was a $1.7 million decrease in technology depreciation and a $0.7 million decrease in occupancy costs due to the lease terminations which occurred during the first quarter of 2018. This was partially offset by a $1.3 million increase in technology consultant spend.
Processing and Servicing
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
2018 vs 2017
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Processing and servicing
$
21,209

 
5.3
%
 
$
18,076

 
5.2
%
 
$
3,133

 
17.3
%
Processing and servicing expense increased by $3.1 million, or 17%, from $18.1 million in 2017 to $21.2 million in 2018. The increase was primarily attributable to a $2.1 million increase in personnel-related costs and an increase of $1.7 million in costs associated with the increase of inbound application volume, quantity of data consumed, and loan servicing costs. This was partially offset by a decrease in occupancy costs of $0.7 million due to the lease terminations which occurred during the first quarter of 2018.

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General and Administrative
 
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
2018
 
2017
 
2018 vs 2017
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
General and administrative
$
61,333

 
15.4
%
 
$
41,916

 
11.9
%
 
$
19,417

 
46.3
%
General and administrative expense increased by $19.4 million, or 46%, from $41.9 million in 2017 to $61.3 million in 2018. The increase was primarily attributable to a $5.7 million charge related to the lease terminations in the New York and Denver offices and a $4.7 million increase in personnel-related costs. Additionally, we recorded $1.9 million of debt extinguishment costs to write off the remaining balance of deferred issuance fees in connection with the extinguishment of the ODAST II 2016-01 debt and the ODAF debt in 2018. The loss related to foreign currency transactions and holdings increased in 2018, increasing expenses by $3.0 million, driven by the decreased value in exchange rates relative to the U.S. dollar. Professional fees increased by $2.0 million and recruiting costs increased by $1.4 million.

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Comparison of Years Ended December 31, 2017 and 2016
 
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
2017 vs 2016
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
334,575

 
95.3
 %
 
$
264,844

 
90.9
 %
 
$
69,731

 
26.3
 %
Gain on sales of loans
2,485

 
0.7

 
14,411

 
5.0

 
(11,926
)
 
(82.8
)
Other revenue
13,890

 
4.0

 
12,062

 
4.1

 
1,828

 
15.2

Gross revenue
350,950

 
100.0

 
291,317

 
100.0

 
59,633

 
20.5

Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
Provision for loan losses
152,926

 
43.6

 
149,963

 
51.5

 
2,963

 
2.0

Interest expense
46,199

 
13.2

 
32,862

 
11.3

 
13,337

 
40.6

Total cost of revenue
199,125

 
56.8

 
182,825

 
62.8

 
16,300

 
8.9

Net revenue
151,825

 
43.2

 
108,492

 
37.2

 
43,333

 
39.9

Operating expense:
 
 
 
 
 
 
 
 
 
 
 
Sales and marketing
52,786

 
15.0

 
67,011

 
23.0

 
(14,225
)
 
(21.2
)
Technology and analytics
53,392

 
15.2

 
58,899

 
20.2

 
(5,507
)
 
(9.3
)
Processing and servicing
18,076

 
5.2

 
19,719

 
6.8

 
(1,643
)
 
(8.3
)
General and administrative
41,916

 
11.9

 
48,345

 
16.6

 
(6,429
)
 
(13.3
)
Total operating expense
166,170

 
47.3

 
193,974

 
66.6

 
(27,804
)
 
(14.3
)
Income (loss) from operations, before provision for income taxes
(14,345
)
 
(4.1
)
 
(85,482
)
 
(29.3
)
 
71,137

 
(83.2
)
Provision for income taxes

 

 

 

 

 


Net income (loss)
$
(14,345
)
 
(4.1
)%
 
$
(85,482
)
 
(29.3
)%
 
$
71,137

 
(83.2
)%
Revenue
 
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
2017 vs 2016
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
 
 
Revenue:
 
 
 
 
 
 
 
 
 
 
 
Interest income
$
334,575

 
95.3
%
 
$
264,844

 
90.9
%
 
$
69,731

 
26.3
 %
Gain on sales of loans
2,485

 
0.7

 
14,411

 
5.0

 
(11,926
)
 
(82.8
)
Other revenue
13,890

 
4.0

 
12,062

 
4.1

 
1,828

 
15.2

Gross revenue
$
350,950

 
100.0
%
 
$
291,317

 
100.0
%
 
$
59,633

 
20.5
 %

Gross revenue increased by $59.6 million, or 20%, from $291.3 million in 2016 to $351.0 million in 2017. This growth was in part attributable to a $69.7 million, or 26.3%, increase in interest income, which was driven by a greater volume of loans being held on our balance sheet as evidenced by the 24.1% increase in Average Loans to $990.6 million from $798.1 million. The increase

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in interest income was also attributed to an increase in our Loan Yield on loans outstanding to 33.8% from 33.2% over the same period.
Gain on sales of loans decreased by $11.9 million, from $14.4 million in 2016 to $2.5 million in 2017. This decrease was primarily attributable to a $304.4 million decrease in sales of loans through OnDeck Marketplace and a decrease in Marketplace Gain on Sale Rate from 3.8% in 2016 to 3.4% in 2017.
Other revenue increased $1.8 million, or 15%, primarily attributable to an increase of $3.0 million in platform fees and an increase of $0.9 million in monthly fees earned from lines of credit as the total number of line of credit units increased period over period. This increase was partially offset by a decrease of $1.0 million in marketing fees from our issuing bank partner and a $1.1 million decrease from our syndication program.
Cost of Revenue
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
2017 vs 2016
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Cost of revenue:
 
 
 
 
 
 
 
 
 
 
 
Provision for loan losses
$
152,926

 
43.6
%
 
$
149,963

 
51.5
%
 
$
2,963

 
2.0
%
Interest expense
46,199

 
13.2

 
32,862

 
11.3

 
13,337

 
40.6

Total cost of revenue
$
199,125

 
56.8
%
 
$
182,825

 
62.8
%
 
$
16,300

 
8.9
%
Provision for Loan Losses. Provision for loan losses increased by $3.0 million, or 2%, from $150.0 million in 2016 to $152.9 million in 2017. In accordance with GAAP, we recognize revenue on loans over their term, but provide for probable credit losses on the loans at the time they are originated. We then periodically adjust our estimate of those probable credit losses based on actual performance and changes in loss estimates. As a result, we believe that analyzing provision for loan losses as a percentage of originations, rather than as a percentage of gross revenue, provides more useful insight into our operating performance. Our provision for loan losses as a percentage of originations held for investment, or the Provision Rate, increased from 7.4% in 2016 to 7.5% in 2017. The increase in the Provision Rate was, in part, attributed to continued reserve builds in 2017 for loans originated in 2016, as well as reserve builds related to hurricane Harvey and Irma (See Part II -Item 7 - Key Factors Affecting our Performance - Credit Performance.)
Interest Expense. Interest expense increased by $13.3 million, or 40.6%, from $32.9 million in 2016 to $46.2 million in 2017. The increase in interest expense was primarily attributable to the increases in our aggregate outstanding borrowings. The Average Debt Outstanding during 2017 was $740.5 million as compared to $557.2 million during 2016 while our Cost of Funds Rate increased to 6.2% from 5.9%. The Cost of Funds Rate increased as a result of the increase in LIBOR throughout 2017 which increased the rates associated with our variable rate debt instruments, and the higher interest rates associated with our newer facilities which were available to finance our previously ineligible loans. As a percentage of gross revenue, interest expense increased from 11.3% in 2016 to 13.2% in 2017. The increase in interest expense as a percentage of gross revenue was the result of the increase of interest rates on our debt facilities.
Operating Expense
Total operating expense decreased by $27.8 million, or 14.3% from $194.0 million in 2016 to $166.2 million in 2017 driven by our cost rationalization program. Our efficiency ratio for the year ended December 31, 2017 was 44.6% which improved from 66.6% for the year ended December 31, 2016 which is a reflection of the cost rationalization program that took place in 2017. Our Adjusted Efficiency Ratio, which is a non-GAAP metric, for the year ended December 31, 2017 was 42.9% which improved from 61.1% for the year ended December 31, 2016. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures for a discussion and reconciliation of Adjusted Efficiency Ratio.

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Sales and Marketing
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
2017 vs 2016
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Sales and marketing
$
52,786

 
15.0
%
 
$
67,011

 
23.0
%
 
$
(14,225
)
 
(21.2
)%
Sales and marketing expense decreased by $14.2 million, or 21%, from $67.0 million in 2016 to $52.8 million in 2017. The decrease was primarily attributable to a $9.5 million decrease in customer acquisition costs and a decrease of $3.8 million in personnel-related costs. Additionally, brand and radio/television advertising decreased by $3.3 million which was partially offset by an increase of $2.0 million in syndication program costs.
Technology and Analytics
 
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
2017 vs 2016
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
(dollars in thousands)
Technology and analytics
$
53,392

 
15.2
%
 
$
58,899

 
20.2
%
 
$
(5,507
)
 
(9.3
)%
Technology and analytics expense decreased by $5.5 million, or 9%, from $58.9 million in 2016 to $53.4 million in 2017. The decrease was primarily attributable to a $5.5 million decrease in salaries and personnel-related costs related to technology and analytics headcount reductions as part of our cost rationalization program.
Processing and Servicing
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
2017 vs 2016
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
 
 
(dollars in thousands)
 
 
Processing and servicing
$
18,076

 
5.2
%
 
$
19,719

 
6.8
%
 
$
(1,643
)
 
(8.3
)%
Processing and servicing expense decreased by $1.6 million, or 8%, from $19.7 million in 2016 to $18.1 million in 2017. The decrease was primarily attributable to a $1.6 million decrease in salaries and personnel-related costs, related to processing and servicing headcount reductions as part of our cost rationalization program.
General and Administrative
 
 
Year Ended December 31,
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
2017 vs 2016
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage of
Gross
Revenue
 
Amount
 
Percentage
 
 
 
(dollars in thousands)
 
 
General and administrative
$
41,916

 
11.9
%
 
$
48,345

 
16.6
%
 
$
(6,429
)
 
(13.3
)%

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General and administrative expense decreased by $6.4 million, or 13%, from $48.3 million in 2016 to $41.9 million in 2017. The decrease was primarily attributable to a $2.7 million decrease in salaries and personnel-related costs related to general and administrative headcount reductions, and travel and entertainment expenses decreased by $2.2 million, both as a result of our cost rationalization program. The gain related to foreign currency transactions and holdings in Canadian Dollars decreased expenses by $1.5 million in 2017 as compared to the prior year, driven by the increased value of the Canadian dollar relative to the US Dollar.

Liquidity and Capital Resources
During 2018, we originated $2.5 billion of loans utilizing a diversified set of funding sources, including cash on hand, third-party lenders (through debt facilities and securitization), and the cash generated by our operating, investing and financing activities.
Cash on Hand
At December 31, 2018, we had approximately $60 million of cash on hand to fund our future operations compared to approximately $71 million at December 31, 2017.
Current Debt Facilities
The following table summarizes our current debt facilities as of December 31, 2018. Prior to December 31, 2018, we distinguished between debt facilities used to fund our lending activities, which we referred to as funding debt, and debt facilities used to fund our operating expenditures, which we referred to as corporate debt. Management adopted the current presentation because it believes it better reflects our funding profile. We also believe that it is more useful to consider total debt and total interest expense in the aggregate to obtain better insight into our Net Interest Margin and Cost of Funds Rate.

 
Maturity
Date
 
Weighted
Average
Interest Rate
 
Borrowing
Capacity
 
Principal
Outstanding
 
 
 
 
 
(in millions)
Debt:
 
 
 
 
 
OnDeck Asset Securitization Trust II LLC
April 2022
(1) 
3.8%
 
$
225.0

 
$
225.0

OnDeck Account Receivables Trust 2013-1 LLC
March 2019
 
5.1%
 
214.1

 
117.7

Receivable Assets of OnDeck, LLC
September 2021
(2) 
4.7%
 
119.7

 
113.6

OnDeck Asset Funding II LLC
August 2022
(3) 
5.3%
 
175.0

 
109.6

Prime OnDeck Receivable Trust II, LLC
March 2019
 
5.0%
 
125.0

 
108.8

Loan Assets of OnDeck, LLC
October 2022
(4) 
4.3%
 
100.0

 
100.0

Corporate Debt
January 2019
(5) 
6.8%
 
30.0

 

Other Agreements
Various
(6) 
6.0%
 
79.3

 
47.3

Total Debt
 
 
4.7%
 
$
1,068.1

 
$
822.0


(1) 
The period during which new borrowings may be made under this debt facility expires in March 2020.
(2) 
The period during which new borrowings of Class A revolving loans may be made under this debt facility expires in December 2020. The $19.7 million of Class B borrowing capacity matures in December 2019
(3) 
The period during which new borrowings may be made under this debt facility expires in August 2021.
(4) 
The period during which new borrowings may be made under this debt facility expires in April 2022. On February 8, 2019, we entered into an amendment which increased the revolving commitment amount by $50 million and reduced the interest rate margin over 1-month LIBOR by 0.25%, as well as made various technical, definitional, conforming and other changes, see Note 15, "Subsequent Events" of Notes to Consolidated Financial Statements for additional information.
(5) 
In January 2019, we voluntarily prepaid in full and terminated the Square 1 Agreement which had a $30 million borrowing capacity. In January 2019 we established a new revolving debt facility with a commitment amount of $85 million and an interest rate of 1-month LIBOR plus 3.0% and a final maturity date of January 2021, see Note 15, "Subsequent Events" of Notes to Consolidated Financial Statements for additional information.
(6) 
Maturity dates range from January 2020 through June 2021


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Our ability to fully utilize the available capacity of our debt facilities may also be impacted by provisions that limit concentration risk and eligibility.
OnDeck Marketplace
OnDeck Marketplace is our proprietary whole loan sale platform that allows participating third-party institutional investors to directly purchase small business loans from us. We recognize a gain or loss from OnDeck Marketplace loans when sold. We did not sell any loans in 2018. For the year ended 2017, 3.7% of total term loan originations were OnDeck Marketplace originations. The proportion of loans we sell through OnDeck Marketplace largely depends on the premiums available to us. In 2019, we expect that OnDeck Marketplace sales, if any, will be minimal.
Cash and Cash Equivalents, Loans (Net of Allowance for Loan Losses), and Cash Flows
The following table summarizes our cash and cash equivalents, loans (net of ALLL) and cash flows:
 
As of and for the Year Ended December 31,
 
2018
 
2017
 
2016
 
(in thousands)
Cash and cash equivalents
$
59,859

 
$
71,362

 
$
79,554

Restricted cash
$
37,779

 
$
43,462

 
$
44,432

Loans held for investment, net
$
1,029,117

 
$
843,781

 
$
890,283

Cash provided by (used in):
 
 
 
 
 
Operating activities
$
263,781

 
$
210,198

 
$
134,251

Investing activities
$
(399,641
)
 
$
(157,534
)
 
$
(583,265
)
Financing activities
$
121,724

 
$
(62,496
)
 
$
374,728

Our cash and cash equivalents at December 31, 2018 were held primarily for working capital purposes. We may, from time to time, use excess cash and cash equivalents to fund our lending activities. We do not enter into investments for trading or speculative purposes. Our policy is to invest cash in excess of our immediate working capital requirements in short-term investments, deposit accounts or other arrangements designed to preserve the principal balance and maintain adequate liquidity. Our excess cash may be invested primarily in overnight sweep accounts, money market instruments or similar arrangements that provide competitive returns in relationships to our polices and market conditions.
Our restricted cash represents funds held in accounts as reserves on certain debt facilities and as collateral for issuing bank partner transactions. We have no ability to draw on such funds as long as they remain restricted under the applicable arrangements but have the ability to use these funds to finance loan originations, subject to meeting borrowing base requirements. Our policy is to invest restricted cash held in debt facility related accounts in investments designed to preserve the principal balance and provide liquidity. Accordingly, such cash is invested primarily in money market instruments that offer daily purchase and redemption and provide competitive returns in relationship to our policies and market conditions.
Cash Flows
Operating Activities
For the year ended December 31, 2018, net cash provided by our operating activities was $263.8 million, which was primarily the result of interest payments from our customers of $447.8 million, less $145.4 million utilized to pay our operating expenses and $42.2 million we used to pay the interest on our debt. During that same period, accounts payable and accrued expenses and other liabilities decreased by approximately $5.1 million.
For the year ended December 31, 2017, net cash provided by our operating activities was $210.2 million, which was primarily the result of our cash received from our customers, including interest payments of $396.7 million, plus proceeds from sale of loans held for sale of $51.5 million, less $48.7 million of loans held for sale originations in excess of loan repayments received, $138.2 million utilized to pay our operating expenses and $41.9 million we used to pay the interest on our debt. During that same period, accounts payable and accrued expenses and other liabilities decreased by approximately $8.8 million.
For the year ended December 31, 2016, net cash provided by our operating activities was $134.3 million, which was primarily the result of our cash received from our customers including interest payments of $312.9 million, plus proceeds from sale of loans held for sale of $314.6 million, less $297.0 million of loans held for sale originations in excess of loan repayments received, $161.3 million utilized to pay our operating expenses and $24.8 million we used to pay the interest on our debt. During that same period, accounts payable and accrued expenses and other liabilities increased by approximately $8.2 million.

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Investing Activities
Our investing activities have consisted primarily of funding our term loan and line of credit originations, including payment of associated direct costs and receipt of associated fees, offset by customer repayments of term loans and lines of credit, purchases of property, equipment and software, capitalized internal-use software development costs and proceeds from the sale of term loans which were not specifically identified at origination as a loan held for sale. Purchases of property, equipment and software and capitalized internal-use software development costs may vary from period to period due to the timing of the expansion of our operations, the addition of employee headcount and the development cycles of our internal-use technology.
For the year ended December 31, 2018, net cash used to fund our investing activities was $399.6 million, and consisted primarily of $327.8 million of loan originations in excess of loan repayments received, $64.6 million of origination costs paid in excess of fees collected and $6.4 million for the purchase of property, equipment and software and capitalized internal-use software development costs.
For the year ended December 31, 2017, net cash used to fund our investing activities was $157.5 million, and consisted primarily of $119.5 million of loan originations in excess of loan repayments received, $44.8 million of origination costs paid in excess of fees collected and $4.3 million for the purchase of property, equipment and software and capitalized internal-use software development costs. These uses of cash were partially offset by $24.8 million of proceeds from sales of loans held for investment.
For the year ended December 31, 2016, net cash used to fund our investing activities was $583.3 million, and consisted primarily of $75.8 million of proceeds from sales of loans held for investment, less $600.5 million of loan originations in excess of loan repayments received, $47.1 million of origination costs paid in excess of fees collected and $11.3 million for the purchase of property, equipment and software and capitalized internal-use software development costs.
Financing Activities
Our financing activities have consisted primarily of net borrowings from our securitization facility and our revolving debt facilities.
For the year ended December 31, 2018, net cash provided by our financing activities was $121.7 million and consisted primarily of $126.4 million in net additional debt drawn down from our debt facilities, $6.0 million of payments of debt issuance costs and $1.7 million for the purchase of an interest rate cap. These uses of cash were partially offset by $1.5 million of net cash received from noncontrolling interest, and $1.4 million of cash received from the issuance of common stock under the employee stock purchase plan.
For the year ended December 31, 2017, net cash used to fund our financing activities was $62.5 million and consisted primarily of $61.9 million in net principal repayments of our debt related to our securitization and debt facilities and $4.1 million of payments of debt issuance costs. These uses of cash were partially offset by $2.4 million of net cash received for additional investment by a noncontrolling interest, and $1.8 million of cash received from the issuance of common stock under the employee stock purchase plan.
For the year ended December 31, 2016, net cash provided by our financing activities was $374.7 million and consisted primarily of $379.1 million in net additional debt drawn down from our securitization and debt facilities, primarily associated with the increase in loan originations during the year and $6.3 million of payments of debt issuance costs offset by $2.6 million of cash received from the issuance of common stock under the employee stock purchase plan.

Operating and Capital Expenditure Requirements
We require substantial liquidity to fund our current operating and capital expenditure requirements. We expect these requirements to increase as we pursue our growth strategy.
Our annual originations were $2.5 billion in 2018, $2.1 billion in 2017 and $2.4 billion in 2016.
Our strategy is to continue to grow in a disciplined manner while remaining highly focused on credit quality and operating leverage. We expect our originations to grow in 2019 as compared to 2018. Because we will remain focused on credit quality, we are also prepared to forgo lending opportunities that do not meet our credit, underwriting and pricing standards. In addition, despite the continuing competition for customer response, we intend to allocate resources to continue to optimize marketing and customer acquisition costs based on targeted returns on investment rather than spending inefficiently in these areas to achieve incremental growth.
We estimate that at December 31, 2018, approximately $354 million of our own cash had been invested in our loan portfolio, approximately two-thirds of which was used to fund our portfolio's residual value. Investing in our portfolio's residual value is a requirement of our funding model and will remain a use of cash so long as we continue to grow loan balances.

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We expect to use cash flow generated from operations for various corporate purposes including to fund a portion of our lending activities including funding residual growth. In addition, we may also finance residual growth through our unused liquidly sources such as corporate line of credit or introducing additional subordinated notes in our debt facilities.
Approximately $389 million of our debt capacity will expire during 2019 consisting of: $30 million in January 2019, $339 million in March 2019 and $20 million in December 2019. In order to maintain and grow our current rate of loan originations over the next twelve months, we will be required to secure additional funding. We plan to do this through one or more of the following sources: new asset-backed securitization transactions, new debt facilities and extensions and increases to existing debt facilities. Historically we have been successful in accessing the asset-backed loan market on terms acceptable to us, and we anticipate that we will be able to do so into the foreseeable future. However, if we deem the cost of accessing the asset-backed loan market to be in excess of an appropriate rate, we may elect to use available cash, OnDeck Marketplace, or other financing options available to us. Furthermore, we could decide to alter the types of loans we originate, such that more loans are eligible for credit facilities, or we could decide to slow down the rate of originations. We are currently in various stages of discussions with multiple potential funding sources. While we expect to be able to obtain additional capacity on market terms, there can be no assurance that we will be successful. Please refer to Note 15 of Notes to Consolidated Financial Statements for details on the additional funding we secured subsequent to December 31, 2018.
In addition to pursuing funding as described above, although it is not currently anticipated, depending upon the circumstances we may seek additional equity financing. The sale of equity may result in dilution to our stockholders, and those securities may have rights senior to those of our common stock. If we raise additional funds through the issuance of additional debt, the agreements governing such debt could contain covenants that would restrict our operations and such debt would rank senior to shares of our common stock.  
We believe that our cash from operations, available capacity under our revolving lines of credit (and expected extensions or replacements of those lines), and existing cash balances, together with additional financing we expect to be able to obtain on market terms, are sufficient to meet both our existing operating and capital expenditure requirements and our currently planned growth for at least the next 12 months.
Contractual Obligations
Our principal commitments consist of obligations under our outstanding debt facilities and securitization facility and non-cancelable leases for our office space. The following table summarizes these contractual obligations at December 31, 2018. Future events could cause actual payments to differ from these estimates.
 
Payment Due by Period
 
Total
 
2019
 
2020-2021
 
2022-2023
 
Thereafter
 
(in thousands)
Contractual Obligations:
 
 
 
 
 
 
 
 
 
Long-term debt:
 
 
 
 
 
 
 
 
 
Debt
$
821,997

 
$
243,730

 
$
330,019

 
$
248,248

 
$

Interest payments(1)
77,602

 
29,247

 
41,016

 
7,339

 

Operating leases
48,518

 
6,416

 
13,096

 
11,495

 
17,511

Purchase obligations
16,840

 
7,704

 
6,486

 
2,650

 

Total contractual obligations
$
964,957

 
$
287,097

 
$
390,617

 
$
269,732

 
$
17,511

_________________________
(1) 
Interest payments on our debt facilities with variable interest rates are calculated using the interest rate as of December 31, 2018.

The obligations of our subsidiaries for the debt described above and related interest payment obligations are structured to be non-recourse to On Deck Capital, Inc.



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Off-Balance Sheet Arrangements
As of December 31, 2018, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.
2019 Outlook
Our goal for 2019 is to grow prudently and profitably while remaining highly focused on credit quality and operating efficiency. To achieve this goal, we plan to continue to grow our US lending platform through our diversified distribution channels and improving our customer experience and technology platforms. We also plan to continue to invest in our Canadian and Australian operations and ODX, which we believe offer high growth potential. We also plan to gradually begin offering equipment finance loans to existing and new customers. Finally, we plan to continue to enhance our risk management function, technology capabilities and funding profile in support of our growth initiatives.
As we pursue our 2019 goal, we expect the following financial performance trends relative to our full-year 2018 financial results, although we can provide no assurance as to the actual outcome:
Loans to grow at a low-double digit rate;
Net Interest Margin to increase slightly driven by a lower Cost of Funds Rate;
Adjusted Efficiency Ratio to increase slightly as we invest in our strategic growth initiatives;
Provision Rate near the mid-point of our 6-7% target range as credit performance normalizes; and
Effective tax rate of approximately 20% as the company utilizes its remaining US Federal net operating loss carryforwards.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 of Notes to Consolidated Financial Statements appearing elsewhere in this report, we believe the following accounting policies require the most significant judgment and estimates in the preparation of our consolidated financial statements.
Allowance for Loan Losses
The allowance for loan losses, or ALLL, is established through periodic charges to the provision for loan losses. Loan losses are charged against the ALLL when we believe that the future collection of principal is unlikely. Subsequent recoveries, if any, are credited to the ALLL.
We evaluate the creditworthiness of our portfolio on a pooled basis, due to its composition of small, homogeneous loans with similar general credit risk characteristics and diversified among variables including industry and geography. We use a proprietary forecast loss rate at origination for new loans that have not had the opportunity to make payments when they are first originated. The allowance is subjective as it requires material estimates, including such factors as historical trends, known and inherent risks in the loan portfolio, adverse situations that may affect borrowers’ ability to repay and current economic conditions. Other qualitative factors considered may include items such as uncertainties in forecasting and modeling techniques, changes in portfolio composition, seasonality, business conditions, and emerging trends. Recovery of the carrying value of loans is dependent to a great extent on conditions that may be beyond our control. Any combination of the aforementioned factors may adversely affect our loan portfolio resulting in increased delinquencies and loan losses and could require additional provisions for credit losses, which could impact future periods. In our opinion, we have provided adequate allowances to absorb probable credit losses inherent in our loan portfolio based on available and relevant information affecting the loan portfolio at each balance sheet date.

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Nonaccrual Loans and Charged-Off Loans
We consider a loan to be delinquent when the daily or weekly payments are one day past due, adjusted for grace days. Grace days may be granted when we believe a specific circumstance warrants a brief period where a customer should be permitted to skip a payment (or several) without being deemed delinquent, for example, a natural disaster such as Hurricanes Harvey or Irma. Grace days granted per customer typically do not exceed five days. We do not recognize interest income on loans that are delinquent and non-paying. Loans are returned to accrual status if they are brought to non-delinquent status or have performed in accordance with the contractual terms for a reasonable period of time and, in our judgment, will continue to make periodic principal and interest payments as scheduled. When we determine it is probable that we will be unable to collect additional principal amounts on the loan the remaining Unpaid Principal Balance is charged off. Generally, charge-offs occur after the 90th day of delinquency with 30 days of no activity.
Liability for Unfunded Loan Commitments
Customers may draw on their lines of credit up to defined maximum amounts. As of December 31, 2018 and 2017, our off balance sheet credit exposure related to the undrawn line of credit balances was $264.2 million and $204.6 million, respectively. Similar to our ALLL, we are required to accrue for potential losses related to these unfunded loan commitments at the time the line of credit is originated despite the fact that the customer has not yet drawn these funds. Significant judgment is required to estimate both the amount that may ultimately be drawn on the lines of credit as well as the amount which would ultimately require a reserve. If additional amounts drawn or the rate of default differ from our estimates, actual expenses could differ significantly from our original estimates. The liability for unfunded loan commitments was $5.9 million and $4.4 million as of December 31, 2018 and 2017, respectively, and is included in accrued expenses and other liabilities, with changes in the accrual included in general and administrative expense.

Servicing Rights
We record service assets or liabilities at fair value when we sell whole loans to third parties and upon such sale, we have retained the rights to service those loans. The gain or loss on the recognition of a servicing asset or liability is initially recognized as a component of gain on sales of loans in our Consolidated Statements of Operations and Comprehensive Income, while the change in fair value of servicing asset or liability is included in other revenue in our Consolidated Statements of Operations and Comprehensive Income. Servicing assets and liabilities are presented as a component of other assets or accrued expenses and other liabilities, respectively.
We utilize industry-standard modeling, such as discounted cash flow models, to arrive at an estimate of fair value and may utilize third-party service providers to assist in the valuation process. Significant assumptions used in valuing our servicing rights are adequate compensation, discount rate, renewal rate and default rate. The assumptions utilized to arrive at fair value are sensitive to changes. Our selection of renewal rate and default rate are based on data derived from historical trends and are inherently judgmental.
Internal-Use Software Development Costs
We capitalize certain costs related to software developed for internal-use, primarily associated with the ongoing development and enhancement of our technology platform and other internal uses. We begin to capitalize our costs to develop software when preliminary development efforts are successfully completed, management has authorized and committed project funding, and it is probable that the project will be completed and the software will be used to perform the function as intended. These costs are amortized on a straight-line basis over the estimated useful life of the related asset, generally three years. Costs incurred prior to meeting these criteria together with costs incurred for training and maintenance are expensed as incurred and recorded in technology and analytics expense on our consolidated statements of operations.
Stock-Based Compensation
We recognize stock-based compensation expense net of an estimated forfeiture rate and therefore only recognize compensation expense for those options expected to vest over the service period of the award. Calculating stock-based compensation expense requires the input of subjective assumptions, including the expected term of the options, stock price volatility, and the pre-vesting forfeiture rate. We estimate the expected life of options granted based on historical exercise patterns, which we utilize as the means of estimating future behavior. Because our stock only became publicly traded in December 2014, we do not have enough data upon which to estimate volatility based on historical performance. We estimate the volatility of our common stock on the date of grant using historical data of our own and public companies we judge to be reasonably comparable, e.g., companies

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in similar industries that recently completed initial public offerings of comparable size. In the near future, upon achieving a reasonable base of historical performance data, we will utilize historical and/or implied volatility as part of our assumptions.

The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. In addition, we are required to estimate the expected pre-vesting award forfeiture rate, and recognize expense only for those options expected to vest. We estimate this forfeiture rate based on historical experience of our stock-based awards that are granted and canceled before vesting. If our actual forfeiture rate is materially different from our original estimates, the stock-based compensation expense could be significantly different from what we have recorded in the current period. Changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the effect of adjusting the forfeiture rate for all current and previously recognized expense for unvested awards is recognized in the period the forfeiture estimate is changed. If the actual forfeiture rate is higher than the estimated forfeiture rate, then an adjustment will be made to increase the estimated forfeiture rate, which will result in a decrease to the expense recognized in our consolidated financial statements. If the actual forfeiture rate is lower than the estimated forfeiture rate, then an adjustment will be made to lower the estimated forfeiture rate, which will result in an increase to the expense recognized in our consolidated financial statements.
Income Taxes
We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect to recover or settle those temporary differences. We recognize the effect of a change in tax rates on deferred tax assets and liabilities in the results of operations in the period that includes the enactment date. We reduce the measurement of a deferred tax asset, if necessary, by a valuation allowance if it is more likely than not that we will not realize some or all of the deferred tax asset.

Uncertain tax positions are recognized only when we believe it is more likely than not that the tax position will be upheld upon examination by the taxing authorities based on the merits of the position. We recognize interest and penalties, if any, related to unrecognized income tax uncertainties in income tax expense. We did not have any accrued interest or penalties associated with uncertain tax positions in any of the reporting periods included in this report.
Recently Issued Accounting Pronouncements and JOBS Act Election
Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases, which creates ASC 842, Leases, and supersedes ASC 840, Leases. ASU 2016-02 requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. The new guidance will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and is applied retrospectively. Early adoption is permitted. We expect that most of our operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption of the standard that will result in an offsetting increase in assets and liabilities on the Consolidated Balance Sheet of approximately $38 million. We do not expect the standard to impact our future results of operations or cash flows.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 will change the impairment model and how entities measure credit losses for most financial assets. The standard requires entities to use the new expected credit loss impairment model which will replace the incurred loss model used today. The new standard will be effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted, but not prior to December 15, 2018. We are currently assessing the impact that the adoption of this standard will have on our consolidated financial statements.
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 modifies disclosure requirements for fair value measurements under ASC 820, Fair Value Measurement. The new guidance will be effective for annual reporting periods beginning after December 15, 2019. We are currently evaluating the impact the new standard may have on our disclosures, but do not expect adoption will have a material impact.


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JOBS Act
We became a public company in December 2014, and since that time we have met the definition of an “emerging growth company” under the JOBS Act. We have irrevocably elected to opt out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. Our emerging growth company status will expire effective December 31, 2019.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss to future earnings, values or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes. We are exposed to market risk related to changes in interest rates and foreign currency exchange rates.
Interest Rate Sensitivity
We lend to our customers at a fixed rate of interest while a majority of our borrowings are at a variable rate of interest.  To the extent that underlying market interest rates rise, the spread between our Loan Yield and our Cost of Funds Rate may narrow.  The short-duration of our loans provides us with the ability to quickly respond to a rise in underlying market interest rates by increasing the interest rates we charge our customers on new originations.   Our pricing increases in 2017 and 2018 were primarily a reflection of past and expected future increases in the underlying market interest rates that we, like many other lenders in the market, are passing on to our customers. However, our ability to correspondingly increase the interest rates we charge may be limited by competitive and other factors.  
As of December 31, 2018, we had $589.0 million of outstanding borrowings under debt agreements with variable interest rates. Taking into account our interest rate cap, an increase of one percentage point in interest rates would result in an approximately $2.9 million net increase in our annual interest expense on our outstanding borrowings at December 31, 2018. Any debt we incur in the future may also bear interest at variable rates. Any increase in interest rates in the future will likely affect our borrowing costs under all of our sources of capital for our lending activities. In the fourth quarter of 2018, we entered into an interest rate cap, which is a derivative instrument, to manage our exposure to variable interest rate movements. We do not use derivatives for speculative purposes. The interest rate cap is designated as a cash flow hedge. In exchange for our up-front premium, we will receive variable amounts from a counterparty if interest rates rise above the strike rate on the contract. The interest rate cap agreement is for a notional amount of $300 million and has a maturity date of January 2021.
Foreign Currency Exchange Risk
Substantially all of our revenue and operating expenses are denominated in U.S. dollars. As a result of our Canadian operations and our growing Australia operations, we are subject to foreign currency exchange rate risk. Foreign currency exchange rate risk is the possibility that our financial position or results of operations could be positively or negatively impacted by fluctuations in exchange rates. Historically, we have not utilized derivative instruments such as forwards, options and/or swaps to hedge our foreign currency exchange rate risk. We have expanded our use of natural hedges which match our foreign currency assets with foreign currency liabilities as a means to mitigate the impact of movements in exchange rates. We believe our exposure to foreign currency exchange rate risk will increase in the future as our foreign operations continue to grow. We will continue to explore the costs, benefits and risks of expanding our hedging program as our exposure to foreign currency exchange rate risk increases. We intend to enter into these transactions only to hedge underlying risk reasonably related to our business and not for speculative purposes.


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Item 8.
Consolidated Financial Statements and Supplementary Data
 
 
Page
Index to Consolidated Financial Statements:
 

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of On Deck Capital, Inc. and subsidiaries

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of On Deck Capital, Inc. and subsidiaries (the Company) as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, 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 2012.

New York, NY
March 1, 2019






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ON DECK CAPITAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share data)
 
 
December 31,
 
December 31,
 
2018
 
2017
Assets
 
 
 
Cash and cash equivalents
$
59,859

 
$
71,362

Restricted cash
37,779

 
43,462

Loans held for investment
1,169,157

 
952,796

Less: Allowance for loan losses
(140,040
)
 
(109,015
)
Loans held for investment, net
1,029,117

 
843,781

Property, equipment and software, net
16,700

 
23,572

Other assets
18,115

 
13,867

Total assets
$
1,161,570

 
$
996,044

Liabilities and equity
 
 
 
Liabilities:
 
 
 
Accounts payable
$
4,011

 
$
2,674

Interest payable
2,385

 
2,330

Debt
816,231

 
692,254

Accrued expenses and other liabilities
34,654

 
32,730

Total liabilities
857,281

 
729,988

Commitments and contingencies (Note 13)

 

Stockholders’ equity (deficit):
 
 
 
Common stock—$0.005 par value, 1,000,000,000 shares authorized and 79,135,510 and 77,284,266 shares issued and 75,375,341 and 73,822,001 outstanding at December 31, 2018 and 2017, respectively.
396

 
386

Treasury stock—at cost
(9,822
)
 
(7,965
)
Additional paid-in capital
506,169

 
492,509

Accumulated deficit
(195,155
)
 
(222,833
)
Accumulated other comprehensive loss
(1,832
)
 
(52
)
Total On Deck Capital, Inc. stockholders' equity
299,756

 
262,045

Noncontrolling interest
4,533

 
4,011

Total equity
304,289

 
266,056

Total liabilities and equity
$
1,161,570

 
$
996,044

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


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ON DECK CAPITAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
(in thousands, except share and per share data)
 
Year Ended December 31,
 
2018
 
2017
 
2016
Revenue:
 
 
 
 
 
Interest income
$
383,579

 
$
334,575

 
$
264,844

Gain on sales of loans

 
2,485

 
14,411

Other revenue
14,797

 
13,890

 
12,062

Gross revenue
398,376

 
350,950


291,317

Cost of revenue:
 
 
 
 
 
Provision for loan losses
148,541

 
152,926

 
149,963

Interest expense
47,075

 
46,199

 
32,862

Total cost of revenue
195,616

 
199,125


182,825

Net revenue
202,760

 
151,825


108,492

Operating expense:
 
 
 
 
 
Sales and marketing
44,082

 
52,786

 
67,011

Technology and analytics
50,866

 
53,392

 
58,899

Processing and servicing
21,209

 
18,076

 
19,719

General and administrative
61,333

 
41,916

 
48,345

Total operating expense
177,490

 
166,170


193,974

Income (loss) from operations, before provision for income taxes
25,270

 
(14,345
)
 
(85,482
)
Provision for income taxes

 

 

Net income (loss)
25,270

 
(14,345
)

(85,482
)
Less: Net income (loss) attributable to noncontrolling interest
(2,411
)
 
(2,811
)
 
(2,524
)
Net income (loss) attributable to On Deck Capital, Inc. common stockholders
$
27,681


$
(11,534
)

$
(82,958
)
Net income (loss) per share attributable to On Deck Capital, Inc. common stockholders:
 
 
 
 
 
Basic
$
0.37

 
$
(0.16
)
 
$
(1.17
)
Diluted
$
0.35

 
$
(0.16
)
 
$
(1.17
)
Weighted-average common shares outstanding:
 
 
 
 
 
Basic
74,561,019

 
72,890,313

 
70,934,937

Diluted
78,549,940

 
72,890,313

 
70,934,937

Comprehensive income (loss):
 
 
 
 
 
Net income (loss)
$
25,270

 
$
(14,345
)
 
$
(85,482
)
Other comprehensive income (loss):


 
 
 
 
Unrealized (loss) on derivative instrument
(456
)
 

 

Foreign currency translation adjustment
(1,791
)
 
594

 
(20
)
Comprehensive income (loss)
23,023

 
(13,751
)
 
(85,502
)
Less: Comprehensive income (loss) attributable to noncontrolling interests
(467
)
 
267

 
(13
)
Less: Net income (loss) attributable to noncontrolling interest
(2,411
)
 
(2,811
)
 
(2,524
)
Comprehensive income (loss) attributable to On Deck Capital, Inc. common stockholders
$
25,901

 
$
(11,207
)
 
$
(82,965
)
 
The accompanying notes are an integral part of these consolidated financial statements.

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ON DECK CAPITAL, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
(in thousands, except share data)
 
On Deck Capital, Inc.'s stockholders' equity
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Treasury
Stock
 
Accumulated Other Comprehensive Income (Loss)
 
Total Stockholders' Equity
 
Noncontrolling interest
 
Total
Equity 
(Deficit)
 
Shares
 
Amount
 
Balance—December 31, 2015
70,060,208

 
$
366

 
$
457,003

 
$
(128,341
)
 
$
(5,843
)
 
$
(372
)
 
$
322,813

 
$
6,609

 
$
329,422

Stock-based compensation

 

 
17,385

 

 

 

 
17,385

 

 
17,385

Issuance of common stock through vesting of restricted stock units and option exercises
1,237,969

 
6

 
197

 

 

 

 
203

 

 
203

Employee stock purchase plan
456,008

 
2

 
2,941

 

 

 

 
2,943

 

 
2,943

Repurchases of common stock
(148,477
)
 

 

 

 
(854
)
 

 
(854
)
 

 
(854
)
Other comprehensive income (loss)

 

 

 

 

 
(7
)
 
(7
)
 
(13
)
 
(20
)
Net income (loss)

 

 

 
(82,958
)
 

 

 
(82,958
)
 
(2,524
)
 
(85,482
)
Balance—December 31, 2016
71,605,708

 
$
374


$
477,526


$
(211,299
)

$
(6,697
)

$
(379
)
 
$
259,525

 
$
4,072

 
$
263,597

Stock-based compensation

 

 
12,690

 

 

 

 
12,690

 

 
12,690

Issuance of common stock through vesting of restricted stock units and option exercises
2,014,497

 
10

 
454

 

 

 

 
464

 

 
464

Employee stock purchase plan
467,944

 
2

 
1,839

 

 

 

 
1,841

 

 
1,841

Repurchases of common stock
(266,148
)
 

 

 

 
(1,268
)
 

 
(1,268
)
 

 
(1,268
)
Investments by noncontrolling interests

 

 

 

 

 

 

 
3,440

 
3,440

Return of equity to noncontrolling interest

 

 

 

 

 

 

 
(957
)
 
(957
)
Other comprehensive income (loss)

 

 

 

 

 
327

 
327

 
267

 
594

Net income (loss)

 

 

 
(11,534
)
 

 

 
(11,534
)
 
(2,811
)
 
(14,345
)
Balance—December 31, 2017
73,822,001


386


492,509


(222,833
)

(7,965
)

(52
)

262,045


4,011


266,056

Stock-based compensation

 

 
11,301

 

 

 

 
11,301



 
11,301

Issuance of common stock through vesting of restricted stock units and option exercises
1,482,546

 
8

 
72

 

 

 

 
80

 

 
80

Employee stock purchase plan
368,698

 
2

 
2,287

 

 

 

 
2,289

 

 
2,289

Repurchases of common stock
(297,904
)
 

 

 

 
(1,857
)
 

 
(1,857
)
 

 
(1,857
)
Investment by noncontrolling interests

 

 

 

 

 

 

 
3,400

 
3,400

Other comprehensive income (loss)

 

 

 

 

 
(1,780
)
 
(1,780
)
 
(467
)
 
(2,247
)
Other

 

 

 
(3
)
 

 

 
(3
)
 

 
(3
)
Net income (loss)

 

 

 
27,681

 

 

 
27,681

 
(2,411
)
 
25,270

Balance—December 31, 2018
75,375,341

 
$
396


$
506,169


$
(195,155
)

$
(9,822
)

$
(1,832
)
 
$
299,756

 
$
4,533

 
$
304,289

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

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ON DECK CAPITAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
 
Year Ended December 31,
 
2018
 
2017
 
2016
Cash flows from operating activities
 
 
 
 
 
Net income (loss)
$
25,270

 
$
(14,345
)
 
$
(85,482
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

Provision for loan losses
148,541

 
152,926

 
149,963

Depreciation and amortization
7,802

 
9,951

 
9,462

Amortization of debt issuance costs
6,656

 
3,806

 
4,538

Stock-based compensation
11,819

 
12,515

 
15,915

Amortization of net deferred origination costs
57,486

 
48,219

 
36,040

Changes in servicing rights, at fair value
290

 
2,097

 
4,997

Gain on sales of loans

 
(2,485
)
 
(14,411
)
Unfunded loan commitment reserve
1,438

 
535

 
(307
)
Gain on extinguishment of debt

 
(312
)
 
(1,372
)
Gain on lease termination
(1,481
)
 

 

Loss on disposal of fixed assets
5,737

 

 

Changes in operating assets and liabilities:

 

 

Other assets
(4,972
)
 
4,768

 
(1,942
)
Accounts payable
1,535

 
(2,597
)
 
2,570

Interest payable
119

 
208

 
1,365

Accrued expenses and other liabilities
3,541

 
(6,206
)
 
5,580

Originations of loans held for sale

 
(49,813
)
 
(304,258
)
Capitalized net deferred origination costs of loans held for sale

 
(1,667
)
 
(10,269
)
Proceeds from sale of loans held for sale

 
51,463

 
314,627

Principal repayments of loans held for sale

 
1,135

 
7,235

Net cash provided by operating activities
263,781


210,198


134,251

Cash flows from investing activities
 
 
 
 
 
Purchases of property, equipment and software
(1,058
)
 
(1,340
)
 
(6,640
)
Capitalized internal-use software
(5,385
)
 
(2,919
)
 
(4,645
)
Originations of term loans and lines of credit, excluding rollovers into new originations
(2,115,800
)
 
(1,758,600
)
 
(1,826,085
)
Proceeds from sale of loans held for investment

 
24,826

 
75,787

Payments of net deferred origination costs
(64,628
)
 
(44,778
)
 
(47,082
)
Principal repayments of term loans and lines of credit
1,788,031

 
1,639,117

 
1,232,272

Purchase of loans
(801
)
 
(13,840
)
 
(6,671
)
Other

 

 
(201
)
Net cash used in investing activities
(399,641
)

(157,534
)

(583,265
)
Cash flows from financing activities
 
 
 
 
 
Investments by noncontrolling interests
3,400

 
3,443

 

Purchase of treasury shares
(1,857
)
 
(1,268
)
 
(855
)
Proceeds from exercise of stock options and warrants
78

 
454

 
197

Purchase of interest rate cap
(1,725
)
 

 

Issuance of common stock under employee stock purchase plan
1,435

 
1,838

 
2,606


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Year Ended December 31,
 
2018
 
2017
 
2016
Proceeds from the issuance of debt
759,171

 
211,781

 
777,743

Payments of debt issuance costs
(6,034
)
 
(4,108
)
 
(6,281
)
Repayments of debt principal
(632,744
)
 
(273,679
)
 
(398,682
)
Distribution to noncontrolling interest

 
(957
)
 

Net cash provided by (used in) financing activities
121,724


(62,496
)

374,728

Effect of exchange rate changes on cash and cash equivalents
(3,050
)
 
670

 
(13
)
Net increase (decrease) in cash, cash equivalents and restricted cash
(17,186
)
 
(9,162
)
 
(74,299
)
Cash, cash equivalents, and restricted cash at beginning of year
114,824

 
123,986

 
198,285

Cash, cash equivalents, and restricted cash at end of year
$
97,638


$
114,824


$
123,986

 
 
 
 
 
 
Reconciliation to amounts on consolidated balance sheets
 
 
 
 
 
Cash and cash equivalents
$
59,859

 
$
71,362

 
$
79,554

Restricted cash
37,779

 
43,462

 
44,432

Total cash, cash equivalents and restricted cash
$
97,638

 
$
114,824

 
$
123,986

 
 
 
 
 
 
Supplemental disclosure of other cash flow information
 
 
 
 
 
Cash paid for interest
$
42,208

 
$
41,918

 
$
24,778

Supplemental disclosures of non-cash investing and financing activities
 
 
 
 
 
Loans transferred from loans held for sale to loans held for investment
$

 
$

 
$
884

Stock-based compensation included in capitalized internal-use software
$
243

 
$
175

 
$
1,470

Unpaid principal balance of term loans rolled into new originations
$
368,385

 
$
306,250

 
$
273,453


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

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ON DECK CAPITAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Organization
On Deck Capital, Inc.’s principal activity is providing financing to small businesses located throughout the United States as well as Canada and Australia, through term loans and lines of credit. We use technology and analytics to aggregate data about a business and then quickly and efficiently analyze the creditworthiness of the business using our proprietary credit-scoring model. We originate most of the loans in our portfolio and also purchase loans from an issuing bank partner. We subsequently transfer most of our loan volume into one of our wholly-owned subsidiaries or to a lesser extent sell them through OnDeck Marketplace®.
In October 2018, we announced the launch of ODX, a wholly-owned subsidiary that will focus on helping banks digitize their small business lending process. ODX offers a combination of software, analytic insights, and professional services that allow banks to bring their small business lending process online.

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2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
We prepare our consolidated financial statements and footnotes in accordance with accounting principles generally accepted in the United States of America, or GAAP, as contained in the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC. All intercompany transactions and accounts have been eliminated in consolidation. Certain reclassifications have been made to the prior year amounts to conform to the current year presentation. Prior to December 31, 2018, we distinguished between debt facilities used to fund our lending activities, which we referred to as funding debt, and debt facilities used to fund our operating expenditures, which we referred to as corporate debt. We adopted the current presentation which combines the two into a single line item referred to as debt because we believe it better represents our funding profile. Additionally, we now present interest expense on all debt as interest expense on the consolidated statement of operations and comprehensive income. We had previously referred to interest expenses related to our lending activities as funding costs while interest expense on our corporate debt was presented in other income/(expense) on our consolidated statement of operations and comprehensive income. When used in these notes to consolidated financial statements, the terms "we," "us," "our" or similar terms refers to On Deck Capital, Inc. and its consolidated subsidiaries.
In 2015, we acquired a 55% interest in On Deck Capital Australia PTY LTD, or OnDeck Australia, with the remaining 45% owned by unrelated third parties. Additionally, in 2015, we acquired a 67% interest in an entity with the remaining 33% owned by an unrelated third party strategic partner for the purpose of providing small business loans to customers of the third party. In 2017, we ceased the operations of this entity. We consolidate the financial position and results of operations of these entities. The noncontrolling interest, which is presented as a separate component of our consolidated equity, represents the minority owners' proportionate share of the equity of the jointly owned entities. The noncontrolling interest is adjusted for the minority owners' share of the earnings, losses, investments and distributions.
Segment Reporting
Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) for purposes of allocating resources and evaluating financial performance. Based upon the way our CODM reviews financial information and makes operating decisions and considering that our CODM reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance, our operations constitute a single operating segment and one reportable segment. Substantially all revenue was generated and all assets were held in the United States during the years ended December 31, 2018, 2017 and 2016.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Significant estimates include allowance for loan losses, stock-based compensation expense, servicing assets/liabilities, loans purchased, capitalized software development costs, the useful lives of long-lived assets and valuation allowance for deferred tax assets. We base our estimates on historical experience, current events and other factors we believe to be reasonable under the circumstances. These estimates and assumptions are inherently subjective in nature; actual results may differ from these estimates and assumptions.
Cash and Cash Equivalents
Cash and cash equivalents include checking, savings and other short term interest bearing products. We consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.
Restricted Cash
Restricted cash represents funds held in accounts as reserves on certain debt facilities and as collateral for issuing bank partner transactions. We have no ability to draw on such funds as long as they remain restricted under the applicable arrangements.
Loans Held for Investment and Loans Held for Sale
Loans Held for Investment
Loans held for investment consist of term loans and lines of credit that require daily or weekly repayments. We have both the ability and intent to hold these loans to maturity. When we originate a term loan, the borrower grants us a security interest in its assets which we may perfect by publicly filing a financing statement. Loans held for investment are carried at amortized cost, reduced by a valuation allowance for loan losses estimated as of the balance sheet date. In accordance with ASC Subtopic 310-20, Nonrefundable Fees and Other Costs, the amortized cost of a loan is equal to the unpaid principal balance, plus net deferred origination costs. Net deferred origination costs are comprised of certain direct origination costs, net of all loan origination fees received. Loan origination fees include fees charged to the borrower related to origination that increase the return on the loan

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yield. Loan origination costs are limited to direct costs attributable to originating a loan, including commissions and personnel costs directly related to the time spent by those individuals performing activities related to loan origination. Direct origination costs in excess of loan origination fees received are included in the loan balance and for term loans are amortized over the life of the term loan using the effective interest method, while for lines of credit they are amortized using the straight-line method over 6 months.
When a term loan is originated in conjunction with the extinguishment of a previously issued term loan, also known as a renewal, we determine whether such subsequent term loan is a new loan or a modification to an existing loan in accordance with ASC 310-20. If accounted for as a new loan, any remaining unamortized net deferred costs are recognized when the new loan is originated. Further, when a renewal is accounted for as a new loan, the cash flows of the origination and related net deferred origination costs of that new loan are presented as (i) operating cash outflows on the Statement of Cash Flows if the renewal is designated to be sold or (ii) as investing cash outflows if the renewal is designated to be held for investment. If a renewal is accounted for as a modification, any remaining unamortized net deferred costs are amortized over the life of the modified loan. When a renewal is accounted for as a modification, the additional cash flows associated with the origination and related net deferred origination costs of that modification are presented on the Statement of Cash Flows within the same section as the originally issued term loan prior to renewal.
Purchase of Loans
From time to time, we may purchase loans that we previously sold to third parties. We generally determine the price we are willing to pay for those loans through arm's-length negotiations and by using a discounted cash flow model that contains certain unobservable inputs such as discount rate, renewal rate and default rate, with adjustments that management believes a market participant would consider. We may also obtain third-party valuations of pools of loans we are considering purchasing. Upon purchase, loans are recorded at their acquisition price which represents fair value. The amortized cost of the purchased loans, which includes unpaid principal balances and any related premiums or discounts, when applicable, are included in loans held for investment on the consolidated balance sheets.
Loans Held for Sale
OnDeck Marketplace® is our proprietary whole loan sale platform whereby we can sell certain term loans to third-party institutional investors and retain the related servicing rights. We sell these whole loans to purchasers in exchange for a cash payment. A loan is initially classified as held for sale when the whole loan is identified for sale and a plan exists for the sale. A loan that is initially designated as held for sale or held for investment may be reclassified when our intent for that loan changes. When a loan held for sale is reclassified to held for investment, the loan is recorded at amortized cost and a provision for loan loss is recorded. When a loan held for investment is reclassified to held for sale, any allowance for loan loss related to that loan is released. Loans held for sale, inclusive of net deferred origination costs, are recorded at the lower of amortized cost or fair value until the loans are sold or reclassified. To determine the fair value of loans held for sale we utilize industry-standard modeling, such as discounted cash flow models, to arrive at an estimate of fair value and may utilize third-party service providers to assist in the valuation process.
Servicing Rights
We service loans that we have sold to third parties and upon such sale, we may recognize a servicing asset or liability, collectively referred to as servicing rights. Receiving more than adequate compensation, as defined by ASC Topic 860 Transfers and Servicing, results in the recognition of a servicing asset. Receiving less than adequate compensation results in a servicing liability. Servicing assets and liabilities are recorded at fair value and are presented as a component of other assets or accrued expenses and other liabilities, respectively. The initial recognition of a servicing asset results in a corresponding increase to gain on sales of loans. The initial recognition of a servicing liability results in a corresponding decrease to gain on sales of loans. Subsequent adjustments to the fair value of servicing rights are recognized as an adjustment to other revenue. The initial recognition includes both servicing rights resulting from transfers of financial assets and when applicable, changes in inputs or assumptions used in the valuation model.
We utilize industry-standard modeling, such as discounted cash flow models, to arrive at an estimate of fair value and may utilize third-party service providers to assist in the valuation process. Significant assumptions used in valuing our servicing rights are as follows:
Adequate compensation: We estimate adequate compensation as the rate a willing market participant would require to service loans with similar characteristics as those in the serviced portfolio. In the event of a lack of transparency and quantity of transactions related to trades of servicing rights of comparable loans (i.e., loans with comparable terms, unpaid principal balances, renewal rates and default rates) we may consider the actual cost incurred as a basis for determining what a market participant would require to service the loans.
Discount rate: For servicing rights on loans, the discount rate reflects the time value of money and a risk premium intended to reflect the amount of compensation market participants would require.

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Renewal rate: We estimate the timing and probability that a borrower may renew their loan in advance of scheduled repayment, thus reducing the projected unpaid principal balance and expected term of the loan, which are used to project future servicing revenues.
Default rate: We estimate the timing and probability of loan defaults and write-offs, thus reducing the projected unpaid principal balance and expected term of the loan, which are used to project future servicing revenues.
Allowance for Loan Losses
The allowance for loan losses (“ALLL”) is established with respect to our loans held for investment through periodic charges to the provision for loan losses. Loan losses are charged against the ALLL when we believe that the future collection of principal is unlikely. Subsequent recoveries, if any, are credited to the ALLL.
We evaluate the creditworthiness of our portfolio on a pooled basis due to its composition of small, homogeneous loans with similar general credit risk characteristics and diversification among variables including industry and geography. We use a proprietary forecasted loss rate at origination for new loans that have not had the opportunity to make payments when they are first funded. The forecasted loss rate is updated daily to reflect actual loan performance and the underlying ALLL model is updated monthly to reflect our assumptions. The allowance is subjective as it requires material estimates, including such factors as historical trends, known and inherent risks in the loan portfolio, adverse situations that may affect borrowers’ ability to repay and current economic conditions. Other qualitative factors considered may include items such as uncertainties in forecasting and modeling techniques, changes in portfolio composition, business conditions and emerging trends. Recovery of the carrying value of loans is dependent to a great extent on conditions that may be beyond our control. Any combination of the aforementioned factors may adversely affect our loan portfolio resulting in increased delinquencies and loan losses and could require additional provisions for credit losses, which could impact future periods.
Liability for Unfunded Loan Commitments and Off-Balance Sheet Credit Exposures
For our lines of credit, we estimate probable losses on unfunded loan commitments similarly to the ALLL process and include the calculated amount in accrued expenses and other liabilities. We believe the liability for unfunded loan commitments is sufficient to absorb estimated probable losses related to these unfunded credit commitments. The determination of the adequacy of the accrual is based on evaluations of the unfunded credit commitments, including an assessment of the probability of commitment usage, credit risk factors for lines of credit outstanding to these customers and the terms and expiration dates of the unfunded credit commitments.
Nonaccrual Loans, Restructured Loans and Charged-Off Loans
We consider a loan to be delinquent when the daily or weekly payments are one day past due. We place loans on nonaccrual status and stop accruing interest income on loans that are delinquent and non-paying. Loans are returned to accrual status if they are brought to non-delinquent status or have performed in accordance with the contractual terms for a reasonable period of time and, in our judgment, will continue to make periodic principal and interest payments as scheduled.
Certain borrowers who have experienced or are expected to experience financial difficulty may not be able to maintain their regularly scheduled and contractually required payments. Following discussions with us, such borrowers may temporarily make reduced payments and/or make payments on a less frequent basis than contractually required. As part of our effort to maximize loan recoverability and as a temporary accommodation to the borrower, we may voluntarily forebear from pursuing our legal rights and remedies under the applicable loan agreement, which loan agreement we do not modify and which remains in full force and effect.
A loan is charged off when we determine it is probable that we will be unable to collect all of the remaining principal payments, which is generally after 90 days of delinquency and 30 days of non-activity.
Deferred Debt Issuance Costs and Debt
We borrow from various lenders to finance our lending activities and general corporate operations. Costs incurred in connection with financings, such as banker fees, origination fees and legal fees, are classified as deferred debt issuance costs. We capitalize these costs and amortize them over the expected life of the related financing agreements. The related fees are expensed immediately upon early extinguishment of the debt. In a debt modification, the initial issuance costs and any additional fees incurred as a result of the modification are deferred over the term of the modified agreement. Deferred debt issuance costs are amortized using the effective interest method for term debt and the straight-line method for revolving lines of credit. Interest expense and the amortization of deferred debt issuance costs incurred on debt used to fund loan originations are presented as interest expense in our consolidated statements of operations. Deferred debt issuance costs are presented as a reduction of debt in accordance with ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.

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Property, Equipment and Software
Property, equipment and software consists of computer and office equipment, purchased software, capitalized internal-use software costs and leasehold improvements. Property, equipment and software are carried at cost less accumulated depreciation and amortization. Depreciation and amortization expense are recognized over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of the terms of the respective leases or the estimated lives of the improvements.
In accordance with ASC Subtopic 350-40, Internal-Use Software, we begin to capitalize the costs to develop software for our website and other internal uses when the following criteria are met: (i) the preliminary project stage is completed (ii) we have authorized funding (iii) it is probable that the project will be completed and (iv) we conclude that the software will perform the function intended. Capitalized internal-use software costs primarily include salaries and payroll-related costs for employees directly involved in the development efforts, software licenses acquired and fees paid to outside consultants.
Software development costs incurred prior to meeting the criteria for capitalization and costs incurred for training and maintenance are expensed as incurred. Certain upgrades and enhancements to existing software that result in additional functionality are capitalized. Capitalized software development costs are amortized using the straight-line method over their expected useful lives, which is generally three years.
We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying values of those assets may not be recoverable. An impairment loss will be recognized only if the carrying value of a long-lived asset is not recoverable and exceeds its fair market value. If there is an indication of impairment, we will estimate the future cash flows (undiscounted and without interest charges) expected from the use of the asset and its eventual disposition. If an impairment is determined to exist, the impairment loss will be measured as the amount by which the carrying value of the asset exceeds its fair value and recorded in the period the determination is made. Assets held for sale are reported at the lower of the carrying amount or fair value, less costs to sell.
Revenue Recognition
Interest Income
We generate revenue primarily through interest and origination fees earned on loans originated and held to maturity.
For term loans, we recognize interest and origination fee revenue over the terms of the underlying loans using the effective interest method. For lines of credit, we recognize interest income when earned in accordance with terms of the contract. Origination fees collected but not yet recognized as revenue are netted with direct origination costs and presented as a component of loans in our consolidated balance sheets.
Gain on Sales of Loans
We account for OnDeck Marketplace loan sales in accordance with ASC Topic 860, Transfers and Servicing, which states that a transfer of a financial asset, a group of financial assets, or a participating interest in a financial asset is accounted for as a sale if all of the following conditions are met:
 
1.
The financial assets are isolated from the transferor and its consolidated affiliates as well as its creditors.
2.
The transferee or beneficial interest holders have the right to pledge or exchange the transferred financial assets.
3.
The transferor does not maintain effective control of the transferred assets.
For the years ended December 31, 2018, 2017 and 2016, all sales met the requirements for sale treatment in accordance with ASC Topic 860, Transfers and Servicing. We record the gain or loss on the sale of a loan at the sale date in an amount equal to the proceeds received, adjusted for initial recognition of servicing assets or liabilities obtained at the date of sale, less outstanding principal and net deferred origination costs. A change in inputs or assumptions used in the valuation model related to servicing assets or liabilities is recognized as a component of gain on sales of loans.
Other Revenue
Other revenue includes fees generated by ODX, marketing fees earned from our issuing bank partner, monthly fees charged to customers for our line of credit, referral fees from other lenders, servicing revenue related to loans serviced for others, and fair value adjustments to servicing rights, which are recognized as the related services are provided.
Stock-Based Compensation
In accordance with ASC Topic 718, Compensation—Stock Compensation, all stock-based compensation provided to employees, including stock options and restricted stock units, or RSU's, is measured based on the grant-date fair value of the

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awards and recognized as compensation expense on a straight-line basis over the period during which the award holder is required to perform services in exchange for the award (the vesting period). The fair value of stock options is estimated using the Black-Scholes-Merton Option Pricing Model. The use of the option valuation model requires subjective assumptions, including the fair value of our common stock, the expected term of the option and the expected stock price volatility, which is based on our stock as well as our peer companies. RSU's issued to employees and directors are measured based on the fair values of the underlying stock on the dates of grant. Additionally, the recognition of stock-based compensation expense requires an estimation of the number of options and RSUs that will ultimately be forfeited. Estimated forfeitures are subsequently adjusted to reflect actual forfeiture.
Options typically vest at a rate of 25% after one year from the vesting commencement date and then monthly over an additional three-year period. The options expire ten years from the grant date or, for terminated employees, 90 days after the employee’s termination date. RSUs typically vest at a rate of 25% annually, over four annual vesting periods. Compensation expense for the fair value of the options and RSUs at their grant date is recognized ratably over the vesting period.
Performance-Based Restricted Stock Units
In 2016 and 2018, the Compensation Committee of the Board of Directors approved performance-based compensation awards to certain members of executive management and other key personnel. The performance-based compensation awards consist of performance-based restricted stock units, or PRSUs, to be settled solely in shares of our common stock, as well as performance units, to be settled solely in cash. The value of the awards is based on achieving a target performance level established by the Compensation Committee and the award value may increase or decrease based on actual performance relative to the target level. The compensation expense related to the PRSUs and performance units will be recorded on a straight-line basis with the expense being adjusted prospectively as our estimate of the expected performance is reassessed each reporting period.
Advertising Costs
Advertising costs are expensed as incurred and are included within sales and marketing in our consolidated statements of operations. For the years ended December 31, 2018, 2017 and 2016, advertising costs totaled $11.3 million, $15.0 million and $20.1 million, respectively.
Foreign Currency
In accordance with ASC 830, Foreign Currency Matters, we have determined the functional currency of our subsidiary, OnDeck Australia, is the Australian dollar. During the fourth quarter of December 31, 2018, the Canadian dollar became the functional currency for our Canadian subsidiary. We translate the financial statements of these subsidiaries to U.S. dollars using month-end exchange rates for assets and liabilities, and average exchange rates for revenue and expenses. Translation gains and losses are recorded in accumulated other comprehensive loss as a component of stockholders' equity. As of December 31, 2018 and 2017, we recorded a translation loss of $1.3 million and a gain of $0.3 million, respectively. For the years ended December 31, 2018, 2017, and 2016, the remeasurement of transactions designated in currencies other than our functional currency resulted in a loss of $1.4 million, a gain of $1.6 million, and a gain of $0.2 million respectively, and was recorded within general and administrative expenses in our consolidated statements of operations.
Income Taxes
In accordance with ASC 740, Income Taxes, we recognized deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount we believe is more likely than not to be realized.
Uncertain tax positions are recognized only when we believe it is more likely than not that the tax position will be upheld on examination by the taxing authorities based on the merits of the position. We recognize interest and penalties, if any, related to uncertain tax positions in income tax expense. We did not have any accrued interest or penalties associated with uncertain tax positions as of December 31, 2018 and 2017.
We file income tax returns in the United States for federal, state and local jurisdictions. We are no longer subject to U.S. federal, certain states, and local income tax examinations for years prior to 2014, with certain states no longer subject for years prior to 2013, although carryforward attributes that were generated prior to 2014 may still be adjusted upon examination by the Internal Revenue Service if used in a future period.
Fair Value Measurement
In accordance with ASC 820, Fair Value Measurement, we use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-

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recurring basis, in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available, and to minimize the use of unobservable inputs when determining fair value. The three tiers are defined as follows:
Level 1: Quoted prices in active markets or liabilities in active markets for identical assets or liabilities, accessible by us at the measurement date.
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.
Level 3: Unobservable inputs for assets or liabilities for which there is little or no market data, which require us to develop our own assumptions. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flows, or similar techniques, which incorporate our own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.
A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Basic and Diluted Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) attributable to On Deck Capital, Inc. common stockholders by the weighted-average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities.
Diluted net income (loss) per common share includes the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” or “if converted” methods, as applicable. Diluted net income (loss) per common share is computed by using the weighted-average number of common shares outstanding, plus, for periods with net income attributable to common stockholders, the potential dilutive effects of stock options, warrants and unvested restricted stock. For the year ended December 31, 2018 our basic net income per common share was $0.37 and our diluted net income per common share was $0.35. Due to net losses for the years ended December 31, 2017 and 2016, basic and diluted net loss per common share were the same, as the effect of potentially dilutive securities was anti-dilutive.
Recently Adopted Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue Recognition, which creates ASC 606, Revenue from Contracts with Customers, and supersedes ASC 605, Revenue Recognition. ASC 606 requires revenue to be recognized in an amount that reflects the consideration to which the entity expects to be entitled in exchange for goods or services and also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows from customer contracts. We adopted the new guidance effective January 1, 2018 and applied the modified retrospective method of adoption. Revenue generated in accordance with ASC 310, Receivables, and ASC 860, Transfers and Servicing, is explicitly excluded from the scope of ASC 606. Accordingly, our interest income, gains on loan sales and loan servicing income were not effected by the adoption of ASC 606. Marketing fees from our issuing bank partner are within the scope of ASC 606. The adoption of ASC 606 did not have a material effect and we did not record a cumulative effect at the date of initial application.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 will simplify several aspects of accounting for share-based payment award transactions which include the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeiture rate calculations. We adopted the requirements of the new standard effective January 1, 2017. The adoption of this guidance did not have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. ASU 2016-18 intends to reduce diversity in practice for the classification and presentation of changes in restricted cash on the statement of cash flows.  ASU 2016-18 clarifies that transfers between cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents are not part of the entity’s operating, investing, and financing activities, and details of those transfers should not be reported as cash flow activities in the statement of cash flows. It requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We adopted the new standard effective January 1, 2018 using the retrospective transition method for each period presented and no longer present restricted cash as a reconciling item in our consolidated statement of cash flows. For the years ended December 31, 2017 and 2016, the net cash used to fund our investing activities increased $1 million and decreased $6 million, respectively. The net decrease in cash and cash equivalents of $8.2 million as of December 31, 2017 and $80.3 million

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as of December 31, 2016, became a net decrease in cash, cash equivalents and restricted cash of $9.2 million and $74.3 million, respectively.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance. The amendments in this update better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The effective date for the standard is for fiscal years beginning after December 15, 2018. We elected to early adopt this ASU in fiscal 2018. See Note 12 for a discussion of our derivatives.
Recent Accounting Pronouncements Not Yet Adopted as of December 31, 2018
In February 2016, the FASB issued ASU 2016-02, Leases, which creates ASC 842, Leases, and supersedes ASC 840, Leases. ASU 2016-02 requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. The new standard will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. This ASU provides a prospective transition option that would not require earlier periods to be restated upon adoption. Most of our operating lease commitments will be recognized as operating lease liabilities and right-of-use assets upon adoption of the standard that will result in an offsetting increase in assets and liabilities on the Consolidated Balance Sheet of approximately $38 million. We do not expect the standard to impact our future results of operations or cash flows. The Company will adopt the standard in the first quarter of 2019 and apply the standard prospectively as of the adoption date. We expect to elect the package of practical expedients afforded under the standard which permit an entity not to: (i) reassess whether existing or expired contracts are or contain a lease, (ii) reassess the lease classification, and (iii) reassess any initial direct costs for any existing leases.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 will change the impairment model and how entities measure credit losses for most financial assets. The standard requires entities to use the new expected credit loss impairment model which will replace the incurred loss model used today. The new guidance will be effective for annual reporting periods beginning after December 15, 2019. Early adoption is permitted, but not prior to December 15, 2018. We are currently assessing the impact that the adoption of this guidance will have on our consolidated financial statements.
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 modifies disclosure requirements for fair value measurements under ASC 820, Fair Value Measurement. The new guidance will be effective for annual reporting periods beginning after December 15, 2019. We are currently evaluating the impact the new standard may have on our disclosures, but we do not expect it to have a material impact.




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3. Net Income (Loss) Per Common Share
Basic and diluted net income (loss) per common share is calculated as follows (in thousands, except share and per share data):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Numerator:
 
 
 
 
 
Net Income (loss)
$
25,270

 
$
(14,345
)
 
$
(85,482
)
Less: Net income (loss) attributable to noncontrolling interest
(2,411
)
 
(2,811
)
 
(2,524
)
Net income (loss) attributable to On Deck Capital, Inc. common stockholders
$
27,681

 
$
(11,534
)
 
$
(82,958
)
Denominator:
 
 
 
 
 
Weighted-average common shares outstanding, basic
74,561,019

 
72,890,313

 
70,934,937

Net income (loss) per common share, basic
$
0.37

 
$
(0.16
)
 
$
(1.17
)
Effect of dilutive securities
3,988,921

 

 

Weighted-average common shares outstanding, diluted
78,549,940

 
72,890,313

 
70,934,937

Net income (loss) per common share, diluted
$
0.35

 
$
(0.16
)
 
$
(1.17
)
Anti-dilutive securities excluded
5,423,547

 
11,410,980

 
15,580,272


The difference between basic and diluted net income per common share has been calculated using the Treasury Stock Method based on the assumed exercise of outstanding stock options, the vesting of restricted stock awards, and the issuance of stock under our employee stock purchase plan. For the twelve months ended December 31, 2017 and 2016 the effects of potentially dilutive items were anti-dilutive given our net losses. The following common share equivalent securities have been included in the calculation of dilutive weighted-average common shares outstanding:
 
Year Ended December 31,
Dilutive Common Share Equivalents
2018
 
2017
 
2016
Weighted-average common shares outstanding
74,561,019

 
72,890,313

 
70,934,937

Restricted stock units
1,145,311

 

 

Stock options
2,843,610

 

 

Total dilutive common share equivalents
78,549,940

 
72,890,313

 
70,934,937

The following common share equivalent securities were excluded from the calculation of diluted net income per share attributable to common stockholders. Their effect would have been antidilutive for the twelve months ended December 31, 2018, 2017, and 2016.
 
Year Ended December 31,
 
2018
 
2017
 
2016
Anti-Dilutive Common Share Equivalents
 
 
 
 
 
Warrants to purchase common stock
22,000

 
22,000

 
22,000

Restricted stock units
702,024

 
3,342,640

 
3,888,768

Stock options
4,525,996

 
7,918,853

 
11,426,296

Employee stock purchase plan
173,527

 
127,487

 
243,208

Total anti-dilutive common share equivalents
5,423,547

 
11,410,980

 
15,580,272

The weighted-average exercise price for warrants to purchase 22,000 shares of common stock was $14.50 as of December 31, 2018. For the year ended December 31, 2017 a warrant to purchase 1,985,846 shares of common stock was excluded from anti-dilutive common share equivalents as performance conditions had not been met. That warrant expired unexercised in 2018.


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4. Interest Income
Interest income was comprised of the following components for the years ended December 31 (in thousands):
 
2018
 
2017
 
2016
Interest on unpaid principal balance
$
440,753

 
$
382,983

 
$
300,713

Amortization of net deferred origination costs
(57,414
)
 
(48,540
)
 
(36,040
)
Interest income on loans, net
383,339

 
334,443

 
264,673

Interest on deposits
240

 
132

 
171

Total interest income
$
383,579

 
$
334,575

 
$
264,844

5. Loans Held for Investment and Allowance for Loan Losses
Loans Held for Investment and Allowance for Loan Losses
Loans held for investment consisted of the following as of December 31 (in thousands):
 
2018
 
2017
Term loans
$
956,755

 
$
804,227

Lines of credit
188,199

 
132,012

Total unpaid principal balance
1,144,954

 
936,239

Net deferred origination costs
24,203

 
16,557

Total loans held for investment
$
1,169,157

 
$
952,796

During the twelve months ended December 31, 2018 and 2017, we paid $0.8 million and $13.8 million, respectively to purchase term loans that we previously sold to a third party.
We include both loans we originate and loans funded by our issuing bank partners and later purchased by us as part of our originations. During the years ended December 31, 2018, 2017 and 2016 we purchased loans from our issuing bank partner in the amount of $470.5 million, $523.0 million and $534.1 million, respectively.
The change in the allowance for loan losses for the years ended December 31, consisted of the following (in thousands):
 
2018
 
2017
 
2016
Balance at January 1
$
109,015

 
$
110,162

 
$
53,311

Recoveries of loans previously charged off
13,179

 
17,199

 
7,270

Loans charged off
(130,695
)
 
(171,272
)
 
(100,382
)
Provision for loan losses
148,541

 
152,926

 
149,963

Allowance for loan losses at December 31
$
140,040

 
$
109,015

 
$
110,162

When loans are charged off, we typically continue to attempt to recover amounts from the respective borrowers and guarantors, including, when we deem it appropriate, through formal legal action. Alternatively, we may sell previously charged-off loans to a third-party debt collector.  The proceeds from these sales are recorded as a component of the recoveries of loans previously charged off. For the twelve months ended December 31, 2018, 2017 and 2016, previously charged-off loans sold accounted for $1.0 million, $8.3 million and $4.4 million, respectively, of recoveries of loans previously charged off.
As of December 31, 2018 and December 31, 2017, our off-balance sheet credit exposure related to the undrawn line of credit balances was $264.2 million and $204.6 million, respectively. The related reserve on unfunded loan commitments was $5.9 million and $4.4 million as of December 31, 2018 and December 31, 2017, respectively. Net adjustments to the liability for unfunded loan commitments are included in general and administrative expense.
The following table contains information, on a combined basis, regarding the unpaid principal balance of loans we originated and the amortized cost of loans purchased from third parties other than our issuing bank partner related to non-delinquent, paying and non-paying delinquent loans as of December 31 (in thousands):

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2018
 
2017
Current loans
$
1,031,449

 
$
850,060

Delinquent: paying (accrual status)
54,427

 
49,252

Delinquent: non-paying (non-accrual status)
59,078

 
36,927

Total
$
1,144,954

 
$
936,239

The portion of the allowance for loan losses attributable to current loans was $125.5 million and $74.0 million as of December 31, 2018 and December 31, 2017, respectively, while the portion of the allowance for loan losses attributable to delinquent loans was $14.5 million and $35.0 million as of December 31, 2018 and December 31, 2017, respectively.
The following table shows an aging analysis of the unpaid principal balance related to loans held for investment by delinquency status as of December 31 (in thousands):
 
2018
 
2017
By delinquency status:
 
 
 
Current loans
$
1,031,449

 
$
850,060

1-14 calendar days past due
27,655

 
23,611

15-29 calendar days past due
14,665

 
12,528

30-59 calendar days past due
21,470

 
22,059

60-89 calendar days past due
19,031

 
12,809

90 + calendar days past due
30,684

 
15,172

Total unpaid principal balance
$
1,144,954

 
$
936,239


6. Servicing Rights
As of December 31, 2018 and 2017, we serviced term loans we sold with a remaining unpaid principal balance of $160.0 million and $181.0 million, respectively. No loans were sold during the year ended December 31, 2018. During the years ended December 31, 2017 and 2016, we sold through OnDeck Marketplace loans with an unpaid principal balance of $72.5 million and $368.3 million, respectively.
For the years ended December 31, 2018, 2017 and 2016, we earned $0.8 million, $1.1 million and $1.2 million of servicing revenue, respectively.
The following table summarizes the activity related to the fair value of our servicing assets for the year ended December 31 (in thousands):
 
2018
 
2017
Fair value at the beginning of period
$
154

 
$
1,131

Addition:
 
 
 
Servicing resulting from transfers of financial assets
140

 
1,120

Changes in fair value:
 
 
 
Other changes in fair value (1)
(290
)
 
(2,097
)
Fair value at the end of period (Level 3)
$
4

 
$
154

  ___________
(1) Represents changes due to collection of expected cash flows through December 31, 2018 and 2017.


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7. Property, Equipment and Software, net
Property, equipment and software, net, consisted of the following as of December 31 (in thousands):
 
Estimated
Useful Life
 
2018
 
2017
Computer/office equipment
36 months
 
$
15,107

 
$
15,419

Capitalized internal-use software
36 months
 
30,412

 
24,784

Leasehold improvements
Life of lease
 
11,761

 
18,336

Total property, equipment and software, at cost
 
 
57,280

 
58,539

Less accumulated depreciation and amortization
 
 
(40,580
)
 
(34,967
)
Property, equipment and software, net
 
 
$
16,700

 
$
23,572

Amortization expense on capitalized internal-use software costs was $4.4 million, $4.9 million and $4.2 million for the years ended December 31, 2018, 2017 and 2016, respectively, and is included as a component of technology and analytics in our consolidated statements of operations.
8. Debt
The following table summarizes our outstanding debt as of December 31, 2018 and December 31, 2017 (in thousands):
 
 
 
 
 
Outstanding
 
Type
 
Maturity Date
 
Weighted Average Interest
Rate at December 31, 2018
 
December 31, 2018
 
December 31, 2017
Debt:
 
 
 
 
 
 
 
ODAST II Series 2018-1
Securitization
 
April 2022
(1) 
3.8%
 
$
225,000

 
$

ODAST II Series 2016-1
Securitization
 
May 2020
(2) 
N/A
 

 
250,000

ODART
Revolving
 
March 2019
 
5.1%
 
117,664

 
102,058

RAOD
Revolving
 
September 2021
(3) 
4.7%
 
113,631

 
86,478

ODAC
Revolving
 
May 2019
(4) 
N/A
 

 
62,350

ODAF
Revolving
 
February 2020
(4) 
N/A
 

 
75,000

ODAF II
Revolving
 
August 2022
(5) 
5.3%
 
109,568

 

PORT II
Revolving
 
March 2019
 
5.0%
 
108,816

 
63,851

LAOD
Revolving
 
October 2022
(6) 
4.3%
 
100,000

 

Corporate Debt
Revolving
 
January 2019
(7) 
6.8%
 

 
8,000

Other Agreements
Various
 
Various
(8) 
6.0%
 
47,318

 
50,706

 
 
 
 
 
4.7%
 
821,997

 
698,443

Deferred debt issuance cost
 
 
 
 
 
 
(5,766
)
 
(6,189
)
Total Debt
 
 
 
 
 
 
$
816,231

 
$
692,254

 
(1) 
The period during which new borrowings may be made under this debt facility expires in March 2020.
(2) 
In April 2018, we issued $225 million of debt in a new ODAST II securitization transaction (Series 2018-1) and the net proceeds were used, together with other available funds, to voluntarily prepay in full all $250 million of the prior Series 2016-1 Notes.
(3) 
The period during which new borrowings of Class A revolving loans may be made under this debt facility expires in December 2020.
The $19.7 million of Class B borrowing capacity matures in December 2019
(4) 
This debt facility was voluntarily repaid in full and terminated in August 2018.
(5) 
The period during which new borrowings may be made under this debt facility expires in August 2021.
(6) 
The period during which new borrowings may be made under this debt facility expires in April 2022.
(7) 
In January 2019, we voluntarily prepaid in full and terminated the Square 1 Agreement which had a $30 million borrowing capacity. In January 2019 we established a new revolving debt facility with a commitment amount of $85 million and an interest rate of 1-month LIBOR plus 3.0% and a final maturity date of January 2021, see Note 15, "Subsequent Events" of Notes to Consolidated Financial Statements for additional information.
(8) 
Maturity dates range from January 2020 through June 2021.

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Certain of our loans held for investment are pledged as collateral for borrowings in our funding debt facilities. These loans totaled $1.0 billion and $852.3 million as of December 31, 2018 and 2017, respectively. Our corporate debt facility is collateralized by substantially all of our assets.
During the three years ended December 31, 2018, the following significant activity took place related to our debt facilities:
RAOD Agreement
On February 26, 2016, the RAOD Agreement was amended to increase the borrowing capacity from $50 million to $100 million. On May 25, 2017, we renewed the RAOD facility with amended terms which provided for an extension of the revolving commitment period from May 2017 to November 2018; a decrease in the interest rate to LIBOR plus 2.5% from LIBOR plus 3.0%; and various technical, definitional, conforming and other changes. On December 15, 2017, we renewed the RAOD facility with amended terms which provided for the addition of a Class B revolving loan commitment of $19.7 million. On November 19, 2018, the RAOD Agreement was amended to extend the revolving commitment period to December 31, 2018. On December 17, 2018, we again renewed the RAOD facility with amended terms which provided for an extension of the revolving commitment period to December 17, 2020; an extension of the maturity in respect of the $100 million Class A revolving loans to no later than September 17, 2021; an extension of the maturity in respect of the $19.7 million Class B revolving loans to December 17, 2019; a decrease in the weighted average variable interest rate to 1 month LIBOR plus 2.45%; and various technical, definitional, conforming and other changes.

ODAC Agreement
On April 28, 2016, we amended the ODAC Agreement to increase the revolving commitment from an aggregate amount of $50 million to $75 million, increase the interest rate from LIBOR plus 8.25% to LIBOR plus 9.25%, increase in the borrowing base advance rate from 70% to 75% and make certain other related changes. On May 4, 2017, we renewed the ODAC facility with amended terms, which provided for an increase in the revolving commitments from $75 million to $100 million and an extension of the revolving commitment period from May 2017 to May 2019. The interest rate decreased to LIBOR (minimum of 0.75%) + 7.25% from LIBOR (minimum of 0.0%) + 9.25% and the advance rate increased from 75% to 85%. On August 8, 2018, our wholly-owned subsidiary, On Deck Asset Company, LLC, optionally prepaid in full and terminated the ODAC Agreement.
ODAST II Agreement
On May 17, 2016, we, through a wholly-owned subsidiary, OnDeck Asset Securitization Trust II LLC, or ODAST II, entered into a $250 million asset-backed securitization facility with Deutsche Bank Trust Company Americas, as indenture trustee. The notes under the facility were issued in two classes; Class A in the amount of $211.5 million and Class B in the amount of $38.5 million (collectively, the “2016-1 Notes”). The Class A and Class B notes bear interest at a fixed rate of 4.21% and 7.63%, respectively. Interest only payments began in June 2016 and were payable monthly through May 2018. Beginning June 2018, monthly payments would have consisted of both principal and interest with a final maturity of May 2020. Concurrent with the closing of the ODAST II 2016-1 Notes securitization, we voluntarily prepaid in full $175 million of funding debt outstanding from our prior asset-backed securitization transaction, or the ODAST Agreement.
On April 17, 2018, ODAST II issued $225 million in initial principal amount of fixed-rate asset backed offered notes in a securitization transaction (the “Offered 2018-1 Notes”) and concurrent with such issuance, ODAST II voluntarily prepaid in full the 2016-1 Notes. The notes were issued in four classes. The Offered 2018-1 Notes were issued in four classes; Class A in the amount of $177.5 million, Class B in the amount of $15.5 million, Class C in the amount of $20.0 million and Class D in the amount of $12.0 million. The Offered 2018-1 Notes bear interest at a fixed rate of 3.50%, 4.02%, 4.52% and 5.85% for the Class A, Class B, Class C and Class D, respectively. Interest only payments began in May 2018 and are payable monthly through April 2020. Beginning May 2020, monthly payments will consist of both principal and interest with a final maturity of April 2022.

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ODART Agreement
On June 17, 2016 an amendment was made to the ODART Agreement, to reintroduce Class B revolving loans from the Class B Revolving Lender resulting in additional funding capacity of $12.4 million, thereby increasing the total revolving commitment from $150 million to $162.4 million, establishing a Class B interest rate equal to LIBOR plus 8%, a borrowing base advance rate for the Class B revolving loans of 92% and make certain other changes.
On March 20, 2017, we entered into an amendment and restatement of the ODART Agreement which provided for a $50 million increase in the maximum amount of the Class A revolving loans and an increase up to $1.8 million in the maximum amount of the Class B revolving loans, thereby increasing the total facility size up to $214.1 million, an extension of the revolving commitment period during which ODART may utilize funding capacity under the Deutsche Bank Facility to March 20, 2019, a borrowing base advance rate for the Class A revolving loans of 85% and a borrowing base advance rate for the Class B revolving loans of 91%; and various technical, definitional, conforming and other changes. Subsequent to December 31, 2018, we entered into an amendment to the ODART Agreement to convert the $14.1 million of Class B revolving loans from uncommitted loans to committed loans.
ODAF Agreement
On August 19, 2016, we, through a wholly-owned subsidiary, entered into a $100 million asset-backed revolving debt facility, or the ODAF Agreement with an interest of LIBOR plus 7.25%, a borrowing base advance rate of up to 80% and a maturity date in August 2019. On February 14, 2017, we entered into an amendment of the ODAF I Agreement which provided for an increase in the Lenders' revolving commitment from an aggregate amount of $100 million to $150 million, the extension of the revolving commitment termination date by approximately six months to February 14, 2019, and various technical, definitional, conforming and other changes. On August 14, 2018, our wholly-owned subsidiary, OnDeck Asset Funding I LLC, voluntarily prepaid in full and terminated the ODAF Agreement.
ODAF II Agreement
On August 8, 2018, our wholly-owned subsidiary, OnDeck Asset Funding II LLC, established a new asset-backed revolving debt facility with a commitment amount of $175 million, a borrowing base advance rate of up to 87.5% and an interest rate of 1-month LIBOR +3.0%. The period during which new borrowings may be made under this facility expires on August 6, 2021 and the final maturity date is August 8, 2022. Concurrent with closing this facility, the Company optionally prepaid in full and terminated the ODAC Facility.
PORT II Agreement
On December 8, 2016, we, through a wholly-owned subsidiary, entered into a $200 million (consisting of $125 million Class A commitments, with the Class A Lenders having the ability to, in their sole discretion and on an uncommitted basis, make additional Class A loans of up to $75 million) asset-backed revolving debt facility, or the PORT II Agreement. The commitment bears interest at a specified base rate, generally the daily CP rate, plus 2.25% (Class A), has a borrowing base advance rate of 83% and matures in December 2018. Concurrent with the closing of the PORT II revolving debt facility, we voluntarily prepaid in full funding debt outstanding from another asset-backed revolving debt facility, the previous PORT Agreement. On November 19, 2018 we amended the PORT II Agreement to extend the revolving commitment period to March 8, 2019.
LAOD Agreement
On April 13, 2018, our wholly-owned subsidiary, Loan Assets of OnDeck, LLC, established a new asset-backed revolving debt facility with a commitment amount of $100 million, a borrowing base advance rate of 84.5% and an interest rate of 1-month LIBOR +2.0%. The period during which new borrowings may be made under this facility expires on April 13, 2022 and the final maturity date is October 13, 2022. On February 8, 2019, we entered into an amendment which increased the revolving commitment amount by $50 million and reduced the interest rate margin over 1 Month LIBOR by 0.25%, as well as made various technical, definitional, conforming and other changes. See Note 15, "Subsequent Events" of Notes to Consolidated Financial Statements for additional information.
Square 1 Agreement
In November 2016 we amended the Square 1 Agreement to increase the revolving commitment from an aggregate amount of $20 million to $30 million while also extending the maturity from October 2016 to October 2018. On October 4, 2018, we further amended the Square 1 Agreement to extend the maturity date of the facility to January 2019 and make various technical, definitional, conforming and other changes. In January 2019, we voluntarily prepaid in full and terminated the Square 1 Agreement. In January 2019 we established a new revolving debt facility with a commitment amount of $85 million and an interest rate of 1-month LIBOR plus 3.0%, see Note 15, "Subsequent Events" of Notes to Consolidated Financial Statements for additional information.

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As of December 31, 2018, future maturities of our outstanding debt were as follows (in thousands):
2019
$
243,730

2020
108,760

2021
221,259

2022
248,248

Thereafter

Total
$
821,997

9. Income Taxes
Our financial statements include a total income tax expense of $0 on net income (loss) of $25.3 million, $(14.3) million and $(85.5) million for the years ended December 31, 2018, 2017 and 2016, respectively. A reconciliation of the difference between the provision for income taxes and income taxes at the statutory U.S. federal income tax rate is as follows for the years ended December 31:
 
 
2018
 
2017
 
2016
Federal statutory rate
21.0
 %
 
34.0
 %
 
34.0
 %
Effect of:
 
 
 
 
 
Change in valuation allowance
(21.4
)%
 
(34.5
)%
 
(36.5
)%
Federal effect of change in state and local tax valuation allowance
0.4
 %
 
0.5
 %
 
2.5
 %
Income tax provision effective rate
 %
 
 %
 
 %

The significant components of our deferred tax asset were as follows as of December 31 (in thousands):
 
2018
 
2017
Deferred tax assets relating to:
 
 
 
Net operating loss carryforwards
$
4,104

 
$
20,476

Loan loss reserve
33,691

 
27,186

Deferred compensation
5,839

 

Imputed interest income
415

 
424

Deferred rent
1,207

 
1,892

Unrealized loss
545

 

Miscellaneous items
613

 
45

Total gross deferred tax assets
46,414

 
50,023

Deferred tax liabilities:
 
 
 
Property, equipment and software
3,151

 
8,154

Origination costs
5,685

 
4,078

Miscellaneous items

 
40

Total gross deferred tax liabilities
8,836

 
12,272

Net deferred tax asset
37,578

 
37,751

Less: valuation allowance
(37,578
)
 
(37,751
)
Net deferred tax asset less valuation allowance
$

 
$

In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and planned tax strategies in making this assessment. After

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considering these factors, including the significance of our historical losses, we can not conclude that it is more likely than not that we will realize the benefits of these deductible differences in the future. Therefore, we have recorded a full valuation allowance on our net deferred tax asset.
Deductions that are not deemed more likely than not to withstand examination by a taxing authority are considered to be "uncertain tax positions" as defined in ASC 740 Income Taxes. Prior to January 1, 2016, we had not recognized any uncertain tax positions. We previously claimed deductions on our U.S. federal tax return for certain expenses related to our initial public offering that were validated at the level of substantial authority, but did not exceed the "more likely than not" threshold. We estimate the tax-effected exposure of these deductions to be approximately $2.2 million. These deductions did not result in any change to our prior year tax payable or our provision for income taxes as they only increased our deferred tax asset as well as the corresponding valuation allowance.
Our net operating loss carryforwards for federal income tax purposes were approximately $3.7 million, $69.6 million and $75.7 million at December 31, 2018, 2017 and 2016, respectively, and if not utilized, will expire at various dates beginning in 2027. State post-apportionment net operating loss carryforwards were $14.9 million, $36.7 million and $68.9 million at December 31, 2018, 2017 and 2016, respectively. Net operating loss carryforwards and tax credit carryforwards reflected above may be limited due to historical and future ownership changes.
Recently Enacted Tax Reform Bill
 On December 22, 2017, the Tax Cuts and Jobs Act, or Tax Act, was signed into U.S. law and included numerous provisions that significantly revise existing tax law. The Tax Act introduces changes, including the reduction of the corporate income statutory tax rate from 35% to 21% for tax years beginning after December 31, 2017, an increase in bonus depreciation and the deductibility of certain depreciable assets, limitations on the deductibility of net interest expense, changes to net operating loss carryover and carryback rules, the transition of U.S international taxation from a worldwide tax system to a territorial system, and reductions in the amount of executive pay that could qualify as a tax deduction. Other than impacting the value of our deferred tax assets, deferred tax liabilities, valuation allowance, minor changes to our future temporary differences and changes to our future taxes payable due to the lowered tax rates, the impact of the new Tax Act was not material to our core financial statements.
On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act, or SAB 118, to assist registrants in accounting for the tax effects of the Tax Act specifically when an accounting analysis of the Tax Act is incomplete for registrant's financial statements for the reporting period in which the Tax Act became law. SAB 118 permits us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. In accordance with SAB 118, we have been able to reasonably estimate the effect the change in the corporate tax rate will have on our deferred tax asset. At December 31, 2018, we have completed our accounting for the tax effects of the Tax Act with no material change to the estimate recorded at December 31, 2017.
10. Fair Value of Financial Instruments
Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs
We evaluate our financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them for each reporting period. Due to the lack of transparency and quantity of transactions related to trades of servicing rights of comparable loans, we utilize an income valuation technique to estimate fair value. We utilize industry-standard modeling, such as discounted cash flow models, to arrive at an estimate of fair value and may utilize third-party service providers to assist in the valuation process. This determination requires significant judgments to be made. Our interest rate cap is reported at fair value utilizing Level 2 inputs. The fair value is determined using third party valuations that are based on discounted cash flow analysis using observed market inputs.
The following tables present information about our assets and liabilities that are measured at fair value on a recurring basis as of December 31 (in thousands):
 
2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Servicing assets
$

 
$

 
$
4

 
$
4

Interest rate cap

 
1,253

 

 
1,253

Total assets
$

 
$
1,253

 
$
4

 
$
1,257


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2017
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Servicing assets
$

 
$

 
$
154

 
$
154

Total assets
$

 
$

 
$
154

 
$
154

There were no transfers between levels for the year ended December 31, 2018 or December 31, 2017.
The following tables presents quantitative information about the significant unobservable inputs used for certain of our Level 3 fair value measurement as of December 31:
 
December 31, 2018
 
Unobservable input
 
Minimum
 
Maximum
 
Weighted Average
Servicing assets
Discount rate
 
30.00
%
 
30.00
%
 
30.00
%
 
Cost of service(1)
 
0.04
%
 
0.13
%
 
0.13
%
 
Renewal rate
 
41.06
%
 
51.83
%
 
46.46
%
 
Default rate
 
10.63
%
 
10.92
%
 
10.78
%
(1) Estimated cost of servicing a loan as a percentage of unpaid principal balance.
 
December 31, 2017
 
Unobservable input
 
Minimum
 
Maximum
 
Weighted Average
Servicing assets
Discount rate
 
30.00
%
 
30.00
%
 
30.00
%
 
Cost of service(1)
 
0.04
%
 
0.13
%
 
0.12
%
 
Renewal rate
 
41.06
%
 
51.83
%
 
49.59
%
 
Default rate
 
10.63
%
 
10.92
%
 
10.70
%
(1) Estimated cost of servicing a loan as a percentage of unpaid principal balance.
Changes in certain of the unobservable inputs noted above may have a significant impact on the fair value of our servicing asset. The following table summarizes the effect adverse changes in estimate would have on the fair value of the servicing asset as of December 31, 2018 and December 31, 2017 given a hypothetical changes in default rate and cost to service (in thousands):
 
December 31, 2018
 
December 31, 2017
 
Servicing Assets
Default rate assumption:
 
 
 
Default rate increase of 25%
$
(1
)
 
$
(40
)
Default rate increase of 50%
$
(2
)
 
$
(76
)
Cost to service assumption:
 
 
 
Cost to service increase by 25%
$
(2
)
 
$
(63
)
Cost to service increase by 50%
$
(4
)
 
$
(126
)
Assets and Liabilities Disclosed at Fair Value
Because our loans held for investment and fixed-rate debt are not measured at fair value, we are required to disclose their fair value in accordance with ASC 825. Due to the lack of transparency and comparable loans, we utilize an income valuation technique to estimate fair value. We utilize industry-standard modeling, such as discounted cash flow models, to arrive at an estimate of fair value and may utilize third-party service providers to assist in the valuation process. This determination requires significant judgments to be made. The following tables summarize the carrying value and fair value of our loans held for investment and fixed-rate debt (in thousands):

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December 31, 2018
 
Carrying Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
Loans held for investment, net
$
1,029,117

 
$
1,155,464

 
$

 
$

 
$
1,155,464

Total assets
$
1,029,117

 
$
1,155,464

 
$

 
$

 
$
1,155,464

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Fixed-rate debt
$
232,972

 
$
226,965

 
$

 
$

 
$
226,965

Total fixed-rate debt
$
232,972

 
$
226,965

 
$

 
$

 
$
226,965

 
December 31, 2017
 
Carrying Value
 
Fair Value
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
Loans held for investment, net
$
843,781

 
$
932,343

 
$

 
$

 
$
932,343

Total assets
$
843,781

 
$
932,343

 
$

 
$

 
$
932,343

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
Fixed-rate debt
$
300,706

 
$
293,512

 
$

 
$

 
$
293,512

Total fixed-rate debt
$
300,706

 
$
293,512

 
$

 
$

 
$
293,512

11. Stock-Based Compensation and Employee Benefit Plans
Equity incentives are currently issued to employees and directors in the form of stock options and RSUs under our 2014 Equity Incentive Plan. Our 2007 Stock Option Plan was terminated in connection with our Initial Public Offering (IPO). Accordingly, no additional equity incentives are issuable under this plan although it continues to govern outstanding awards granted thereunder. Additionally, we offer an Employee Stock Purchase Plan through the 2014 Employee Stock Purchase Plan and a 401(k) plan to employees.
Options
The following table summarizes the assumptions used for estimating the fair value of stock options granted under our equity plans for the years ended December 31:
 
2018
 
2017
 
2016
Risk-free interest rate
2.82% - 3.13 %
 
2.32% - 2.42 %
 
1.40% - 2.54 %
Expected term (years)
5.3
 
5
 
5.0 - 6.0
Expected volatility
35% - 37%
 
42% - 44%
 
46% - 54%
Dividend yield
—%
 
—%
 
—%
Weighted-average grant date fair value per share
$2.12
 
$1.66
 
$2.65

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The following is a summary of option activity for the year ended December 31, 2018:
 
Number of
Options
 
Weighted-
Average
Exercise
Price
 
Weighted-
Average
Remaining
Contractual
Term
(in years)
 
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at January 1, 2018
7,918,853

 
$
5.75

 

 

Granted
1,171,180

 
$
5.69

 

 

Exercised
(559,664
)
 
$
0.96

 

 

Forfeited
(375,187
)
 
$
7.37

 

 

Expired
(222,400
)
 
$
10.80

 

 

Outstanding at December 31, 2018
7,932,782

 
$
5.86

 
5.4

 
$
16,097

Exercisable at December 31, 2018
6,418,213

 
$
5.82

 
4.7

 
$
15,467

Vested or expected to vest as of December 31, 2018
7,847,599

 
$
5.86

 
5.4

 
$
16,057

Total compensation cost related to nonvested option awards not yet recognized as of December 31, 2018 was $2.8 million and will be recognized over a weighted-average period of approximately 2.2 years. The aggregate intrinsic value of employee options exercised during the years ended December 31, 2018, 2017 and 2016 was $3.1 million, $5.3 million and $3.0 million, respectively.

Restricted Stock Units

The following table summarizes our activities of RSUs and PRSUs during the year ended December 31, 2018:
 
Number of RSUs
 
Weighted-Average Grant Date Fair Value
Unvested at January 1, 2018
3,342,640

 
$
6.18

RSUs and PRSUs granted
1,671,806

 
$
6.02

RSUs and PRSUs vested
(1,012,569
)
 
$
6.58

RSUs and PRSUs forfeited/expired
(694,316
)
 
$
6.06

Unvested at December 31, 2018
3,307,561

 
$
6.00

Expected to vest after December 31, 2018
2,666,471

 
$
6.03


During the year ended December 31, 2016, in addition to granting RSUs, we also granted 194,207 PRSUs. For each of the three annual performance periods, one-third (1/3) of the total PRSUs may vest depending upon achievement of performance-based targets. Participants have the ability to earn up to 150% of the baseline award based on certain levels of achievement in excess of the relevant target performance level or could earn less than the baseline award, or nothing at all, based on certain levels of achievement below the relevant target performance level. Measurement of performance is based on a 12-month period ending June 30 of each year. The first tranche did not vest due to the performance-based targets not being achieved. The second tranche was granted with a grant date fair value of $4.67 during the year ended December 31, 2017. In October 2018, a total of 37,143 shares were awarded based on our performance metrics for the second tranche, which paid out 136% of the baseline award. Performance goals were established for the third tranche of the plan during the year ended December 31, 2018, and was granted with a grant date fair value of $6.71. The tranche has a performance period that lasts through June 2019.
During the year ended December 31, 2018 we granted a second, separate, performance plan. The new plan runs over three annual performance periods, also with one-third (1/3) of the total PRSUs vesting depending upon achievement of performance-based targets. In total 138,953 shares were granted, with a grant date fair value of $5.19 for the first tranche granted in 2018. Measurement of performance is based on a 12-month period ending December 31 of each year.
During the year ended December 31, 2018 we granted a third, separate, performance plan. The new plan runs over three performance periods. The first performance period runs from July 1, 2018 through December 31, 2018. The last two performance

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periods last one calendar year each. In total 60,684 shares were granted, with a grant date fair value of $5.35 for the first tranche granted in 2018.
As of December 31, 2018, there was $12 million of unrecognized compensation cost related to unvested RSUs and PRSUs, which is expected to be recognized over a weighted-average period of 2.6 years.

Employee Stock Purchase Plan
As of December 31, 2018, there was $0.2 million of unrecognized compensation expense related to the Employee Stock Purchase Plan ("ESPP").
The assumptions used to calculate our Black-Scholes-Merton Option Pricing Model for each stock purchase right granted under the ESPP were as follows for the year ended December 31:
 
2018
 
2017
 
2016
Risk-free interest rate
2.10
%
 
1.17
%
 
0.39
%
Expected term (years)
0.50

 
0.50

 
0.50

Expected volatility
47
%
 
37
%
 
52
%
Dividend yield
%
 
%
 
%
Stock-based compensation expense related to stock options, RSUs, PRSUs and the ESPP are included in the following line items in our accompanying consolidated statements of operations for the year ended December 31 (in thousands):
 
2018
 
2017
 
2016
Sales and marketing
$
2,012

 
$
2,429

 
$
4,002

Technology and analytics
2,647

 
2,300

 
3,422

Processing and servicing
385

 
483

 
869

General and administrative
6,775

 
7,303

 
7,622

Total
$
11,819

 
$
12,515

 
$
15,915

401(k) Plan
We maintain a 401(k) defined contribution plan that covers substantially all of our employees. Participants may elect to contribute their annual compensation up to the maximum limit imposed by federal tax law. During the years ended December 31, 2018, 2017 and 2016 we had $1.2 million, $1.2 million, and $1.4 million, respectively, in employer related match expense.
12. Derivatives and Hedging
We are subject to interest rate risk in connection with borrowings under our debt agreements which are subject to variable interest rates. In December 2018 we entered into an interest rate cap, which is a derivative instrument, to manage our interest rate risk on a portion of our variable-rate debt. We do not use derivatives for speculative purposes. The interest rate cap is designated as a cash flow hedge. In exchange for our up-front premium, we would receive variable amounts from a counterparty if interest rates rise above the strike rate on the contract. The interest rate cap agreement is for a notional amount of $300 million and a maturity date of January 2021.
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the changes in the fair value of the derivative is recorded in Accumulated Other Comprehensive Income, or AOCI, and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with the Company’s accounting policy election. The earnings recognition of excluded components is presented in interest expense. Amounts reported in AOCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company estimates that $0.7 million will be reclassified as an increase to interest expense in 2019.
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Balance Sheet as of December 31, 2018 (in thousands):

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Derivative Type
 
Classification
 
December 31, 2018
Assets:
 
 
 
 
Interest rate cap agreement
 
Other Assets
 
$
1,253


The table below presents the effect of cash flow hedge accounting on Accumulated Other Comprehensive Income as of December 31, 2018 (in thousands):
 
 
2018
Amount Recognized in OCI on Derivative:
 
 
Interest rate cap agreement
 
$
456

The table below presents the effect of the Company’s derivative financial instruments on the Income Statement as of December 31, 2018 (in thousands):
 
 
Location and Amount of Gain or (Loss) Recognized in Income on Cash Flow Hedging Relationships
 
 
2018
 
 
Interest Income (Expense)
 
 
 
Total amounts of expense line items presented in the statement of financial performance in which the effects of cash flow hedges are recorded
 
$
(16
)
13. Commitments and Contingencies
Lease Commitments
Operating Leases
Effective February 1, 2018, we terminated our lease obligation for the 12th floor of our New York office which accounted for approximately 32% our total New York office space. The lease of the 12th floor was previously scheduled to continue through December 2026. As part of the termination, we paid the landlord a cash surrender fee of approximately $2.6 million and recorded a net charge of approximately $3.2 million in the quarter ending March 31, 2018. The net charge includes the surrender fee and approximately $4.0 million related to the impairment of leasehold improvements and other fixed assets in the surrendered space, which were partially offset by other deferred credits.
For all spaces delivered to us under the New York lease as of December 31, 2018, our average monthly fixed rent payment will be approximately $0.3 million, subject to escalations.
In June 2015, we entered into a sublease in Denver, Colorado, as the subtenant. This lease provides for a four-month rent holiday and a tenant improvement allowance not to exceed $2.6 million and is scheduled to expire in April 2026.
On March 29, 2018, we terminated our lease obligation with respect to a portion of our Denver office which accounted for approximately 38% of our total Denver office space. Our lease of that space was previously scheduled to continue through April 2026. As part of the termination, we paid a surrender fee and related charges of approximately $900,000 and recorded a net charge of approximately $1 million in the quarter ended March 31, 2018. As of December 31, 2018, our average monthly fixed rent payment for Denver sublease will be approximately $0.1 million, subject to escalations.
The net charge includes the surrender fees and the impairment of leasehold improvements and other fixed assets in the surrendered space, which were partially offset by other deferred credits. The net charges related to our New York and Denver lease terminations were allocated to each of our operating expense line items on our condensed consolidated statement of operations with the exception of the aggregate impairment charges of leasehold improvements and other fixed assets in the surrendered spaces of approximately $5.7 million which were included in general and administrative expense.
In the aggregate, the termination of our New York and Denver leases reduced future required rental payments by approximately $23 million through 2026.
In May 2017, we entered into an operating lease in Australia for office space. The Australia lease calls for an average monthly fixed rent payment of approximately $34,000 and is scheduled to expire in July 2020.

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Certain of our leases have free or escalating rent payment provisions. We recognize rent expense under such leases on a straight-line basis over the term of the lease and record the difference between the rent paid and the straight-line rent expense as deferred rent within other liabilities on our consolidated balance sheets. Improvements funded by tenant allowances are recorded as leasehold improvements and depreciated over the improvements’ estimated useful lives or the remaining lease term, whichever is shorter. The incentive is recorded as deferred rent and amortized over the term of the lease.
Rent expense incurred, excluding any charges or credits related to the terminations above, totaled $3.9 million, $7.1 million, and $7 million for the years ended December 31, 2018, 2017, and 2016. The 2018 rent expense is net of certain credits associated with the lease terminations. Excluding those credits, rent expense for 2018 was $5.3 million.

Lease Commitments
At December 31, 2018, future minimum lease commitments under operating and capital leases, net of sublease income of $1.0 million, for the remaining terms of the operating leases were as follows (in thousands):
 
For the years ending December 31,
 
2019
$
6,416

2020
6,615

2021
6,481

2022
6,153

2023
5,342

Thereafter
17,511

Total
$
48,518


Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash, cash equivalents, restricted cash and loans. We hold cash, cash equivalents and restricted cash in accounts at regulated domestic financial institutions in amounts that exceed or may exceed FDIC insured amounts and at non-U.S. financial institutions where deposited amounts may be uninsured. We believe these institutions to be of acceptable credit quality and we have not experienced any related losses to date.
We are exposed to default risk on loans we originate and hold and that we purchase from our issuing bank partner. We perform an evaluation of each customer's financial condition and during the term of the customer's loan(s), we have the contractual right to limit a customer's ability to take working capital loans or other financing from other lenders that may cause a material adverse change in the financial condition of the customer.

Concentrations of Revenue
The top three states in which we, or our issuing bank partner, originated loans were California, Florida, and Texas, representing approximately 15%, 9%, and 9% of our total loan originations in 2018 and 14%, 9%, and 9% in 2017, respectively. These geographic concentrations expose us to risks associated with localized natural disasters, local political or economic forces as well as state-level regulatory risks.

Contingencies
From time to time we are subject to legal proceedings and claims in the ordinary course of business. The results of such matters cannot be predicted with certainty. However, we believe that the final outcome of any such current matters will not result in a material adverse effect on our consolidated financial condition, consolidated results of operations or consolidated cash flows.


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14. Quarterly Financial Information (unaudited)
The following table contains selected unaudited financial data for each quarter of 2018 and 2017. The unaudited information should be read in conjunction with our financial statements and related notes included elsewhere in this report. We believe that the following unaudited information reflects all normal recurring adjustments necessary for a fair presentation of the information for the periods presented. The operating results for any quarter are not necessarily indicative of results for any future period. All amounts are stated in thousands of dollars, except per share data which is stated in dollars.

 
December 31, 2018
 
September 30, 2018
 
June 30, 2018
 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
Gross revenue
109,480

 
102,999

 
95,618

 
90,280

 
87,741

 
83,666

 
86,651

 
92,892

Net revenue
58,396

 
52,169

 
50,080

 
42,114

 
42,040

 
32,719

 
41,984

 
35,082

Net income (loss)
13,436

 
9,497

 
4,774

 
(2,436
)
 
4,358

 
(4,532
)
 
(2,569
)
 
(11,602
)
Net income (loss) attributable to On Deck Capital, Inc. common stockholders
14,040

 
9,770

 
5,790

 
(1,918
)
 
5,096

 
(4,074
)
 
(1,498
)
 
(11,058
)
Net income (loss) per share attributable to On Deck Capital, Inc. common stockholders:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Basic
0.19

 
0.13

 
0.08

 
(0.03
)
 
0.07

 
(0.06
)
 
(0.02
)
 
(0.15
)
Diluted
0.18

 
0.12

 
0.07

 
(0.03
)
 
0.07

 
(0.06
)
 
(0.02
)
 
(0.15
)
15. Subsequent Events
On January 28, 2019, we established a new corporate revolving debt facility for On Deck Capital, Inc. with a commitment amount of $85 million, an interest rate of 1-month LIBOR plus 3.0% and a final maturity date in January 2021. The facility may be used for working capital and other general corporate purposes. Concurrent with closing this facility, we optionally prepaid in full and terminated the Square 1 Agreement.
On February 8, 2019, Loan Assets of OnDeck, LLC, entered into an amendment to further modify the LAOD Agreement. The Amendment primarily increased the revolving commitment amount by $50 million and reduced the interest rate margin over 1-month LIBOR by 0.25%, as well as made various technical, definitional, conforming and other changes.

Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
 
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act are accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding our required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures.

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Based on the foregoing evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2018, the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
  Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.  The Company’s internal control over financial reporting is a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, 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.  Internal control over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.
Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018 using the criteria established in  Internal Control - Integrated Framework (2013)  issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment and those criteria, our Chief Executive Officer and our Chief Financial Officer concluded that our internal control over financial reporting was effective as of December 31, 2018 to provide reasonable assurance of the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm on our internal control over financial reporting due to an exemption established by the JOBS Act for "emerging growth companies."
 Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the year ended December 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




Item 9B.
Other Information
None.


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Table of Contents

PART III
 
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this item will be included under the caption “Directors, Executive Officers and Corporate Governance” in our Proxy Statement for the 2018 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2018, which we refer to as our 2019 Proxy Statement, and is incorporated herein by reference.
The Company has a “Code of Business Conduct and Ethics Policy” that applies to all of our employees, including our Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and our Board of Directors. A copy of this code is available on our website at http://investors.ondeck.com. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics Policy by posting such information on our investor relations website under the heading “Governance—Governance Documents” at http://investors.ondeck.com.
 
Item 11.
Executive Compensation
The information required by this item will be included under the captions “Executive Compensation” and under the subheadings “Board’s Role in Risk Oversight,” “Non-Employee Director Compensation,” “Outside Director Compensation Policy,” and “Compensation Committee Interlocks and Insider Participation” under the heading “Directors, Executive Officers and Corporate Governance” in the 2019 Proxy Statement and is incorporated herein by reference.
 

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Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be included under the captions “Security Ownership of Certain Beneficial Owners and Management” and under the subheading “Potential Payments upon Termination or Change in Control” and “Equity Benefit and Stock Plans” under the heading “Executive Compensation” in the 2019 Proxy Statement and is incorporated herein by reference.
 
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information required by this item will be included under the captions “Certain Relationships and Related Transactions” and “Directors, Executive Officers and Corporate Governance—Director Independence” in the 2019 Proxy Statement and is incorporated herein by reference.
 
Item 14.
Principal Accounting Fees and Services
The information required by this item will be included under the caption “Proposal Two: Ratification of Selection of Independent Registered Public Accountants” in the 2019 Proxy Statement and is incorporated herein by reference.


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PART IV
 
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
On Deck Capital, Inc.
 
 
 
/s/    Kenneth A. Brause     
 
Kenneth A. Brause
Chief Financial Officer
(Principal Financial Officer)
Date: March 1, 2019
 
 
 
 
/s/ Nicholas Sinigaglia
 
Nicholas Sinigaglia
Chief Accounting Officer
(
Principal Accounting Officer)
Date: March 1, 2019
 
POWER OF ATTORNEY
KNOW ALL THESE PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Noah Breslow, Kenneth A. Brause and Cory Kampfer, and each of them, his attorneys-in-fact, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each said attorneys-in-fact or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 

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Table of Contents

Signature
 
Title
 
Date
 
 
 
 
 
/s/ Noah Breslow
 
Chief Executive Officer and
Director (Principal Executive
Officer)
 
March 1, 2019
Noah Breslow
 
 
 
 
 
 
 
 
/s/ Kenneth A. Brause
 
Chief Financial Officer
(Principal Financial Officer)
 
March 1, 2019
Kenneth A. Brause
 
 
 
 
 
 
 
 
/s/ Nicholas Sinigaglia
 
Chief Accounting Officer
(Principal Accounting Officer)
 
March 1, 2019
Nicholas Sinigaglia
 
 
 
 
 
 
 
 
/s/ Chandra Dhandapani
 
Director
 
March 1, 2019
Chandra Dhandapani
 
 
 
 
 
 
 
 
 
/s/ Daniel Henson
 
Director
 
March 1, 2019
Daniel Henson
 
 
 
 
 
 
 
 
 
/s/ Bruce P. Nolop
 
Director
 
March 1, 2019
Bruce P. Nolop
 
 
 
 
 
 
 
 
 
/s/ Manolo Sánchez
 
Director
 
March 1, 2019
Manolo Sánchez
 
 
 
 
 
 
 
 
 
/s/ Jane J. Thompson
 
Director
 
March 1, 2019
Jane J. Thompson
 
 
 
 
 
 
 
 
 
/s/ Ronald F. Verni
 
Director
 
March 1, 2019
Ronald F. Verni
 
 
 
 
 
 
 
 
 
/s/ Neil E. Wolfson
 
Director
 
March 1, 2019
Neil E. Wolfson
 
 
 
 

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Table of Contents

Exhibit Index
 
Exhibit
Number
 
Description
 
Filed /
Incorporated by
Reference from
Form *
 
Incorporated
by Reference
from Exhibit
Number
 
Date Filed
 
 
8-K
 
3.1
 
12/22/2014
 
 
10-Q
 
3.2
 
11/6/2018
 
 
S-1
 
4.1
 
11/10/2014
 
 
S-1
 
4.6
 
11/10/2014
 
 
S-1
 
10.1
 
11/10/2014
 
 
S-1
 
10.2
 
11/10/2014
 
 
S-1/A
 
10.3
 
12/4/2014
 
 
Filed herewith (1)
 
 
 
 
 
 
S-1
 
10.5
 
11/10/2014
 
 
Filed herewith.
 
 
 
 
 
 
S-1
 
10.7
 
11/10/2014
 
 
10-Q
 
10.1
 
11/7/2017
 
 
10-Q
 
10.2
 
11/7/2017
 
 
8-K
 
10.1
 
9/21/2016
 
 
S-1
 
10.12
 
11/10/2014
 
 
10-K
 
10.21
 
3/10/2015
 
 
10-Q
 
10.1
 
5/8/2018
 
 
10-Q
 
10.2
 
5/9/2017
 
 
S-1
 
10.15
 
11/10/2014
 

 
10-Q
 
10.2
 
8/9/2016

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Table of Contents

 
 


 
 
 
 
 
 
 
 
10-K
 
10.19
 
3/3/2016
 
 
S-1
 
10.20
 
11/10/2014
 
 
Filed herewith.
 
 
 
 
 
 
10-K
 
10.23
 
3/2/2017
 
 
10-K
 
10.24
 
3/2/2017
 
 
10-K
 
10.25
 
3/2/2017
 
 
Filed herewith.
 
 
 
 
 
 
10-K
 
10.26
 
3/2/2017
 
 
Filed herewith.
 
 
 
 
 
 
10-Q
 
10.2
 
5/8/2018
 
 
10-Q
 
10.3
 
5/8/2018
 
 
10-Q
 
10.4
 
5/8/2018

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Table of Contents

 
 
10-Q
 
10.1
 
8/7/2018
 
 
10-Q
 
10.2
 
8/7/2018
 
 
10-Q
 
10.3
 
8/7/2018
 
 
10-Q
 
10.1
 
11/6/2018
 
 
Filed herewith.
 
 
 
 
 
 
Filed herewith.
 
 
 
 
 
 
Filed herewith.
 
 
 
 
 
 
Filed herewith.
 
 
 
 
 
 
Filed herewith.

 
 
 
 
 
 
Filed herewith.


 
 
 
 
101.INS
 
XBRL Instance Document
 
Filed herewith.


 
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
Filed herewith.


 
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
Filed herewith.


 
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
Filed herewith.


 
 
 
 
101.LAB

 
XBRL Taxonomy Extension Labels Linkbase Document
 
Filed herewith.


 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
Filed herewith.


 
 
 
 

 
*
All exhibits incorporated by reference to the Registrant's Form S-1 or S-1/A registration statements relate to Registration No. 333-200043
+
Indicates a management contract or compensatory plan.


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Table of Contents

(1)
The 2014 Employee Stock Purchase Plan is filed herewith solely to correct certain administrative errors and replaces the version filed with the Registrant's Form S-1/A registration statement filed on December 4, 2014.

120

Exhibit


Exhibit 10.4
ON DECK CAPITAL, INC.
2014 EMPLOYEE STOCK PURCHASE PLAN
1.Purpose. The purpose of the Plan is to provide employees of the Company and its Designated Companies with an opportunity to purchase Common Stock through accumulated Contributions. The Company intends for the Plan to have two components: a Code Section 423 Component (“423 Component”) and a non-Code Section 423 Component (“Non-423 Component”). The Company’s intention is to have 423 Component of the Plan qualify as an “employee stock purchase plan” under Section 423 of the Code. The provisions of the 423 Component, accordingly, will be construed so as to extend and limit Plan participation in a uniform and nondiscriminatory basis consistent with the requirements of Section 423 of the Code. In addition, this Plan authorizes the grant of an option to purchase shares of Common Stock under the Non-423 Component that does not qualify as an “employee stock purchase plan” under Section 423 of the Code; such an option will be granted pursuant to rules, procedures or sub-plans adopted by the Administrator designed to achieve tax, securities laws or other objectives for Eligible Employees and the Company. Except as otherwise provided herein, the Non-423 Component will operate and be administered in the same manner as the 423 Component.
2.    Definitions.
(a)    Administrator” means the Board or any Committee designated by the Board to administer the Plan pursuant to Section 14.
(b)    Affiliate” means any entity, other than a Subsidiary, in which the Company has an equity or other ownership interest.
(c)    Applicable Laws” means the requirements relating to the administration of equity-based awards under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where options are, or will be, granted under the Plan.
(d)    Board” means the Board of Directors of the Company.
(e)    Change in Control” means the occurrence of any of the following events:
(i)    A change in the ownership of the Company which occurs on the date that any one person, or more than one person acting as a group (“Person”), acquires ownership of the stock of the Company that, with the stock held by such Person, constitutes more than 50% of the total voting power of the stock of the Company; provided, however, that for this subsection, the acquisition of additional stock by any one Person, who prior to such acquisition is considered to own more than 50% of the total voting power of the stock of the Company will not be considered a Change in Control. Further, if the stockholders of the Company immediately before such change in ownership continue to


    


retain immediately after the change in ownership, in substantially the same proportions as their ownership of shares of the Company’s voting stock immediately prior to the change in ownership, direct or indirect beneficial ownership of 50% or more of the total voting power of the stock of the Company, such event shall not be considered a Change in Control under this clause (i). For this purpose, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company, as the case may be, either directly or through one or more subsidiary corporations or other business entities; or
(ii)    A change in the effective control of the Company which occurs on the date a majority of members of the Board is replaced during any 12 month period by Directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the appointment or election. For this clause (ii), if any Person is in effective control of the Company, the acquisition of additional control of the Company by the same Person will not be considered a Change in Control; or
(iii)    A change in the ownership of a substantial portion of the Company’s assets which occurs on the date that any Person acquires (or has acquired during the 12 month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 50% of the total gross fair market value of all of the assets of the Company immediately prior to such acquisition or acquisitions; provided, however, that for this clause (iii), the following will not constitute a change in the ownership of a substantial portion of the Company’s assets:
(1)    the sale of the assets of the OnDeck Marketplace business,
(2)    a transfer to an entity controlled by the Company’s stockholders immediately after the transfer, or
(3)    a transfer of assets by the Company to:
(A)a stockholder of the Company (immediately before the asset transfer) in exchange for or with respect to the Company's stock,
(B)an entity, 50% or more of the total value or voting power of which is owned, directly or indirectly, by the Company,
(C)a Person, that owns, directly or indirectly, 50% or more of the total value or voting power of all the outstanding stock of the Company, or
(D)an entity, at least 50% of the total value or voting power of which is owned, directly or indirectly, by a Person described in clauses (A) to (C).
For this definition, gross fair market value means the value of the assets of the Company, or the value of the assets being disposed of, determined without regard to any liabilities associated with such assets. For this definition, Persons will be acting as a group if they are owners of

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a corporation that enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with the Company.
Notwithstanding the foregoing, a transaction will not be deemed a Change in Control unless the transaction qualifies as a change in control event within the meaning of Code Section 409A, as it has been and may be amended from time to time, and any proposed or final Treasury Regulations and Internal Revenue Service guidance that has been promulgated or may be promulgated thereunder from time to time.
Further and for the avoidance of doubt, a transaction will not constitute a Change in Control if: (i) its sole purpose is to change the state of the Company’s incorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the Persons who held the Company’s securities immediately before such transaction.
(f)    Code” means the U.S. Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code or U.S. Treasury Regulation thereunder will include such section or regulation, any valid regulation or other official applicable guidance promulgated under such section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such section or regulation.
(g)    Committee” means a committee of the Board appointed in accordance with Section 14 hereof.
(h)    Common Stock” means the common stock of the Company.
(i)    Company” means On Deck Capital, Inc., a Delaware corporation, or any successor thereto.
(j)    Compensation” means an Eligible Employee’s base straight time gross earnings and commissions (to the extent such commissions are an integral, recurring part of compensation) but exclusive of payments for incentive compensation, bonuses and other similar compensation and payments for overtime and shift premium. The Administrator, in its discretion, may, on a uniform and nondiscriminatory basis, establish a different definition of Compensation for a subsequent Offering Period.
(k)    Contributions” means the payroll deductions and other additional payments that the Company may permit to be made by a Participant to fund the exercise of options granted pursuant to the Plan.
(l)    Designated Company” means any Subsidiary or Affiliate that has been designated by the Administrator from time to time in its sole discretion as eligible to participate in the Plan. For purposes of the 423 Component, only the Company and its Subsidiaries may be Designated Companies, provided, however that at any given time, a Subsidiary that is a Designated Company under the 423 Component shall not be a Designated Company under the Non-423 Component.
(m)    Director” means a member of the Board.

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(n)    Eligible Employee” means any individual who is a common law employee providing services to the Company or a Designated Company and is customarily employed for at least twenty (20) hours per week and more than five (5) months in any calendar year by the Employer, or any lesser number of hours per week and/or number of months in any calendar year established by the Administrator (if required under applicable local law) for purposes of any separate Offering or for Eligible Employee participating in the Non-423 Component. For purposes of the Plan, the employment relationship will be treated as continuing intact while the individual is on sick leave or other leave of absence that the Employer approves or is legally protected under Applicable Laws. Where the period of leave exceeds three (3) months and the individual’s right to reemployment is not guaranteed either by statute or by contract, the employment relationship will be deemed to have terminated three (3) months and one (1) day following the commencement of such leave. The Administrator, in its discretion, from time to time may, prior to an Enrollment Date for all options to be granted on such Enrollment Date in an Offering, determine (on a uniform and nondiscriminatory basis or as otherwise permitted by Treasury Regulation Section 1.423‑2) that the definition of Eligible Employee will or will not include an individual if he or she: (i) has not completed at least two (2) years of service since his or her last hire date (or such lesser period of time as may be determined by the Administrator in its discretion), (ii) customarily works not more than twenty (20) hours per week (or such lesser period of time as may be determined by the Administrator in its discretion), (iii) customarily works not more than five (5) months per calendar year (or such lesser period of time as may be determined by the Administrator in its discretion), (iv) is a highly compensated employee within the meaning of Section 414(q) of the Code, or (v) is a highly compensated employee within the meaning of Section 414(q) of the Code with compensation above a certain level or is an officer or subject to the disclosure requirements of Section 16(a) of the Exchange Act, provided the exclusion is applied with respect to each Offering in an identical manner to all highly compensated individuals of the Employer whose Employees are participating in that Offering. Each exclusion shall be applied with respect to an Offering in a manner complying with U.S. Treasury Regulation Section 1.423‑2(e)(2)(ii).
(o)    Employer” means the employer of the applicable Eligible Employee(s).
(p)    Enrollment Date” means the first Trading Day of each Offering Period.
(q)    Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, including the rules and regulations promulgated thereunder.
(r)    Exercise Date” means the first Trading Day on or after March 15 and September 15 of each Purchase Period. Notwithstanding the foregoing, the first Exercise Date under the Plan will be September 15, 2015.
(s)    Fair Market Value” means, as of any date and unless the Administrator determines otherwise, the value of Common Stock determined as follows:
(i)    If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the New York Stock Exchange, NASDAQ Global Select Market, the NASDAQ Global Market or the NASDAQ Capital Market of The NASDAQ Stock Market, its Fair Market Value will be the closing sales price for such stock as quoted on such exchange or system

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on the date of determination (or the closing bid, if no sales were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(ii)    If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value will be the mean between the high bid and low asked prices for the Common Stock on the date of determination (or if no bids and asks were reported on that date, as applicable, on the last Trading Day such bids and asks were reported), as reported in The Wall Street Journal or such other source as the Administrator deems reliable;
(iii)    In the absence of an established market for the Common Stock, the Fair Market Value thereof will be determined in good faith by the Administrator; or
(iv)    For purposes of the Enrollment Date of the first Offering Period under the Plan, the Fair Market Value will be the initial price to the public as set forth in the final prospectus included within the registration statement on Form S-1 filed with the Securities and Exchange Commission for the initial public offering of the Common Stock (the “Registration Statement”).
(t)    Fiscal Year” means the fiscal year of the Company.
(u)    New Exercise Date” means a new Exercise Date if the Administrator shortens any Offering Period then in progress.
(v)    Offering” means an offer under the Plan of an option that may be exercised during an Offering Period as further described in Section 4. For purposes of the Plan, the Administrator may designate separate Offerings under the Plan (the terms of which need not be identical) in which Employees of one or more Employers will participate, even if the dates of the applicable Offering Periods of each such Offering are identical and the provisions of the Plan will separately apply to each Offering. To the extent permitted by U.S. Treasury Regulation Section 1.423‑2(a)(1), the terms of each Offering need not be identical provided that the terms of the Plan and an Offering together satisfy U.S. Treasury Regulation Section 1.423‑2(a)(2) and (a)(3).
(w)    Offering Periods” means the periods of approximately six (6) months during which an option granted pursuant to the Plan may be exercised, (i) commencing on the first Trading Day on or after March 15 and September 15 of each year and terminating on the first Trading Day on or after September 15 and March 15, approximately six (6) months later; provided, however, that the first Offering Period under the Plan will commence with the first Trading Day on or after the date on which the Securities and Exchange Commission declares the Company’s Registration Statement effective and will end on September 15, 2015, and provided, further, that the second Offering Period under the Plan will commence on September 15, 2015. The duration and timing of Offering Periods may be changed pursuant to Sections 4 and 19.
(x)    Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.
(y)    Participant” means an Eligible Employee that participates in the Plan.

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(z)    Plan” means this On Deck Capital, Inc. 2014 Employee Stock Purchase Plan.
(aa)    Purchase Period” means the approximately six (6) month period commencing after one Exercise Date and ending with the next Exercise Date, except that the first Purchase Period of any Offering Period will commence on the Enrollment Date and end with the next Exercise Date. Unless the Administrator provides otherwise, the Purchase Period will have the same duration and coincide with the length of the Offering Period.
(bb)    Purchase Price” means an amount equal to eighty-five percent (85%) of the Fair Market Value of a share of Common Stock on the Enrollment Date or on the Exercise Date, whichever is lower; provided however, that the Purchase Price may be determined for subsequent Offering Periods by the Administrator subject to compliance with Section 423 of the Code (or any successor rule or provision or any other Applicable Law, regulation or stock exchange rule) or pursuant to Section 19.
(cc)    Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.
(dd)    Trading Day” means a day on which the national stock exchange upon which the Common Stock is listed is open for trading.
(ee)    U.S. Treasury Regulations” means the Treasury regulations of the Code. Reference to a specific Treasury Regulation or Section of the Code shall include such Treasury Regulation or Section, any valid regulation promulgated under such Section, and any comparable provision of any future legislation or regulation amending, supplementing or superseding such Section or regulation.
3.    Eligibility.
(a)    First Offering Period. Any individual who is an Eligible Employee immediately prior to the first Offering Period will be automatically enrolled in the first Offering Period.
(b)    Subsequent Offering Periods. Any Eligible Employee on a given Enrollment Date subsequent to the first Offering Period will be eligible to participate in the Plan, subject to the requirements of Section 5.
(c)    Non-U.S. Employees. Eligible Employees who are citizens or residents of a non-U.S. jurisdiction (without regard to whether they also are citizens or residents of the United States or resident aliens (within the meaning of Section 7701(b)(1)(A) of the Code)) may be excluded from participation in the Plan or an Offering if the participation of such Eligible Employees is prohibited under the laws of the applicable jurisdiction or if complying with the laws of the applicable jurisdiction would cause the Plan or an Offering to violate Section 423 of the Code. In the case of the Non-423 Component, Eligible Employee may be excluded from participation in the Plan or an Offering if the Administrator has determined that participation of such Eligible Employee is not advisable or practicable.
(d)    Limitations. Any provisions of the Plan to the contrary notwithstanding, no Eligible Employee will be granted an option under the Plan (i) to the extent that, immediately after the

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grant, such Eligible Employee (or any other person whose stock would be attributed to such Eligible Employee pursuant to Section 424(d) of the Code) would own capital stock of the Company or any Parent or Subsidiary of the Company and/or hold outstanding options to purchase such stock possessing five percent (5%) or more of the total combined voting power or value of all classes of the capital stock of the Company or of any Parent or Subsidiary of the Company, or (ii) to the extent that his or her rights to purchase stock under all employee stock purchase plans (as defined in Section 423 of the Code) of the Company or any Parent or Subsidiary of the Company accrues at a rate, which exceeds twenty-five thousand dollars ($25,000) worth of stock (determined at the Fair Market Value of the stock at the time such option is granted) for each calendar year in which such option is outstanding at any time, as determined in accordance with Section 423 of the Code and the regulations thereunder.
4.    Offering Periods. The Plan will be implemented by consecutive Offering Periods with a new Offering Period commencing on the first Trading Day on or after March 15 and September 15 each year, or on such other date as the Administrator will determine; provided, however, that the first Offering Period under the Plan will commence with the first Trading Day on or after the date upon which the Company’s Registration Statement is declared effective by the Securities and Exchange Commission and end on September 15, 2015, and provided, further, that the second Offering Period under the Plan will commence on September 15, 2015. The Administrator will have the power to change the duration of Offering Periods (including the commencement dates thereof) with respect to future Offerings without stockholder approval if such change is announced prior to the scheduled beginning of the first Offering Period to be affected thereafter; provided, however, that no Offering Period may last more than twenty-seven (27) months.
5.    Participation.
(a)    First Offering Period. An Eligible Employee will be entitled to continue to participate in the first Offering Period pursuant to Section 3(a) only if such individual submits a subscription agreement authorizing Contributions in a form determined by the Administrator (which may be similar to the form attached hereto as Exhibit A) to the Company’s designated plan administrator (i) no earlier than the effective date of the Form S-8 registration statement with respect to the issuance of Common Stock under this Plan and (ii) no later than a certain date an officer of the Company will determine (the “Enrollment Window”). An Eligible Employee’s failure to submit the subscription agreement during the Enrollment Window will result in the automatic termination of such individual’s participation in the first Offering Period.
(b)    Subsequent Offering Periods. An Eligible Employee may participate in the Plan pursuant to Section 3(b) by (i) submitting to the Company’s stock administration office (or its designee), on or before a date determined by the Administrator prior to an applicable Enrollment Date, a properly completed subscription agreement authorizing Contributions in the form provided by the Administrator for such purpose, or (ii) following an electronic or other enrollment procedure determined by the Administrator.
6.    Contributions.
(a)    At the time a Participant enrolls in the Plan pursuant to Section 5, he or she will elect to have Contributions (in the form of payroll deductions or otherwise, to the extent permitted by

7


the Administrator) made on each pay day during the Offering Period in an amount not exceeding fifteen percent (15%) of the Compensation, which he or she receives on each pay day during the Offering Period; provided, however, that should a pay day occur on an Exercise Date, a Participant will have any payroll deductions made on such day applied to his or her account under the subsequent Purchase Period or Offering Period. The Administrator, in its sole discretion, may permit all Participants in a specified Offering to contribute amounts to the Plan through payment by cash, check or other means set forth in the subscription agreement prior to each Exercise Date of each Purchase Period. A Participant’s subscription agreement will remain in effect for successive Offering Periods unless terminated as provided in Section 10 hereof.
(b)    In the event Contributions are made in the form of payroll deductions, such payroll deductions for a Participant will commence on the first pay day following the Enrollment Date and will end on the last pay day prior to the Exercise Date of such Offering Period to which such authorization is applicable, unless sooner terminated by the Participant as provided in Section 10 hereof; provided, however, that for the first Offering Period, payroll deductions will commence on the first pay day on or following the end of the Enrollment Window.
(c)    All Contributions made for a Participant will be credited to his or her account under the Plan and Contributions will be made in whole percentages only. A Participant may not make any additional payments into such account.
(d)    A Participant may discontinue his or her participation in the Plan as provided in Section 10. If permitted by the Administrator, as determined in its sole discretion, for an Offering Period, a Participant may decrease (but may not increase) the rate of his or her Contributions once during the Offering Period by (i) properly completing and submitting to the Company’s stock administration office (or its designee), on or before a date determined by the Administrator prior to an applicable Exercise Date, a new subscription agreement authorizing the change in Contribution rate in the form provided by the Administrator for such purpose, or (ii) following an electronic or other procedure prescribed by the Administrator. If a Participant has not followed such procedures to change the rate of Contributions, the rate of his or her Contributions will continue at the originally elected rate throughout the Offering Period and future Offering Periods (unless terminated as provided in Section 10). The Administrator may, in its sole discretion, limit the nature and/or number of Contribution rate changes that may be made by Participants during any Offering Period, and may establish such other conditions or limitations as it deems appropriate for Plan administration. Any change in payroll deduction rate made pursuant to this Section 6(d) will be effective as of the first full payroll period following five (5) business days after the date on which the change is made by the Participant (unless the Administrator, in its sole discretion, elects to process a given change in payroll deduction rate more quickly).
(e)    Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and Section 3(d), a Participant’s Contributions may be decreased to zero percent (0%) at any time during a Purchase Period. Subject to Section 423(b)(8) of the Code and Section 3(d) hereof, Contributions will recommence at the rate originally elected by the Participant effective as of the beginning of the first Purchase Period scheduled to end in the following calendar year, unless terminated by the Participant as provided in Section 10.

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(f)    Notwithstanding any provisions to the contrary in the Plan, the Administrator may allow Eligible Employees to participate in the Plan via cash contributions instead of payroll deductions if (i) payroll deductions are not permitted under applicable local law, (ii) the Administrator determines that cash contributions are permissible under Section 423 of the Code and (iii) for Participants participating in the Non-423 Component.
(g)    At the time the option is exercised, in whole or in part, or at the time some or all of the Common Stock issued under the Plan is disposed of (or any other time that a taxable event related to the Plan occurs), the Participant must make adequate provision for the Company’s or Employer’s federal, state, local or any other tax liability payable to any authority including taxes imposed by jurisdictions outside of the U.S., national insurance, social security or other tax withholding obligations, if any, which arise upon the exercise of the option or the disposition of the Common Stock (or any other time that a taxable event related to the Plan occurs). At any time, the Company or the Employer may, but will not be obligated to, withhold from the Participant’s compensation the amount necessary for the Company or the Employer to meet applicable withholding obligations, including any withholding required to make available to the Company or the Employer any tax deductions or benefits attributable to sale or early disposition of Common Stock by the Eligible Employee. In addition, the Company or the Employer may, but will not be obligated to, withhold from the proceeds of the sale of Common Stock or any other method of withholding the Company or the Employer deems appropriate to the extent permitted by U.S. Treasury Regulation Section 1.423‑2(f).
7.    Grant of Option. On the Enrollment Date of each Offering Period, each Eligible Employee participating in such Offering Period will be granted an option to purchase on each Exercise Date during such Offering Period (at the applicable Purchase Price) up to a number of shares of Common Stock determined by dividing such Eligible Employee’s Contributions accumulated prior to such Exercise Date and retained in the Eligible Employee’s account as of the Exercise Date by the applicable Purchase Price; provided that in no event will an Eligible Employee be permitted to purchase during each Purchase Period more than 10,000 shares of Common Stock (subject to any adjustment pursuant to Section 18) and provided further that such purchase will be subject to the limitations set forth in Sections 3(c) and 13. The Eligible Employee may accept the grant of such option (i) with respect to the first Offering Period by submitting a properly completed subscription agreement in accordance with the requirements of Section 5 on or before the last day of the Enrollment Window, and (ii) with respect to any subsequent Offering Period under the Plan, by electing to participate in the Plan in accordance with the requirements of Section 5. The Administrator may, for future Offering Periods, increase or decrease, in its absolute discretion, the maximum number of shares of Common Stock that an Eligible Employee may purchase during each Purchase Period of an Offering Period. Exercise of the option will occur as provided in Section 8, unless the Participant has withdrawn pursuant to Section 10. The option will expire on the last day of the Offering Period.
8.    Exercise of Option.
(a)    Unless a Participant withdraws from the Plan as provided in Section 10, his or her option for the purchase of shares of Common Stock will be exercised automatically on the Exercise Date, and the maximum number of full shares subject to the option will be purchased for such Participant at the applicable Purchase Price with the accumulated Contributions from his or her account. No

9


fractional shares of Common Stock will be purchased; any Contributions accumulated in a Participant’s account, which are not sufficient to purchase a full share will be retained in the Participant’s account for the subsequent Purchase Period or Offering Period, subject to earlier withdrawal by the Participant as provided in Section 10. Any other funds left over in a Participant’s account after the Exercise Date will be returned to the Participant. During a Participant’s lifetime, a Participant’s option to purchase shares hereunder is exercisable only by him or her.
(b)    If the Administrator determines that, on a given Exercise Date, the number of shares of Common Stock with respect to which options are to be exercised may exceed (i) the number of shares of Common Stock that were available for sale under the Plan on the Enrollment Date of the applicable Offering Period, or (ii) the number of shares of Common Stock available for sale under the Plan on such Exercise Date, the Administrator may in its sole discretion (x) provide that the Company will make a pro rata allocation of the shares of Common Stock available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all Participants exercising options to purchase Common Stock on such Exercise Date, and continue all Offering Periods then in effect or (y) provide that the Company will make a pro rata allocation of the shares available for purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform a manner as will be practicable and as it will determine in its sole discretion to be equitable among all participants exercising options to purchase Common Stock on such Exercise Date, and terminate any or all Offering Periods then in effect pursuant to Section 19. The Company may make a pro rata allocation of the shares available on the Enrollment Date of any applicable Offering Period pursuant to the preceding sentence, notwithstanding any authorization of additional shares for issuance under the Plan by the Company’s stockholders subsequent to such Enrollment Date.
9.    Delivery. As soon as reasonably practicable after each Exercise Date on which a purchase of shares of Common Stock occurs, the Company will arrange the delivery to each Participant of the shares purchased upon exercise of his or her option in a form determined by the Administrator (in its sole discretion) and pursuant to rules established by the Administrator. The Company may permit or require that shares be deposited directly with a broker designated by the Company or to a designated agent of the Company, and the Company may utilize electronic or automated methods of share transfer. The Company may require that shares be retained with such broker or agent for a designated period of time and/or may establish other procedures to permit tracking of disqualifying dispositions of such shares. No Participant will have any voting, dividend, or other stockholder rights with respect to shares of Common Stock subject to any option granted under the Plan until such shares have been purchased and delivered to the Participant as provided in this Section 9.
10.    Withdrawal.
(a)    A Participant may withdraw all but not less than all the Contributions credited to his or her account and not yet used to exercise his or her option under the Plan at any time by (i) submitting to the Company’s stock administration office (or its designee) a written notice of withdrawal in the form determined by the Administrator for such purpose (which may be similar to the form attached hereto as Exhibit B), or (ii) following an electronic or other withdrawal procedure determined by the Administrator. All of the Participant’s Contributions credited to his or her account

10


will be paid to such Participant promptly after receipt of notice of withdrawal and such Participant’s option for the Offering Period will be automatically terminated, and no further Contributions for the purchase of shares will be made for such Offering Period. If a Participant withdraws from an Offering Period, Contributions will not resume at the beginning of the succeeding Offering Period, unless the Participant re-enrolls in the Plan in accordance with the provisions of Section 5.
(b)    A Participant’s withdrawal from an Offering Period will not have any effect upon his or her eligibility to participate in any similar plan that may hereafter be adopted by the Company or in succeeding Offering Periods that commence after the termination of the Offering Period from which the Participant withdraws.
11.    Termination of Employment. Once a Participant ceases to be an Eligible Employee, for any reason, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to such Participant’s account during the Offering Period but not yet used to purchase shares of Common Stock under the Plan will be returned to such Participant, and such Participant’s option will be automatically terminated. A Participant whose employment transfers between entities through a termination with an immediate rehire (with no break in service) by the Company or a Designated Company shall not be treated as terminated under the Plan; however, if a Participant transfers from an Offering under the 423 Component to the Non-423 Component, the exercise of the option shall be qualified under the 423 Component only to the extent it complies with Section 423 of the Code.
12.    Interest. No interest will accrue on the Contributions of a participant in the Plan, except as may be required by Applicable Law, as determined by the Company, and if so required by the laws of a particular jurisdiction, shall apply to all Participants in the relevant Offering under the 423 Component, except to the extent otherwise permitted by U.S. Treasury Regulation Section 1.423‑2(f).
13.    Stock.
(a)    Subject to adjustment upon changes in capitalization of the Company as provided in Section 18 hereof, the maximum number of shares of Common Stock that will be made available for sale under the Plan will be 1,800,000 shares of Common Stock, plus an annual increase to be added on the first day of each Fiscal Year beginning with the 2016 Fiscal Year equal to the least of (i) 1,800,000 shares of Common Stock, (ii) one percent (1%) of the outstanding shares of Common Stock on such date, or (iii) an amount determined by the Administrator.
(b)    Until the shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), a Participant will only have the rights of an unsecured creditor with respect to such shares, and no right to vote or receive dividends or any other rights as a stockholder will exist with respect to such shares.
(c)    Shares of Common Stock to be delivered to a Participant under the Plan will be registered in the name of the Participant or in the name of the Participant and his or her spouse.
14.    Administration. The Plan will be administered by the Board or a Committee appointed by the Board, which Committee will be constituted to comply with Applicable Laws. The Administrator will have full and exclusive discretionary authority to construe, interpret and apply the terms of the

11


Plan, to designate separate Offerings under the Plan, to designate Subsidiaries and Affiliates as participating in the 423 Component or Non-423 Component, to determine eligibility, to adjudicate all disputed claims filed under the Plan and to establish such procedures that it deems necessary for the administration of the Plan (including, without limitation, to adopt such procedures and sub-plans as are necessary or appropriate to permit the participation in the Plan by employees who are foreign nationals or employed outside the U.S., the terms of which sub-plans may take precedence over other provisions of this Plan, with the exception of Section 13(a) hereof, but unless otherwise superseded by the terms of such sub-plan, the provisions of this Plan shall govern the operation of such sub-plan). Unless otherwise determined by the Administrator, the Employees eligible to participate in each sub-plan will participate in a separate Offering or in the Non-423 Component. Without limiting the generality of the foregoing, the Administrator is specifically authorized to adopt rules and procedures regarding eligibility to participate, the definition of Compensation, handling of Contributions, making of Contributions to the Plan (including, without limitation, in forms other than payroll deductions), establishment of bank or trust accounts to hold Contributions, payment of interest, conversion of local currency, obligations to pay payroll tax, determination of beneficiary designation requirements, withholding procedures and handling of stock certificates that vary with applicable local requirements. The Administrator also is authorized to determine that, to the extent permitted by U.S. Treasury Regulation Section 1.423‑2(f), the terms of an option granted under the Plan or an Offering to citizens or residents of a non-U.S. jurisdiction will be less favorable than the terms of options granted under the Plan or the same Offering to employees resident solely in the U.S. Every finding, decision and determination made by the Administrator will, to the full extent permitted by law, be final and binding upon all parties.
15.    Transferability. Neither Contributions credited to a Participant’s account nor any rights with regard to the exercise of an option or to receive shares of Common Stock under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution) by the Participant. Any such attempt at assignment, transfer, pledge or other disposition will be without effect, except that the Company may treat such act as an election to withdraw funds from an Offering Period in accordance with Section 10 hereof.
16.    Use of Funds. The Company may use all Contributions received or held by it under the Plan for any corporate purpose, and the Company will not be obligated to segregate such Contributions except under Offerings or for Participants in the Non-423 Component for which Applicable Laws require that Contributions to the Plan by Participants be segregated from the Company’s general corporate funds and/or deposited with an independent third party. Until shares of Common Stock are issued, Participants will only have the rights of an unsecured creditor with respect to such shares.
17.    Reports. Individual accounts will be maintained for each Participant in the Plan. Statements of account will be given to participating Eligible Employees at least annually, which statements will set forth the amounts of Contributions, the Purchase Price, the number of shares of Common Stock purchased and the remaining cash balance, if any.
18.
Adjustments, Dissolution, Liquidation, Merger or Change in Control.
(a)    Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Common Stock, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or

12


exchange of Common Stock or other securities of the Company, or other change in the corporate structure of the Company affecting the Common Stock occurs, the Administrator, in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, will, in such manner as it may deem equitable, adjust the number and class of Common Stock that may be delivered under the Plan, the Purchase Price per share and the number of shares of Common Stock covered by each option under the Plan that has not yet been exercised, and the numerical limits of Sections 7 and 13.
(b)    Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, any Offering Period then in progress will be shortened by setting a New Exercise Date, and will terminate immediately prior to the consummation of such proposed dissolution or liquidation, unless provided otherwise by the Administrator. The New Exercise Date will be before the date of the Company’s proposed dissolution or liquidation. The Administrator will notify each Participant in writing or electronically, prior to the New Exercise Date, that the Exercise Date for the Participant’s option has been changed to the New Exercise Date and that the Participant’s option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof.
(c)    Merger or Change in Control. In the event of a merger or Change in Control, each outstanding option will be assumed or an equivalent option substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the Offering Period with respect to which such option relates will be shortened by setting a New Exercise Date on which such Offering Period shall end. The New Exercise Date will occur before the date of the Company’s proposed merger or Change in Control. The Administrator will notify each Participant in writing or electronically prior to the New Exercise Date, that the Exercise Date for the Participant’s option has been changed to the New Exercise Date and that the Participant’s option will be exercised automatically on the New Exercise Date, unless prior to such date the Participant has withdrawn from the Offering Period as provided in Section 10 hereof.
19.    Amendment or Termination.
(a)    The Administrator, in its sole discretion, may amend, suspend, or terminate the Plan, or any part thereof, at any time and for any reason. If the Plan is terminated, the Administrator, in its discretion, may elect to terminate all outstanding Offering Periods either immediately or upon completion of the purchase of shares of Common Stock on the next Exercise Date (which may be sooner than originally scheduled, if determined by the Administrator in its discretion), or may elect to permit Offering Periods to expire in accordance with their terms (and subject to any adjustment pursuant to Section 18). If the Offering Periods are terminated prior to expiration, all amounts then credited to Participants accounts that have not been used to purchase shares of Common Stock will be returned to the Participants (without interest thereon, except as otherwise required under Applicable Laws, as further set forth in Section 12 hereof) as soon as administratively practicable.
(b)    Without stockholder consent and without limiting Section 19(a), the Administrator will be entitled to change the Offering Periods or Purchase Periods, designate separate Offerings, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars,

13


permit Contributions in excess of the amount designated by a Participant in order to adjust for delays or mistakes in the Company’s processing of properly completed Contribution elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each Participant properly correspond with Contribution amounts, and establish such other limitations or procedures as the Administrator determines in its sole discretion advisable that are consistent with the Plan.
(c)    In the event the Administrator determines that the ongoing operation of the Plan may result in unfavorable financial accounting consequences, the Administrator may, in its discretion and, to the extent necessary or desirable, modify, amend or terminate the Plan to reduce or eliminate such accounting consequence including, but not limited to:
(i)    amending the Plan to conform with the safe harbor definition under the Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor thereto), including with respect to an Offering Period underway at the time;
(ii)    altering the Purchase Price for any Offering Period or Purchase Period including an Offering Period or Purchase Period underway at the time of the change in Purchase Price;
(iii)    shortening any Offering Period or Purchase Period by setting a New Exercise Date, including an Offering Period or Purchase Period underway at the time of the Administrator action;
(iv)    reducing the maximum percentage of Compensation a Participant may elect to set aside as Contributions; and
(v)    reducing the maximum number of Shares a Participant may purchase during any Offering Period or Purchase Period.
Such modifications or amendments will not require stockholder approval or the consent of any Plan Participants.
20.    Notices. All notices or other communications by a Participant to the Company under or in connection with the Plan will be deemed to have been duly given when received in the form and manner specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
21.    Conditions Upon Issuance of Shares. Shares of Common Stock will not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto will comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and will be further subject to the approval of counsel for the Company with respect to such compliance.

14


As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.
22.    Code Section 409A. The 423 Component of the Plan is exempt from the application of Code Section 409A and any ambiguities herein will be interpreted to so be exempt from Code Section 409A. In furtherance of the foregoing and notwithstanding any provision in the Plan to the contrary, if the Administrator determines that an option granted under the Plan may be subject to Code Section 409A or that any provision in the Plan would cause an option under the Plan to be subject to Code Section 409A, the Administrator may amend the terms of the Plan and/or of an outstanding option granted under the Plan, or take such other action the Administrator determines is necessary or appropriate, in each case, without the Participant’s consent, to exempt any outstanding option or future option that may be granted under the Plan from or to allow any such options to comply with Code Section 409A, but only to the extent any such amendments or action by the Administrator would not violate Code Section 409A. Notwithstanding the foregoing, the Company shall have no liability to a Participant or any other party if the option to purchase Common Stock under the Plan that is intended to be exempt from or compliant with Code Section 409A is not so exempt or compliant or for any action taken by the Administrator with respect thereto. The Company makes no representation that the option to purchase Common Stock under the Plan is compliant with Code Section 409A.
23.    Term of Plan. The Plan will become effective upon the earlier to occur of its adoption by the Board or its approval by the stockholders of the Company. It will continue in effect for a term of twenty (20) years, unless sooner terminated under Section 19.
24.    Stockholder Approval. The Plan will be subject to approval by the stockholders of the Company within twelve (12) months after the date the Plan is adopted by the Board. Such stockholder approval will be obtained in the manner and to the degree required under Applicable Laws.
25.    Governing Law. The Plan shall be governed by, and construed in accordance with, the laws of the State of New York (except its choice-of-law provisions).
26.    No Right to Employment. Participation in the Plan by a Participant shall not be construed as giving a Participant the right to be retained as an employee of the Company or a Subsidiary or Affiliate, as applicable. Furthermore, the Company or a Subsidiary or Affiliate may dismiss a Participant from employment at any time, free from any liability or any claim under the Plan.
27.    Severability. If any provision of the Plan is or becomes or is deemed to be invalid, illegal, or unenforceable for any reason in any jurisdiction or as to any Participant, such invalidity, illegality or unenforceability shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as to such jurisdiction or Participant as if the invalid, illegal or unenforceable provision had not been included.
28.    Compliance with Applicable Laws. The terms of this Plan are intended to comply with all Applicable Laws and will be construed accordingly.

15


EXHIBIT A

ON DECK CAPITAL, INC.
2014 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application                Offering Date:                 
_____ Change in Payroll Deduction Rate
1.____________________ hereby elects to participate in the On Deck Capital, Inc. 2014 Employee Stock Purchase Plan (the “Plan”) and subscribes to purchase shares of the Company’s Common Stock in accordance with this Subscription Agreement and the Plan.
2.    I hereby authorize payroll deductions from each paycheck in the amount of ____% of my Compensation on each payday (from 0 to 15%) during the Offering Period in accordance with the Plan. (Please note that no fractional percentages are permitted.)
3.    I understand that said payroll deductions will be accumulated for the purchase of shares of Common Stock at the applicable Purchase Price determined in accordance with the Plan. I understand that if I do not withdraw from an Offering Period, any accumulated payroll deductions will be used to automatically exercise my option and purchase Common Stock under the Plan.
4.    I have received a copy of the complete Plan and its accompanying prospectus. I understand that my participation in the Plan is in all respects subject to the terms of the Plan.
5.    Shares of Common Stock purchased for me under the Plan should be issued in the name(s) of _____________ (Eligible Employee or Eligible Employee and Spouse only).
6.    I understand that if I dispose of any shares received by me pursuant to the Plan within two (2) years after the Offering Date (the first day of the Offering Period during which I purchased such shares) or one (1) year after the Exercise Date, I will be treated for federal income tax purposes as having received ordinary income at the time of such disposition in an amount equal to the excess of the fair market value of the shares at the time such shares were purchased by me over the price that I paid for the shares. I hereby agree to notify the Company in writing within thirty (30) days after the date of any disposition of my shares and I will make adequate provision for Federal, state or other tax withholding obligations, if any, which arise upon the disposition of the Common Stock. The Company may, but will not be obligated to, withhold from my compensation the amount necessary to meet any applicable withholding obligation including any withholding necessary to make available to the Company any tax deductions or benefits attributable to sale or early disposition of Common Stock by me. If I dispose of such shares at any time after the expiration of the two (2)-year and one (1)-year holding periods, I understand that I will be treated for federal income tax purposes as having received income only at the time of such disposition, and that such income will be taxed as ordinary income only to the extent of an amount equal to the lesser of (a) the excess of the fair market value of the shares

16


at the time of such disposition over the purchase price which I paid for the shares, or (b) 15% of the fair market value of the shares on the first day of the Offering Period. The remainder of the gain, if any, recognized on such disposition will be taxed as capital gain.
7.    I hereby agree to be bound by the terms of the Plan. The effectiveness of this Subscription Agreement is dependent upon my eligibility to participate in the Plan.

Employee’s Social
Security Number:                                        
Employee’s Address:                                        
                                                
                                                
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT WILL REMAIN IN EFFECT THROUGHOUT SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:                 
Signature of Employee


17


EXHIBIT B
ON DECK CAPITAL, INC.
2014 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the On Deck Capital, Inc. 2014 Employee Stock Purchase Plan that began on ____________, ______ (the “Enrollment Date”) hereby notifies the Company that he or she hereby withdraws from the Offering Period. He or she hereby directs the Company to pay to the undersigned as promptly as practicable all the payroll deductions credited to his or her account with respect to such Offering Period. The undersigned understands and agrees that his or her option for such Offering Period will be automatically terminated. The undersigned understands further that no further payroll deductions will be made for the purchase of shares in the current Offering Period and the undersigned will be eligible to participate in succeeding Offering Periods only by delivering to the Company a new Subscription Agreement.

Name and Address of Participant:
        
        
        
Signature:
        
Date:     


18

Exhibit


Exhibit 10.6
ON DECK CAPITAL, INC.
OUTSIDE DIRECTOR COMPENSATION POLICY
(Adopted October 29, 2014, as amended through February 8, 2019)
On Deck Capital, Inc. (the “Company”) believes that the granting of equity and cash compensation to its members of the Board of Directors (the “Board,” and members of the Board, the “Directors”) represents an effective tool to attract, retain and reward Directors who are not employees of the Company (the “Outside Directors”). This Outside Director Compensation Policy (this “Policy”) is intended to formalize the Company’s policy regarding cash compensation and grants of equity to its Outside Directors. Unless otherwise defined herein, capitalized terms used in this Policy will have the meaning given such term in the Company’s 2014 Equity Incentive Plan (the “Plan”). Each Outside Director will be solely responsible for any tax obligations incurred by such Outside Director as a result of the equity and cash payments such Outside Director receives under this Policy.
This Policy was initially effective as of December 16, 2014, the effective date of the registration statement in connection with the initial public offering of the Company’s common stock securities (the “Effective Date”).
1.
CASH RETAINERS
No Outside Director will receive per meeting attendance for attending Board or meetings of committees of the Board. Outside directors will receive the following annual cash retainers as applicable. All such annual cash retainers will be paid quarterly in arrears on a prorated basis.
Annual Cash Retainer
Each Outside Director will be paid an annual cash retainer of $40,000.
Committee Chair and Committee Member Annual Cash Retainer
Each Outside Director who serves as chairperson of a committee of the Board or as a member of a committee of the Board will be paid additional annual fees as follows:
Chairperson of Audit Committee:
$18,750
Chairperson of Compensation Committee:
$15,000
Chairperson of Risk Management Committee:
$15,000
Chairperson of Corporate Governance and Nominating Committee:
$10,000
Member of Audit Committee:
$10,000
Member of Compensation Committee:
$7,500
Member of Risk Management Committee:
$7,500
Member of Corporate Governance and Nominating Committee:
$5,000







Lead Director Retainer
The Company’s Lead Director will be paid an annual cash retainer of $15,000.
2.
EQUITY COMPENSATION
Outside Directors will be entitled to receive all types of Awards (except Incentive Stock Options) under the Plan (or the applicable equity plan in place at the time of grant), including discretionary Awards not covered under this Policy. All grants of Awards to Outside Directors pursuant to Section 2 of this Policy will be automatic and nondiscretionary, except as otherwise provided herein, and will be made in accordance with the following provisions:
(a)No Discretion. No person will have any discretion to select which Outside Directors will be granted any Awards under this Policy or to determine the number of shares of Company common stock (“Shares”) to be covered by such Awards.
(b)Annual Awards. Subject to Section 11 of the Plan, on the date of each annual meeting of the Company’s stockholders (the “Annual Meeting”), each Outside Director automatically will be granted an Award of restricted stock units with a grant date fair value (determined in accordance with U.S. generally accepted accounting principles) of $150,000 (an “Annual Award”). Each Annual Award will fully vest upon the earlier of: (i) the 12-month anniversary of the grant date; or (ii) the next Annual Meeting, in each case, provided that the Outside Director continues to serve as a Service Provider through the applicable vesting date.
(c)Appointment Award. Subject to Section 11 of the Plan, upon an Outside Director’s first appointment to the Board, such Outside Director automatically will be granted a pro-rata portion of the Annual Award for the year in which the new director is first appointed based on the Outside Director’s days of service during the 12-month vesting period associated with the most recent Annual Award.
(d)Change in Control. In the event of a Change in Control, each Outside Director will fully vest in his or her Awards.
3.
TRAVEL EXPENSES
Each Outside Director’s reasonable, customary and documented travel expenses to Board meetings will be reimbursed by the Company.
4.
ADDITIONAL PROVISIONS
All provisions of the Plan not inconsistent with this Policy will apply to Awards granted to Outside Directors.
5.
REVISIONS
The Board in its discretion may change and otherwise revise the terms of Awards granted under this Policy, including, without limitation, the number of Shares subject thereto, for Awards of the same or different type granted on or after the date the Board determines to make any such change or revision.


2


Exhibit



Exhibit 10.17






FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
dated as of December 17, 2018
among
RECEIVABLE ASSETS OF ONDECK, LLC,
as Borrower

VARIOUS LENDERS,
and
Suntrust Bank,
as Administrative Agent
and
WELLS FARGO BANK, N.A.,
as Paying Agent and Collateral Agent
________________________________________________________
$119,736,850 Credit Facility
________________________________________________________







Table of Contents






 
 
Page
Section 1.
DEFINITIONS AND INTERPRETATION
1
1.1

Definitions..............................................................................................
1
1.2

Accounting Terms.................................................................................
38
1.3

Interpretation, etc.................................................................................
39
1.4

Amendment and Restatement.............................................................
39
Section 2.
LOANS
39
2.1

Revolving Loans...................................................................................
39
2.2

Pro Rata Shares....................................................................................
42
2.3

Use of Proceeds.....................................................................................
42
2.4

Evidence of Debt; Register; Lenders' Books and Records; Notes...
42
2.5

Interest on Loans..................................................................................
44
2.6

Reserved.................................................................................................
44
2.7

Fees.........................................................................................................
44
2.8

Repayment on or Before Applicable Maturity Date.........................
45
2.9

Voluntary Commitment Reductions...................................................
45
2.10

Borrowing Base Deficiency..................................................................
46
2.11

Controlled Accounts.............................................................................
46
2.12

Application of Proceeds.......................................................................
50
2.13

General Provisions Regarding Payments...........................................
53
2.14

Ratable Sharing....................................................................................
53
2.15

Increased Costs; Capital Adequacy....................................................
54
2.16

Taxes; Withholding, etc........................................................................
56
2.17

Obligation to Mitigate..........................................................................
58
2.18

Defaulting Lenders...............................................................................
59
2.19

Removal or Replacement of a Lender................................................
60
2.20

The Paying Agent.................................................................................
60
2.21

Duties of Paying Agent.........................................................................
65
2.22

Collateral Agent....................................................................................
68
2.23

Intention of Parties...............................................................................
69
Section 3.
CONDITIONS PRECEDENT
69
3.1

Conditions Precedent to Effectiveness of the Existing Credit
69
 
Agreement.............................................................................................
 
3.2

Conditions Precedent to Effectiveness of the Amended and
69
 
Restated Credit Agreement.................................................................
 
3.3

Conditions to Each Credit Extension.................................................
70
Section 4.
REPRESENTATIONS AND WARRANTIES
72
4.1

Organization; Requisite Power and Authority; Qualification;
72
 
Other Names.........................................................................................
 
4.2

Capital Stock and Ownership.............................................................
72
4.3

Due Authorization................................................................................
72
4.4

No Conflict............................................................................................
72
4.5

Governmental Consents......................................................................
73
4.6

Binding Obligation.............................................................................
73
4.7

Eligible Receivables.............................................................................
73
4.8

Historical Financial Statements..........................................................
73





4.9

No Material Adverse Effect.................................................................
73
4.10

Adverse Proceedings, etc.....................................................................
73
4.11

Payment of Taxes..................................................................................
74
4.12

Title to Assets........................................................................................
74
4.13

No Indebtedness....................................................................................
74
4.14

No Defaults............................................................................................
74
4.15

Material Contracts...............................................................................
74
4.16

Government Contracts........................................................................
74
4.17

Governmental Regulation....................................................................
74
4.18

Margin Stock........................................................................................
74
4.19

Employee Benefit Plans.......................................................................
75
4.20

Solvency; Fraudulent Conveyance.....................................................
75
4.21

Compliance with Statutes, etc.............................................................
75
4.22

Matters Pertaining to Related Agreements........................................
75
4.23

Disclosure..............................................................................................
75
4.24

Patriot Act.............................................................................................
76
4.25

Remittance of Collections....................................................................
76
4.26

Tax Status..............................................................................................
76
4.27

Beneficial Ownership...........................................................................
76
SECTION 5.
AFFIRMATIVE COVENANTS.........................................................
76
5.1

Financial Statements and Other Reports...........................................
77
5.2

Existence................................................................................................
79
5.3

Payment of Taxes and Claims.............................................................
80
5.4

Insurance...............................................................................................
80
5.5

Inspections; Compliance Audits..........................................................
80
5.6

Compliance with Laws.........................................................................
81
5.7

Separateness..........................................................................................
81
5.8

Further Assurances..............................................................................
81
5.9

Communication with Accountants......................................................
81
5.10

Acquisition of Receivables from Holdings.........................................
82
5.11

Class B Revolving Lenders Information Rights................................
82
5.12

Level 2 Performance Covenant...........................................................
82
SECTION 6.
NEGATIVE COVENANTS.................................................................
82
6.1

Indebtedness.........................................................................................
82
6.2

Liens......................................................................................................
83
6.3

Reserved................................................................................................
83
6.4

No Further Negative Pledges..............................................................
83
6.5

Restricted Junior Payments................................................................
83
6.6

Subsidiaries...........................................................................................
83
6.7

Investments...........................................................................................
83
6.8

Fundamental Changes; Disposition of Assets; Acquisitions.............
83
6.9

Sales and Lease-Backs.........................................................................
84
6.10

Transactions with Shareholders and Affiliates..................................
84
6.11

Conduct of Business.............................................................................
84
6.12

Fiscal Year.............................................................................................
84
6.13

Servicer; Backup Servicer; Custodian..............................................
84





6.14

Acquisitions of Receivables.................................................................
84
6.15

Independent Manager..........................................................................
84
6.16

Organizational Agreements.................................................................
86
6.17

Changes in Underwriting or Other Policies.......................................
86
6.18

Receivable Program Agreements........................................................
87
SECTION 7.
EVENTS OF DEFAULT......................................................................
87
7.1

Events of Default..................................................................................
87
SECTION 8
AGENTS...............................................................................................
91
8.1

Appointment of Agents........................................................................
91
8.2

Powers and Duties................................................................................
91
8.3

General Immunity................................................................................
92
8.4

Agents Entitled to Act as Lender........................................................
93
8.5

Lenders' Representations, Warranties and Acknowledgment.........
93
8.6

Right to Indemnity...............................................................................
93
8.7

Successor Administrative Agent and Collateral Agent.....................
94
8.8

Collateral Documents...........................................................................
96
SECTION 9.
MISCELLANEOUS.............................................................................
97
9.1

Notices...................................................................................................
97
9.2

Expenses................................................................................................
97
9.3

Indemnity..............................................................................................
98
9.4

Reserved................................................................................................
99
9.5

Amendments and Waivers...................................................................
99
9.6

Successors and Assigns; Participations..............................................
101
9.7

Independence of Covenants.................................................................
104
9.8

Survival of Representations, Warranties and Agreements...............
105
9.9

No Waiver; Remedies Cumulative......................................................
105
9.10

Marshalling; Payments Set Aside.......................................................
105
9.11

Severability............................................................................................
105
9.12

Obligations Several; Actions in Concert............................................
105
9.13

Headings................................................................................................
106
9.14

APPLICABLE LAW............................................................................
106
9.15

CONSENT TO JURISDICTION........................................................
106
9.16

WAIVER OF JURY TRIAL................................................................
107
9.17

Confidentiality......................................................................................
107
9.18

Usury Savings Clause...........................................................................
108
9.19

Counterparts.........................................................................................
109
9.20

Effectiveness..........................................................................................
109
9.21

Patriot Act.............................................................................................
109















APPENDICES:
A
Revolving Commitments
 
B
Notice Addresses
 
C
Eligibility Criteria
 
D
Excess Concentration Amounts
 
E
Early Amortization Event
 
F
Level 2 Performance Covenants
 
G
SPV Event
 
 
 
SCHEDULES:
1.1(a)
Financial Covenants
 
1.1(b)
Class B Revolving Lenders
 
 
 
EXHIBITS:
A-1
Form of Funding Notice
 
B-1
Form of Class A Revolving Loan Note
 
B-2
Form of Class B Revolving Loan Note
 
C-1
Form of Compliance Certificate
 
C-2
Form of Borrowing Base Report and Certificate
 
D
Form of Assignment Agreement
 
E
Form of Certificate Regarding Non-Bank Status
 
F-1
Form of Fourth Amendment Effective Date Certificate
 
F-2
Form of Solvency Certificate
 
G
Form of Controlled Account Voluntary Payment Notice
 
H
Form of Receivables Purchase Agreement






























FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
This FOURTH AMENDED AND RESTATED CREDIT AGREEMENT, dated as of December 17, 2018, is entered into by and among Receivable Assets of ONDECK, LLC, a Delaware limited liability company (“Company”), the Lenders party hereto from time to time and SUNTRUST BANK, as Administrative Agent for the Lenders (in such capacity, “Administrative Agent”), WELLS FARGO BANK, N.A., as Paying Agent (in such capacity, “Paying Agent”) and as Collateral Agent for the Secured Parties (in such capacity, “Collateral Agent”).
RECITALS:
WHEREAS, capitalized terms used in these Recitals shall have the respective meanings set forth for such terms in Section 1.1 hereof;
WHEREAS, Company, the Lenders party hereto, the Administrative Agent, the Collateral Agent and the Paying Agent are parties to that certain Third Amended and Restated Credit Agreement dated as of December 15, 2017 (as amended, modified or supplemented from time to time, the “Existing Credit Agreement”); and
WHEREAS, in order to continue the existing indebtedness of the Company, the Company has requested that the Existing Credit Agreement be amended and restated in its entirety (the “Amendment and Restatement”), and the Class A Lenders and the Class B Lenders party hereto are willing to do so on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1.     DEFINITIONS AND INTERPRETATION

1.1    Definitions. The following terms used herein, including in the preamble, recitals, exhibits and schedules hereto, shall have the following meanings:

2d Anniversary Date” means the date that is the second anniversary of the Fourth Amendment Effective Date (as such date may be extended upon the mutual written agreement of Company and Administrative Agent).
2018 Consolidated Net Income means the Consolidated Net Income of Holdings and its Subsidiaries for the Fiscal Year ending December 31, 2018.
2019 Consolidated Net Income” means the Consolidated Net Income of Holdings and its Subsidiaries for the Fiscal Year ending December 31, 2019.
2020 Consolidated Net Income” means the Consolidated Net Income of Holdings and its Subsidiaries for the Fiscal Year ending December 31, 2020.
30 MPF Receivable” means any Pledged Receivable with a Missed Payment Factor, in the case of a Daily Pay Receivable, higher than 30 or, in the case of a Weekly Pay Receivable, higher than 6.
Accrued Interest Amount” means, as of any day, the aggregate amount of all accrued and unpaid interest on the Revolving Loans payable hereunder.





ACH Agreement” has the meaning set forth in the Servicing Agreement.
ACH Receivable” means each Receivable with respect to which the underlying Receivables Obligor has entered into an ACH Agreement.
Act” as defined in Section 4.25.
Adjusted EPOB” means, as of any date of determination, the excess of (a) the Eligible Portfolio Outstanding Principal Balance as of such date over (b) the aggregate Excess Concentration Amounts as of such date.
Adjusted Interest Collections” means, with respect to all Receivables and any Monthly Period, an amount equal to the excess (whether positive or negative) of (a) the sum of (x) all Collections received during such Monthly Period that were not applied by the Servicer to reduce the Outstanding Principal Balances of the Pledged Receivables in accordance with Section 2(a)(i) of the Servicing Agreement and (y) all Collections received during such Monthly Period that were recoveries with respect to Charged-Off Receivables (net of amounts, if any, retained by any third party collection agent), over (b) the aggregate amount paid by Company on the related Interest Payment Date pursuant to clauses (a)(i), (a)(ii), (a)(iii), (a)(v) and (a)(viii) of Section 2.12.
Administrative Agent” as defined in the preamble hereto.
Adverse Effect” means, with respect to any action, that such action will (a) result in the occurrence of an Event of Default or (b) materially and adversely affect (i) the amount or timing of payments to be made to the Lenders pursuant to this Agreement or (ii) the existence, perfection, priority or enforceability of any security interest in a material amount of the Pledged Receivables taken as a whole or in any material part.
Adverse Proceeding” means any non-frivolous action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of Company or Holdings) at law or in equity, or before or by any Governmental Authority, domestic or foreign, whether pending or, to the knowledge of Company or Holdings, threatened in writing against Company or Holdings, or any of their respective property (it being acknowledged that any action, suit, proceeding, governmental investigation or arbitration by a Governmental Authority against Company and/or Holdings, as applicable, will not be considered frivolous for purposes of this definition).
Affected Party” means any Lender, SunTrust Bank, in its individual capacity and in its capacity as Administrative Agent, Paying Agent and, with respect to each of the foregoing, the parent company or holding company that controls such Person.
Affiliate” means, with respect to any specified Person, another Person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Person specified. For purposes of this definition, “control” means the power to direct the management and policies of a Person, directly or indirectly, whether through ownership of voting securities, by contract or otherwise; and “controlled” and “controlling” have meanings correlative to the foregoing.
Agent” means each of the Administrative Agent, the Paying Agent and the Collateral Agent.
Aggregate Amounts Due” as defined in Section 2.14.





Agreement” means this Fourth Amended and Restated Credit Agreement, dated as of December 17, 2018, as it may be amended, supplemented or otherwise modified from time to time.
Amendment and Restatement” as defined in the Recitals hereto.
Applicable Class A Advance Rate” means 76%; provided, however, that, notwithstanding the foregoing, upon the occurrence of an SPV Event, the Applicable Class A Advance Rate shall be 66% until either (x) Company shall elect for such SPV Event to be treated as an Early Amortization Event as described in Appendix G, or (y) such SPV Event is cured.
Applicable Class B Advance Rate” means 91%; provided, however, that, notwithstanding the foregoing, upon the occurrence of an SPV Event, the Applicable Class B Advance Rate shall be 81% until either (x) Company shall elect for such SPV Event to be treated as an Early Amortization Event as described in Appendix G, or (y) such SPV Event is cured.
Approved Fund” means any Person that, in the ordinary course of its business, is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit that generally have an original par amount in excess of $10,000,000 and that is administered or managed by an entity that is not included in the list of entities set forth in clause (b) of the definition of Direct Competitor or any Affiliate thereof.
Approved State” shall mean each of the 50 United States of America and the District of Columbia.
Asset Purchase Agreement” means that certain Amended and Restated Asset Purchase Agreement dated as of the Second Amendment Effective Date, by and between Company, as Purchaser, and the Seller, as amended, modified or supplemented from time to time, whereby the Seller has agreed to sell and Company has agreed to purchase Eligible Receivables from time to time.
“Asset Sale” means a sale, lease or sub lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer, license or other disposition to, or any exchange of property with, any Person, in one transaction or a series of transactions, of all or any part of Holdings’ businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired.
Assignment Agreement” means an Assignment and Assumption Agreement substantially in the form of Exhibit D, with such amendments or modifications as may be approved by Administrative Agent.
Authorized Officer” means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president, chief financial officer, general counsel, treasurer, corporate secretary or controller (or, in each case, the equivalent thereof).
Backup Servicer” means Portfolio Financial Servicing Company or any replacement thereof appointed pursuant to the Backup Servicing Agreement.
Backup Servicing Agreement” means that certain Backup Servicing Agreement dated as of the Original Closing Date, among the Company, the Administrative Agent and Backup Servicer, as amended by that certain Amendment No. 1 to Backup Servicing Agreement, dated the First Amendment Effective Date and by that certain Amendment No. 2 to Backup Servicing Agreement, as of the Second Amendment Effective Date, and as it may be amended, modified or supplemented from time to time.





Backup Servicing Fee” shall have the meaning attributed to such term in the Backup Servicing Agreement.
Bankruptcy Code” means Title 11 of the United States Code entitled “Bankruptcy,” as now and hereafter in effect, or any successor statute.
Base Rate” means, for any day, a rate per annum (rounded upward, if necessary, to the next 1/100th of 1%) equal to the greatest of (a) the Prime Rate in effect on such day (or if such day is not a Business Day, the immediately preceding Business Day), (b) the Federal Funds Effective Rate in effect on such day (or if such day is not a Business Day, the immediately preceding Business Day) plus 0.50%, and (c) the LIBO Rate for such day plus 1.00%.
Beneficial Ownership Certification means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.
Beneficial Ownership Regulation means 31 C.F.R. § 1010.230.
Blocked Account Control Agreement” shall have the meaning attributed to such term in the Security Agreement.
Borrower Distribution” as defined in Section 6.5.
Borrowing Base Certificate” means a certificate substantially in the form of Exhibit C-2, executed by an Authorized Officer of Company and delivered to Administrative Agent, Paying Agent, Collateral Agent and each Lender, which sets forth the calculation of the Class A Borrowing Base and the Class B Borrowing Base, including a calculation of each component thereof.
Borrowing Base Deficiency” means either a Class A Borrowing Base Deficiency or a Class B Borrowing Base Deficiency, as applicable.
Borrowing Base Report” means a report substantially in the form of Exhibit C-2, executed by an Authorized Officer of Company and delivered to Administrative Agent, Paying Agent, Collateral Agent and each Lender, which attaches a Borrowing Base Certificate.
Business Day” means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in New York are authorized or required by law or other governmental action to close.
Capital Lease” means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person (i) as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person or (ii) as lessee which is a transaction of a type commonly known as a “synthetic lease” (i.e., a transaction that is treated as an operating lease for accounting purposes but with respect to which payments of rent are intended to be treated as payments of principal and interest on a loan for Federal income tax purposes).
Capital Stock” means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.





Cash” means money, currency or a credit balance in any demand, securities account or deposit account; provided, however, that notwithstanding anything to the contrary contained herein, “Cash” shall exclude any amounts that would not be considered “cash” under GAAP or “cash” as recorded on the books of Holdings and its Subsidiaries.
Cash Equivalents” means, as of any day, (a) marketable securities (i) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (ii) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such day; (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such day and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s; (c) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody’s; (d) certificates of deposit or bankers’ acceptances maturing within one year after such day and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States or any state thereof or the District of Columbia that (i) is at least “adequately capitalized” (as defined in the regulations of its primary Federal banking regulator) and (ii) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; (e) shares of any money market mutual fund that (i) has substantially all of its assets invested continuously in the types of investments referred to in clauses (a) and (b) above, (ii) has net assets of not less than $500,000,000 and (iii) has the highest rating obtainable from either S&P or Moody’s; (f) instruments owned by Holdings or any Subsidiary of Holdings that is not organized or formed in the United States or a state or territory thereof, that in either case are (i) comparable in credit quality and tenor to those referred to in clauses (a) through (e) above, (ii) customarily used by corporations for normal cash management purposes in a jurisdiction outside of the United States, and (iii) reasonably required in connection with any business conducted by Holdings or any such Subsidiary in such jurisdiction; and (g) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (d) of this definition, having a term of not more than 30 days, with respect to securities issued or fully guaranteed or insured by the United States government.
Certificate Regarding Non-Bank Status” means a certificate substantially in the form of Exhibit E.
Change of Control” means, at any time: (a) any “person” or “group” of related persons (as such terms are given meaning in the Exchange Act and the rules of the SEC thereunder) is or becomes the owner, beneficially or of record, directly or indirectly, of more than 35% (on a fully diluted basis) of the economic and voting interests (including the right to elect directors or similar representatives) in the Capital Stock of Holdings; (b) the sale, lease, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of Holdings and its Subsidiaries taken as a whole to any “person” (as such term is given meaning in the Exchange Act and the rules of the SEC thereunder); (c) at any time during any consecutive two-year period after the Original Closing Date, individuals who at the beginning of such period constituted the board of directors of Holdings (together with any new directors whose election or appointment by the board of directors of Holdings or whose nomination for election by the shareholders of Holdings was approved by a vote of a majority of the directors of Holdings then still in office who were either directors at the beginning of such period or whose election, appointment or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors of Holdings then in office; or (d) Holdings shall cease to beneficially own and control 100% on a fully diluted basis of the economic and voting interest in the Capital Stock of Company free and clear of any Lien (other than any Lien as to which the holder thereof (such holder, an “Equity Lienholder”) has provided the Administrative Agent, for the benefit of the Lenders, a Protective Undertakings Certification).





Charged-Off Receivable” means a Receivable which, in each case, consistent with the Underwriting Policies, has or should have been written off Company’s books as uncollectable.
Chattel Paper” means any “chattel paper”, as such term is defined in the UCC, including electronic chattel paper, now owned or hereafter acquired by the Company.
Class” means a class of Revolving Loans hereunder, designated Class A Revolving Loans or Class B Revolving Loans.
Class A Applicable Margin” means with respect to each Class A Revolving Lender, the “Class A Applicable Margin” described in the Fee Letter between Company and such Class A Revolving Lender.
Class A Borrowing Base” means, as of any day, an amount equal to the lesser of:
(a)(i) the Applicable Class A Advance Rate multiplied by the Adjusted EPOB at such time, plus (ii) the sum of (A) the aggregate amount of Collections in the Lockbox Account and the Collection Account to the extent such Collections and other funds have already been applied to reduce the Eligible Portfolio Outstanding Principal Balance and (B) the fair market value of all Permitted Investments held in the Collection Account on such day minus (iii) 105% of the sum of the Accrued Interest Amount as of such day and the aggregate amount of all accrued and unpaid fees and expenses due hereunder and under the Servicing Agreement, the Backup Servicing Agreement, the Custodial Agreement and the Successor Servicing Agreement; and

(b)the Class A Revolving Commitments on such day.

With respect to any calculation of the Class A Borrowing Base with respect to any Credit Date solely for the purpose of determining Class A Revolving Availability for a requested Class A Revolving Loan, the Class A Borrowing Base will be calculated on a pro forma basis giving effect to the Eligible Receivables to be purchased with the proceeds of such Class A Revolving Loan. With respect to any calculation of the Class A Borrowing Base for any other purpose, the Class A Borrowing Base at any time shall be determined by reference to the most recent Borrowing Base Certificate delivered to the Collateral Agent and the Administrative Agent, Paying Agent and each Lender with such adjustments as the Paying Agent identifies pursuant to Section 2.21.
Class A Borrowing Base Deficiency” means, as of any day, the amount, if any, by which the Total Utilization of Class A Revolving Commitments exceeds the Class A Borrowing Base, provided that, if solely as a result of the occurrence of an SPV Event and a consequent reduction in the Applicable Class A Advance Rate in accordance with the proviso in the definition thereof, a deficiency occurs hereunder that would otherwise be deemed a “Class A Borrowing Base Deficiency” or a “Borrowing Base Deficiency”, then notwithstanding the foregoing, no Class A Borrowing Base Deficiency or “Borrowing Base Deficiency”, Default or Event of Default shall be deemed to exist hereunder unless such deficiency is not cured by the thirtieth (30th) day after the occurrence of such SPV Event.
Class A Borrowing Base Deficiency - Regular” means a Class A Borrowing Base Deficiency that exists when calculating the Class A Borrowing Base using 76% as the Applicable Class A Advance Rate in accordance with the definition thereof.





Class A Borrowing Base Deficiency- SPV Event” a Class A Borrowing Base Deficiency that exists when calculating the Class A Borrowing Base using 66% as the Applicable Class A Advance Rate in accordance with the definition thereof.
Class A Indemnitee” means an Indemnitee who is a Class A Revolving Lender, an Affiliate of a Class A Revolving Lender or an officer, partner, director, trustee, employee or agent of a Class A Revolving Lender.
“Class A Maturity Date” means the earliest of (i)  the date that is nine (9) months after the Early Amortization Start Date, (ii) the date that is nine (9) months after the 2d Anniversary Date, (iii) the Interest Payment Date immediately following the first Determination Date after the earlier of the Early Amortization Start Date and the 2d Anniversary Date when the aggregate Outstanding Principal Balance of all Pledged Receivables is equal to or less than an amount equal to the product of (A) 0.15, and (B) the aggregate Outstanding Principal Balance of all Pledged Receivables as of the 2d Anniversary Date or the Early Amortization Start Date, as applicable, and (iv) the date of the termination of the Commitments and acceleration of the Revolving Loans pursuant to Section 7.1.
Class A Register” as defined in Section 2.4(b)(i).
Class A Revolving Availability” means, as of any date of determination, the amount, if any, by which the Class A Borrowing Base exceeds the Total Utilization of Class A Revolving Commitments.
Class A Revolving Commitment” means the commitment of a Class A Revolving Lender to make or otherwise fund any Class A Revolving Loan and “Class A Revolving Commitments” means such commitments of all Class A Revolving Lenders in the aggregate. The amount of each Class A Revolving Lender’s Class A Revolving Commitment, if any, is set forth on Appendix A or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The Administrative Agent shall update Appendix A from time to time to reflect any changes in Class A Revolving Commitments. The aggregate amount of the Class A Revolving Commitments as of the Fourth Amendment Effective Date is $100,000,000.
Class A Revolving Exposure” means, with respect to any Class A Revolving Lender as of any date of determination, (i) prior to the termination of the Class A Revolving Commitments, that Lender’s Class A Revolving Commitment; and (ii) after the termination of the Class A Revolving Commitments, the aggregate outstanding principal amount of the Class A Revolving Loans of that Lender.
Class A Revolving Lender” means each financial institution listed on the signature pages hereto as a Class A Revolving Lender, and any other Person that becomes a party hereto as a Class A Revolving Lender pursuant to an Assignment Agreement.
Class A Revolving Loan” means a loan made by a Class A Revolving Lender to Company pursuant to Section 2.1.
Class A Revolving Loan Note” means a promissory note in the form of Exhibit B-1 hereto, as it may be amended, supplemented or otherwise modified from time to time.
Class B Applicable Margin” means with respect to each Class B Revolving Lender the “Class B Applicable Margin” described in any Fee Letter between Company and such Class B Revolving Lender.
Class B Borrowing Base” means, as of any day, an amount equal to the lesser of:





(a)(i) the sum of the Applicable Class B Advance Rate multiplied by the Adjusted EPOB at such time, plus (ii) the sum of (A) the aggregate amount of Collections in the Lockbox Account and the Collection Account to the extent such Collections and other funds have already been applied to reduce the Eligible Portfolio Outstanding Principal Balance and (B) the fair market value of all Permitted Investments held in the Collection Account on such day, minus (iii) 105% of the sum of the Accrued Interest Amount as of such day and the aggregate amount of all accrued and unpaid fees and expenses due hereunder and under the Servicing Agreement, the Backup Servicing Agreement, the Custodial Agreement and the Successor Servicing Agreement, minus (iv) the aggregate outstanding principal amount of the Class A Revolving Loans as of such date; and

(b)the Class B Revolving Commitments on such day.

With respect to any calculation of the Class B Borrowing Base with respect to any Credit Date solely for the purpose of determining Class B Revolving Availability for a requested Class B Revolving Loan, the Class B Borrowing Base will be calculated on a pro forma basis giving effect to the Eligible Receivables to be purchased with the proceeds of such Loan. With respect to any calculation of the Class B Borrowing Base for any other purpose, the Class B Borrowing Base at any time shall be determined by reference to the most recent Borrowing Base Certificate delivered to the Collateral Agent, the Administrative Agent, Paying Agent and each Lender, as adjusted to reflect any adjustments identified by the Paying Agent pursuant to Section 2.21.
Class B Borrowing Base Deficiency” means, as of any day, the amount, if any, by which the Total Utilization of Class B Revolving Commitments exceeds the Class B Borrowing Base, provided that, if solely as a result of the occurrence of an SPV Event and a consequent reduction in the Applicable Class B Advance Rate in accordance with the proviso in the definition thereof, a deficiency occurs hereunder that would otherwise be deemed a “Class B Borrowing Base Deficiency” or a “Borrowing Base Deficiency”, then notwithstanding the foregoing, no Class B Borrowing Base Deficiency or “Borrowing Base Deficiency”, Default or Event of Default shall be deemed to exist hereunder unless such deficiency is not cured by the thirtieth (30th) day after the occurrence of such SPV Event.
Class B Indemnitee” means an Indemnitee who is a Class B Revolving Lender, an Affiliate of a Class B Revolving Lender or an officer, partner, director, trustee, employee or agent of a Class B Revolving Lender.
“Class B Maturity Date” means (a) so long as no Early Amortization Start Date has occurred on or prior to December 17, 2019, the earliest of (i) December 17, 2019 and (ii) the date of the termination of the Commitments and acceleration of the Revolving Loans pursuant to Section 7.1; and (b) if an Early Amortization Start Date has occurred on or prior to December 17, 2019, the earliest of (i) the date that is nine (9) months after the Early Amortization Start Date, (ii) the Interest Payment Date immediately following the first Determination Date after the Early Amortization Start Date when the aggregate Outstanding Principal Balance of all Pledged Receivables is equal to or less than an amount equal to the product of (A) 0.15, and (B) the aggregate Outstanding Principal Balance of all Pledged Receivables as of the Early Amortization Start Date, and (iii) the date of the termination of the Commitments and acceleration of the Revolving Loans pursuant to Section 7.1.
Class B Minimum Utilization Amount” means an amount equal to the percentage set forth in any Fee Letter between Company and a Class B Revolving Lender.
Class B Register” as defined in Section 2.4(b)(ii).





Class B Revolving Availability” means, as of any date of determination, the amount, if any, by which the Class B Borrowing Base exceeds the Total Utilization of Class B Revolving Commitments.
Class B Revolving Commitment” means the commitment of a Class B Revolving Lender to make or otherwise fund any Class B Revolving Loan and “Class B Revolving Commitments” means such commitments of all Class B Revolving Lenders in the aggregate. The aggregate amount of the Class B Revolving Commitments as of the Fourth Amendment Effective Date is $19,736,850. The Administrative Agent shall update Appendix A from time to time to reflect any changes in Class B Revolving Commitments. The Class B Revolving Commitment of each Class B Revolving Lender will be equal to zero on the Revolving Commitment Termination Date.
Class B Revolving Exposure” means, with respect to any Class B Revolving Lender as of any date of determination, (i) prior to the termination of the Class B Revolving Commitments, that Lender’s Class B Revolving Commitment; and (ii) after the termination of the Class B Revolving Commitments, the aggregate outstanding principal amount of the Class B Revolving Loans of that Lender.
Class B Revolving Lender” means each financial institution listed on the signature pages hereto as a Class B Revolving Lender, and any other Person that becomes a party hereto as a Class B Revolving Lender pursuant to an Assignment Agreement. Each Class B Revolving Lender, as of the Fourth Amendment Effective Date, is listed on Schedule 1.1(b) hereto.
Class B Revolving Loan” means a loan made by a Class B Revolving Lender to Company pursuant to Section 2.1.
Class B Revolving Loan Note” means a promissory note in the form of Exhibit B-2, as it may be amended, supplemented or otherwise modified from time to time.
Collateral” means, collectively, all of the real, personal and mixed property (including Capital Stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations.
Collateral Agent” as defined in the preamble hereto, and any successors or assigns thereto.
Collateral Documents” means the Security Agreement, the Control Agreements and all other instruments, documents and agreements delivered by, or on behalf or at the request of, Company or Holdings pursuant to this Agreement or any of the other Credit Documents, as the case may be, in order to grant to, or perfect in favor of, Collateral Agent, for the benefit of Secured Parties, a Lien on any real, personal or mixed property of Company as security for the Obligations or to protect or preserve the interests of Collateral Agent or the Secured Parties therein.
Collateral Receipt and Exception Report” shall mean the “Trust Receipt” as defined in the Custodial Agreement.
Collection Account” means a Securities Account with account number 84176300 at Wells Fargo Bank, N.A. in the name of Company.
Collections” means, with respect to each Pledged Receivable, any and all cash collections and other cash proceeds of such Pledged Receivable (whether in the form of cash, checks, wire transfers, electronic transfers or any other form of cash payment), including, without limitation, all prepayments, all overdue payments, all prepayment penalties and early termination penalties, all finance charges, if any, all amounts collected as interest, fees (including, without limitation, any servicing fees, any origination fees,





any loan guaranty fees and, any platform fees), or charges for late payments with respect to such Pledged Receivable, all recoveries with respect to each Charged-Off Receivable (net of amounts, if any, retained by any third party collection agent), all investment proceeds and other investment earnings (net of losses and investment expenses) on Collections as a result of the investment thereof pursuant to Section 6.7, all proceeds of any sale, transfer or other disposition of any Pledged Receivable by Company and all deposits, payments or recoveries made in respect of any Pledged Receivable to any Controlled Account, or received by Company in respect of a Pledged Receivable, and all payments representing a disposition of any Pledged Receivable.
Company” as defined in the preamble hereto.
Compliance Certificate” means a Compliance Certificate substantially in the form of Exhibit C-1.
Compliance Review” as defined in Section 5.5(b).
Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
Consolidated Liquidity” means, as of any day, an amount determined for Holdings and its Subsidiaries, on a consolidated basis, equal to the sum of (i) unrestricted Cash and Cash Equivalents of Holdings and its Subsidiaries, as of such day, (ii) amounts (if any) in the Reserve Account as of such date, (iii) the sum of the Class A Revolving Availability and the Class B Revolving Availability as of such day and (iv) the aggregate amount of all unused and available credit commitments under any credit facilities of Holdings and its Subsidiaries, as of such day; provided, that, as of such day, all of the conditions to funding such amounts under clause (iii) and (iv), as the case may be, have been fully satisfied (other than delivery of prior notice of funding and pre-funding notices, opinions and certificates that are reasonably capable of delivery as of such day) and no lender under such credit facilities shall have refused to make a loan or other advance thereunder at any time after a request for a loan was made thereunder.
Consolidated Net Income” means, for any period, the greater of (x) $0, and (y) (i) the net income (or loss) of Holdings and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP, minus (ii) the sum of (a) the income (or loss) of any Person (other than a Subsidiary of Holdings) in which any other Person (other than Holdings or any of its Subsidiaries) has a joint interest, plus (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries or that Person’s assets are acquired by Holdings or any of its Subsidiaries, plus (c) any gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, plus (d) (to the extent not included in clauses (a) through (d) above) any net extraordinary gains or net extraordinary losses.
Consolidated Total Debt” means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Holdings and its Subsidiaries determined on a consolidated basis in accordance with GAAP, including all accrued and unpaid interest on the foregoing, provided, that accounts payable, accrued expenses, liabilities for leasehold improvements and deferred revenue of Holdings and its Subsidiaries shall not be included in any determination of Consolidated Total Debt.
Contractual Obligation” means, as applied to any Person, any provision of any Security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.





Control Agreements” means collectively, the Lockbox Account Control Agreement, the Securities Account Control Agreement and the Blocked Account Control Agreement.
Controlled Account” means each of the Reserve Account, the Collection Account and the Lockbox Account, and the “Controlled Accounts” means all of such accounts.
Controlled Account Bank” means Wells Fargo Bank, N.A.
Convertible Indebtedness” means any Indebtedness of Holdings that (a) is convertible to equity, including convertible preferred stock, (b) requires no payment of principal thereof or interest thereon and (c) is fully subordinated to all indebtedness for borrowed money of Holdings, as to right and time of payment and as to any other rights and remedies thereunder, including, an agreement on the part of the holders of such Indebtedness that the maturity of such Indebtedness cannot be accelerated prior to the maturity date of such indebtedness for borrowed money.
Credit Date” means the date of a Credit Extension.
Credit Document” means any of this Agreement, the Revolving Loan Notes, if any, the Collateral Documents, the Asset Purchase Agreement, any Receivables Purchase Agreement, the Servicing Agreement, the Backup Servicing Agreement, the Custodial Agreement and all other documents, instruments or agreements executed and delivered by Company or Holdings for the benefit of any Agent or any Lender in connection herewith.
Credit Extension” means the making of a Revolving Loan.
Custodial Agreement” mean the Custodial Services Agreement, dated as of the Original Closing Date, by and between the Company, Servicer, Custodian, Collateral Agent and Administrative Agent, as it may be amended, supplemented or otherwise modified from time to time.
Custodian” means Wells Fargo Bank, N.A., in its capacity as the provider of services under the Custodial Agreement, or any successor thereto in such capacity appointed in accordance with the Custodial Agreement.
Daily Pay Receivable” means any Receivable for which a Payment is generally due on every Business Day.
Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
Default” means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.
Default Excess” means, with respect to any Defaulting Lender, the excess, if any, of such Defaulting Lender’s Pro Rata Share of the aggregate outstanding principal amount of Revolving Loans of all Lenders (calculated as if all Defaulting Lenders (other than such Defaulting Lender) had funded all of their respective Defaulted Loans) over the aggregate outstanding principal amount of all Revolving Loans of such Defaulting Lender.





Default Period” means, with respect to any Defaulting Lender, the period commencing on the date of the applicable Funding Default, and ending on the earliest of the following dates: (i) the date on which all Revolving Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable, (ii) the date on which (a) the Default Excess with respect to such Defaulting Lender shall have been reduced to zero (whether by the funding by such Defaulting Lender of any Defaulted Loans of such Defaulting Lender or by the non-pro rata application of any payments of the Revolving Loans in accordance with the terms of this Agreement), and (b) such Defaulting Lender shall have delivered to Company and Administrative Agent a written reaffirmation of its intention to honor its obligations hereunder with respect to its Revolving Commitments, and (iii) the date on which Company, Administrative Agent and Requisite Lenders waive all Funding Defaults of such Defaulting Lender in writing.
Defaulted Loan” as defined in Section 2.18.
Defaulted Receivable” means, with respect to any date of determination, a Receivable which (i) is a Charged-Off Receivable or (ii) has a Missed Payment Factor of (x) with respect to Daily Pay Receivables, sixty (60) or higher or (y) with respect to Weekly Pay Receivables, twelve (12) or higher.
Defaulting Lender” as defined in Section 2.18.
Delinquent Receivable” means, as of any date of determination, any Receivable with a Missed Payment Factor of one (1) or higher as of such date.
Deposit Account” means a “deposit account” (as defined in the UCC), including a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.
Designated Officer” means, with respect to Company, any Person with the title of Chief Executive Officer, Chief Financial Officer or Chief Legal Officer.
Determination Date” means the last day of each Monthly Period.
Direct Competitor” means (a) any Person engaged in the same or similar line of business as Holdings, (b) any Person that is a direct competitor of Holdings or any Subsidiary of Holdings and is identified as such by the Company to the Administrative Agent prior to the Fourth Amendment Effective Date (as such list is updated by the Company from time to time, and acknowledged in writing by the Administrative Agent (such acknowledgment not to be unreasonably withheld)) in the list set forth in the Undertakings Agreement, or (c) any Affiliate of any such Person; provided that, any Person (other than any Person listed in clause (b) and their Affiliates) that either (i) both (A) has a market capitalization equal to or greater than $5 billion and (B) that is in the business of investing in commercial loans that generally have an original par amount in excess of $10,000,000 or (ii) that is an Approved Fund, shall in either case not be deemed a “Direct Competitor” hereunder.
Disposition Notice” as defined in Section 8.8(a).
Document Checklist” shall have the meaning attributed to such term in the Custodial Agreement.
Dollars” and the sign “$” mean the lawful money of the United States.
Domestic Subsidiary” means any Subsidiary that is organized under the laws of the United States of America, any State or territory thereof or the District of Columbia.





Early Amortization Event” has the meaning set forth on Appendix E.
Early Amortization Period” means the period beginning on the Early Amortization Start Date and ending on the Class A Maturity Date.
Early Amortization Start Date” means the first date upon which an Early Amortization Event occurs.
E-Sign Receivable” means any Receivable for which the signature or record of agreement of the Receivables Obligor is obtained through the use and capture of electronic signatures, click-through consents or other electronically recorded assents.
Election Period” is defined in Appendix G.
Eligible Assignee” means (i) any Lender or any Lender Affiliate (other than a natural person), and (ii) any other Person (other than a natural Person) approved by Company and Administrative Agent (each such approval not to be unreasonably withheld), so long as no Default or Event of Default has occurred and is continuing; provided, that (y) neither Holdings nor any Affiliate of Holdings shall, in any event, be an Eligible Assignee, and (z) no Direct Competitor shall be an Eligible Assignee so long as no Specified Event of Default has occurred and is continuing.
Eligible Non-Select Portfolio Outstanding Principal Balance” means, as of any date of determination, the sum of the Outstanding Principal Balance for all Eligible Receivables that are Non-Select Receivables as of such date.
Eligible Portfolio Outstanding Principal Balance” means, as of any date of determination, the sum of the Outstanding Principal Balance for all Eligible Receivables as of such date.
Eligible Product” means the following Receivable product types: On Deck Core Loans and Select Receivables.
Eligible Receivable” means a Receivable with respect to which the Eligibility Criteria are satisfied as of the applicable date of determination.
Eligible Receivables Obligor” means a Receivables Obligor that satisfies the criteria specified in Appendix C hereto under the definition of “Eligible Receivables Obligor”, subject to any changes agreed to by the Requisite Class A Revolving Lenders, the Requisite Class B Revolving Lenders and Company from time to time after the Original Closing Date.
Eligible Select Portfolio Outstanding Principal Balance” means, as of any date of determination, the sum of the Outstanding Principal Balance for all Eligible Receivables that are Select Receivables as of such date.
Eligibility Criteria” means the criteria specified in Appendix C hereto under the definition of “Eligibility Criteria”, subject to any changes agreed to by the Requisite Class A Revolving Lenders, the Requisite Class B Revolving Lenders and Company from time to time after the Original Closing Date.
Employee Benefit Plan” means any “employee benefit plan” as defined in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to by, or required to be contributed by, Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates.





Equity Lienholder” has the meaning set forth in the definition of “Change of Control”.
ERISA” means the Employee Retirement Income Security Act of 1974, as amended to the date hereof and from time to time hereafter, and any successor statute.
ERISA Affiliate” means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of a Person shall continue to be considered an ERISA Affiliate of such Person within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of such Person and with respect to liabilities arising after such period, but only to the extent that such Person could be liable under the Internal Revenue Code or ERISA as a result of its relationship with such former ERISA Affiliate.
ERISA Event” means (i) a “reportable event” within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for thirty (30) day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(c) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 430(j) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability to Holdings, any of its Subsidiaries or any of their respective Affiliates pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which might constitute grounds under ERISA for the PBGC initiated termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefor, or the receipt by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could give rise to the imposition on Holdings, any of its Subsidiaries or, with respect to any Pension Plan or Multiemployer Plan, any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan of Holdings, any of its Subsidiaries, or, with respect to any Pension Plan or Multiemployer Plan, any of their respective ERISA Affiliates, or the assets thereof, or against Holdings, any of its Subsidiaries or, with respect to any Pension Plan or Multiemployer Plan, any of their respective ERISA Affiliates in connection with any Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal





Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 430(k) of the Internal Revenue Code or pursuant to Section 303(k) of ERISA with respect to any Pension Plan.
Event of Default” means each of the events set forth in Section 7.1. For the avoidance of doubt, an Early Amortization Event shall not be deemed an Event of Default hereunder for any purpose unless such Early Amortization Event is one of the enumerated events set forth in Section 7.1.
Excess Concentration Amounts” means the amounts set forth on Appendix D hereto.
Excess Spread” means, with respect to any Determination Date for any Monthly Period, the product of (a) 12 times (b) the percentage equivalent of a fraction (i) the numerator of which is the excess, if any, of (x) the Adjusted Interest Collections for such Monthly Period over (y) the aggregate Outstanding Principal Balance of all Pledged Receivables that became Defaulted Receivables during such Monthly Period and (ii) the denominator of which is the average daily Eligible Portfolio Outstanding Principal Balance for such Monthly Period.
Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.
Excluded Taxes” means any of the following Taxes imposed on or with respect to a Lender or required to be withheld or deducted from a payment to a Lender, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Lender being organized under the laws of, or having its principal office or its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Revolving Loan or Revolving Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Revolving Loan or Revolving Commitment or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.16(b), amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.16(d)(i) or Section 2.16(d)(ii) and (d) any U.S. federal withholding Taxes imposed under FATCA.
Existing Credit Agreement” as defined in the Recitals hereto.
Existing Credit Documents” as defined in Section 1.4.
Existing Obligations” as defined in Section 1.4.
FATCA” means Sections 1471 through 1474 of the Internal Revenue Code of 1986, as amended, as of the date of this agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations promulgated thereunder or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
Federal Funds Effective Rate” means, for any  day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System of the United States





arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary to the next 1/100th of 1%) of the quotations for the day for such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it.
Fee Letters” means (a) the letter agreement dated as of the Fourth Amendment Effective Date between the Company and each Class A Revolving Lender party thereto and (b) the letter agreement dated as of the Fourth Amendment Effective Date between the Company and each Class B Revolving Lender a party thereto, as such Fee Letters are amended, modified or supplemented from time to time.
Financial Covenants” means the financial covenants set forth on Schedule 1.1(a) hereto.
Financial Officer Certification” means, with respect to the financial statements for which such certification is required, the certification of the chief financial officer (or the equivalent thereof) of Holdings that such financial statements fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year‑end adjustments.
First Amendment Effective Date” means February 26, 2016.
First Priority” means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is perfected and is the only Lien to which such Collateral is subject.
Fiscal Quarter” means a fiscal quarter of any Fiscal Year.
Fiscal Year” means the fiscal year of Holdings and its Subsidiaries ending on December 31 of each calendar year.
Fourth Amendment Effective Date” means the date of this Agreement.
Fourth Amendment Effective Date Certificate” means a Fourth Amendment Effective Date Certificate substantially in the form of Exhibit F‑1.
Funding Default” as defined in Section 2.18.
Funding Account” has the meaning set forth in Section 2.11(a).
Funding Notice” means a notice substantially in the form of Exhibit A‑1.
GAAP” means, subject to the limitations on the application thereof set forth in Section 1.2, United States generally accepted accounting principles in effect as of the date of determination thereof.
Governmental Authority” means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
Governmental Authorization” means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority.





Highest Concentration Industry Code” means, on any date of determination, the Industry Code shared by Receivables Obligors of Eligible Receivables having the highest aggregate Outstanding Principal Balance.
Highest Lawful Rate” means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.
Historical Financial Statements” means as of the Fourth Amendment Effective Date, (i) the audited financial statements of Holdings and its Subsidiaries, for the Fiscal Year ended 2017, consisting of balance sheets and the related consolidated statements of income, stockholders’ equity and cash flows for such Fiscal Year, and (ii) for the interim period from January 1, 2018 to the Fourth Amendment Effective Date, internally prepared, unaudited financial statements of Holdings and its Subsidiaries, consisting of a balance sheet and the related consolidated statements of income, stockholders’ equity and cash flows for each quarterly period completed prior to forty-six (46) days before the Fourth Amendment Effective Date, in the case of clauses (i) and (ii), certified by the chief financial officer (or the equivalent thereof) of Holdings that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject, if applicable, to changes resulting from audit and normal year-end adjustments.
Holdings” means On Deck Capital, Inc., a Delaware corporation.
Increased-Cost Lenders” as defined in Section 2.19.
Indebtedness” as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money; (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding trade payables incurred in the ordinary course of business that are unsecured and not overdue by more than six (6) months unless being contested in good faith and any such obligations incurred under ERISA); (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person; (vi) the face amount of any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (vii) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another; (viii) any obligation of such Person the primary purpose or intent of which is to provide assurance to an obligee that the obligation of the obligor thereof will be paid or discharged, or any agreement relating thereto will be complied with, or the holders thereof will be protected (in whole or in part) against loss in respect thereof; (ix) any liability of such Person for an obligation of another through any Contractual Obligation (contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (b) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (a) or (b) of this clause (ix), the primary purpose or intent thereof is as described in clause (viii) above; and (x) all obligations of such Person in respect of any exchange traded or over the counter derivative transaction, whether entered into for hedging or speculative purposes.





Indemnified Liabilities” means, collectively, any and all liabilities, obligations, losses, damages, penalties, claims, costs, expenses and disbursements of any kind or nature whatsoever (excluding any amounts not otherwise payable by Company under Section 2.16(b)(iii) but including the reasonable and documented fees and disbursements of one (1) counsel for Class A Indemnitees, one counsel for Class B Indemnitees and one (1) counsel for the Collateral Agent and Paying Agent in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any reasonable and documented fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of this Agreement or the other Credit Documents, any Related Agreement, or the transactions contemplated hereby or thereby (including the Lenders’ agreement to make Credit Extensions or the use or intended use of the proceeds thereof, or any enforcement of any of the Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral)).
Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of the Company under any Credit Document and (b) to the extent not otherwise described in (a), Other Taxes.
Indemnitee” as defined in Section 9.3.
Indemnitee Agent Party” as defined in Section 8.6.
Independent Manager” as defined in Section 6.15.
Industry Code” means, with respect to any Receivables Obligor of an Eligible Receivable, the NAICS industry code under which the business of such Receivables Obligor has been classified by Holdings.
Intangible Assets” means assets that are considered to be intangible assets under GAAP, including customer lists, goodwill, computer software, copyrights, trade names, trademarks, patents, franchises, licenses, unamortized deferred charges, unamortized debt discount and capitalized research and development costs.
Intercreditor Side Letter” means that certain letter agreement, dated as of the Third Amendment Effective Date, among the Administrative Agent, the Class A Revolving Lenders party thereto, the Class B Revolving Lenders party thereto, the Company, the Paying Agent and the Collateral Agent.
Interest Payment Date” means the fifteenth calendar day after the end of each Monthly Period, and if such date is not a Business Day, the next succeeding Business Day.
Interest Period” means an interest period (i) initially, commencing on and including the Original Closing Date and ending on but excluding the initial Interest Payment Date; (ii) from the initial Interest Payment Date and ending on and excluding the Interest Payment Date immediately prior to the Fourth Amendment Effective Date, commencing on and including each Interest Payment Date and ending on and excluding the immediately succeeding Interest Payment Date; (iii) then, commencing on and including the Interest Payment Date immediately prior to the Fourth Amendment Effective Date and ending on and including the last day of the calendar month in which the Fourth Amendment Effective Date occurs; and (iv) thereafter, commencing on and including the first day of each calendar month and ending on and excluding





the first day of the immediately succeeding calendar month; provided, that no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the Class A Maturity Date.
Interest Rate Determination Date” means, with respect to any Interest Period, the date that is four (4) Business Days prior to the immediately following Interest Payment Date.
Internal Revenue Code” means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute.
Investment” means (i) any direct or indirect purchase or other acquisition by Company of, or of a beneficial interest in, any of the Securities of any other Person; (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, from any Person, of any Capital Stock of such Person; and (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contributions by Company to any other Person, including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment.
Joint Venture” means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided, in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party.
Largest OPB Receivable” means, as of any date of determination, the aggregate Eligible Receivables owing by the single Receivables Obligor having the largest aggregate Outstanding Principal Balance.
Lender” means each Class A Revolving Lender and each Class B Revolving Lender.
Lender Affiliate” means, as applied to any Lender or Agent, any Related Fund and any Person directly or indirectly controlling (including any member of senior management of such Person), controlled by, or under common control with, such Lender or Agent. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 10% or more of the Securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.
Level 2 Performance Covenant” has the meaning set forth on Appendix F.
Leverage Ratio” means the ratio as of any day of (a) Consolidated Total Debt, excluding Subordinated Indebtedness and Convertible Indebtedness, as of such day, to (b) the sum of (i) Holdings’ total stockholders’ equity as of such day, (ii) Warrant Liability as of such day and (iii) the sum of Subordinated Indebtedness and Convertible Indebtedness as of such day.
LIBO Rate” means, for any Revolving Loan (or portion thereof) for any Interest Period, the rate per annum determined by, with respect to the (i) Class A Revolving Loans, the Administrative Agent, and (ii) Class B Revolving Loans, the Administrative Agent, in each case at approximately 11:00 a.m., London time, on the second Business Day before the first day of such Interest Period by reference to the  ICE Benchmark Administration Limited London interbank offered rate per annum for deposits in Dollars





for a period equal to one month (as set forth by the Bloomberg Information Service or any successor thereto or any other service selected by the Administrative Agent in its sole discretion); provided, that if such rate is not available at such time for any reason, then the “LIBO Rate” shall be the rate per annum (rounded upward to the nearest 1/16th of 1%) listed in The Wall Street Journal, “Money Rates” table at or about 10:00 a.m., New York City time, two Business Days prior to the beginning of the related Interest Period (or, if no such rate is listed two Business Days prior to the beginning of the related Interest Period, the LIBO Rate as of the last Interest Rate Determination Date that the Administrative Agent was able to determine the LIBO Rate), and provided, further, that this rate shall not be less than zero at any time. If at any time the Administrative Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the LIBO Rate, including, without limitation, because the LIBO Rate is not available or published on a current basis, then the Administrative Agent and the Company shall endeavor in good faith to establish an alternate rate of interest to the LIBO Rate that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable. Notwithstanding anything to the contrary in Section 9.5, such amendment shall become effective without any further action or consent of any other party to this Agreement so long as the Administrative Agent shall not have received, within five Business Days of the date notice of such alternate rate of interest is provided to the Lenders, a written notice from each of the Class A Requisite Lenders and the Class B Requisite Lenders stating that such Lenders object to such amendment. If the Administrative Agent gives written notice to the Lenders and the Company to the effect that adequate and reasonable means do not exist for ascertaining the LIBO Rate or that the that the London interbank offered rate has been permanently discontinued (a “LIBO Notice”), then “LIBO Rate” then shall mean:
(i)from the earlier of the date on which such LIBO Notice is delivered and until the earlier of (A) the sixtieth day following the date of such LIBO Notice and (B) the date of establishing an alternative rate of interest to the LIBO Rate in accordance with the preceding two sentences, the LIBO Rate as of the last Interest Rate Determination Date that the Administrative Agent was able to determine LIBO Rate; and

(ii)from the sixty-first day following the date of such LIBO Notice until the date of establishing an alternative rate of interest to the LIBO Rate as contemplated by the preceding two sentences, the Base Rate.

Lien” means (i) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing, and (ii) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities.
Limited Liability Company Agreement” means the Amended and Restated Limited Liability Company Agreement of the Company, dated as of May 22, 2015.
Lockbox Account” means a Deposit Account with account number 1830043117 at MB Financial Bank, N.A. in the name of Company.
Lockbox Account Control Agreement” shall have the meaning attributed to such term in the Security Agreement.
Lockbox System” as defined in Section 2.11(d).





Margin Stock” as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.
Master Record” as defined in the Custodial Agreement.
Material Adverse Effect” means, with respect to any event or circumstance and any Person, a material adverse effect on: (i)    the business, assets, financial condition or results of operations of such Person and its consolidated Subsidiaries, if any, taken as a whole; (ii)    the ability of such Person to perform its material obligations under the Credit Documents; (iii) the validity or enforceability of any Credit Document to which such Person is a party; or (iv)    the existence, perfection, priority or enforceability of any security interest in a material amount of the Pledged Receivables taken as a whole or in any material part.
Material Contract” means any contract or other arrangement to which Company is a party (other than the Credit Documents or the Related Agreements) for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect.
Material Modification” means, with respect to any Receivable, a reduction in the interest rate, an extension of the term, a reduction in, or change in frequency of, any required Payment or extension of a Payment Date (other than a temporary modification made in accordance with the Underwriting Policies) or a reduction in the Outstanding Principal Balance.
Materials” as defined in Section 5.5(b).
Maximum 15 Day Delinquency Rate” means, with respect to any Monthly Period, the percentage equivalent of a fraction (i) the numerator of which is the aggregate Outstanding Principal Balance of all Delinquent Receivables (other than Defaulted Receivables) that are Pledged Receivables that have a Missed Payment Factor of (x) with respect to Daily Pay Receivables, fifteen (15) or higher or (y) with respect to Weekly Pay Receivables, three (3) or higher, in each case, as of the last day of such Monthly Period and (ii) the denominator of which is the aggregate Outstanding Principal Balance of all Receivables (other than Defaulted Receivables) that are Pledged Receivables as of the last day of such Monthly Period.
Maximum Default Rate” means, with respect to any Monthly Period, the percentage equivalent of a fraction (i) the numerator of which is the aggregate Outstanding Principal Balance of all Pledged Receivables that became Defaulted Receivables during such Monthly Period and (ii) the denominator of which is the average daily Outstanding Principal Balance of all Pledged Receivables for such Monthly Period.
Maximum Upfront Fee” means, with respect to each Receivable, the greater of (a) $695 and (b) 5.0% of the original aggregate unpaid principal balance of such Receivable.
Missed Payment Factor” means, in respect of any Receivable, an amount equal to the sum of (a) the amount equal to (i) the total past due amount of Payments in respect of such Receivable, divided by (ii) the required periodic Payment in respect of such Receivable as set forth in the related Receivables Agreement, with each of clause (i) and (ii) determined without giving effect to any temporary modifications of such required periodic Payment then applicable to such Receivable, and (b) the number of Payment Dates, if any, past the Receivable maturity date on which a Payment was due but not received.
Monthly Period” means the period from and including the first day of a calendar month to and including the last day of such calendar month, provided, however, that the initial Monthly Period





commenced on the Original Closing Date and ended on the last day of the calendar month in which the Original Closing Date occurred.
Monthly Reporting Date” means the third Business Day prior to each Interest Payment Date.
Monthly Servicing Report” shall have the meaning attributed to such term in the Servicing Agreement.
Moody’s” means Moody’s Investor Services, Inc.
Multiemployer Plan” means any Employee Benefit Plan which is a “multiemployer plan” as defined in Section 3(37) of ERISA.
NAIC” means The National Association of Insurance Commissioners, and any successor thereto.
NAICS” means the North American Industry Classification System.
Net Asset Sale Proceeds” means, with respect to any Permitted Asset Sale, an amount equal to: (i) Cash payments received by, or on behalf of, Company from such Permitted Asset Sale, minus (ii) any bona fide direct costs incurred in connection with such Permitted Asset Sale to the extent paid or payable to non-Affiliates, including (a) income or gains taxes payable by the seller as a result of any gain recognized in connection with such Permitted Asset Sale during the tax period the sale occurs and (b) a reasonable reserve for any recourse for a breach of the representations and warranties made by Company to the purchaser in connection with such Permitted Asset Sale; provided that upon release of any such reserve, the amount released shall be considered Net Asset Sale Proceeds.
Net Cash Proceeds” shall mean with respect to any equity issuance, the cash proceeds thereof, net of all taxes and reasonable investment banker’s fees, underwriting discounts or commissions, reasonable legal fees and other reasonable costs and other expenses incurred in connection therewith.
Non-Consenting Lender” as defined in Section 2.19.
Non-Select Portfolio Weighted Average Receivable Yield” means as of any date of determination, the quotient, expressed as a percentage, obtained by dividing (a) the sum, for all Eligible Receivables that are Non-Select Receivables, of the product of (i) the Receivable Yield for each such Non-Select Receivable multiplied by (ii) the Outstanding Principal Balance of such Non-Select Receivable as of such date, by (b) the Eligible Non-Select Portfolio Outstanding Principal Balance as of such date.
Non-Select Receivable” means a Receivable that is not an Select Receivable.
Non-US Lender” as defined in Section 2.16(d)(i).
Obligations” means all obligations of every nature of Company from time to time owed to the Agents (including former Agents), the Lenders or any of them, in each case under any Credit Document, whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to Company, would have accrued on any Obligation, whether or not a claim is allowed against Company for such interest in the related bankruptcy proceeding), fees, expenses, indemnification or otherwise.





On Deck Core Loans” means Receivables designated as such in the Underwriting Policies.
On Deck Score” means that numerical value that represents Holdings’ evaluation of the creditworthiness of a business and its likelihood of default on a commercial loan or other similar credit arrangement generated by “version 5” of the proprietary methodology developed and maintained by Holdings, as such methodology is applied in accordance with the other aspects of the Underwriting Policies, as such methodology may be revised and updated from time to time in accordance with Section 6.17.
Organizational Documents” means (i) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its by‑laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization or certificate of formation, as amended, and its operating agreement, as amended. In the event any term or condition of this Agreement or any other Credit Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such “Organizational Document” shall only be to a document of a type customarily certified by such governmental official.
Original Closing Date” means May 22, 2015.
Other Connection Taxes” means, with respect to any Lender, Taxes imposed as a result of a present or former connection between such Lender and the jurisdiction imposing such Tax (other than connections arising from such Lender having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Credit Document, or sold or assigned an interest in any Revolving Loan or Credit Document).
Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.19).
Outstanding Principal Balance” means, as of any date with respect to any Receivable, the unpaid principal balance of such Receivable as set forth on the Servicer’s books and records as of the close of business on the immediately preceding Business Day; provided, however, that the Outstanding Principal Balance of any Pledged Receivable that has become a Charged-Off Loan will be zero.
Participant Register” as defined in Section 9.6(h).
Paying Agent” as defined in the preamble hereto, and any successors or assigns thereto.
Payment” means, with respect to any Receivable, the required scheduled loan payment in respect of such Receivable, as set forth in the applicable Receivable Agreement.
Payment Dates” means, with respect to any Receivable, the date a payment is due in accordance with the Receivable Agreement with respect to such Receivable as in effect as of the date of determination.
PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.





Pension Plan” means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA.
Permitted Asset Sale” means so long as all Net Asset Sale Proceeds are contemporaneously remitted to the Collection Account, (a) the sale by Company of Receivables to Holdings pursuant to any repurchase option or obligations of Holdings under the Asset Purchase Agreement, (b) the sale by the Servicer on behalf of Company of Charged-Off Receivables to any third party in accordance with the Servicing Standard, provided, that such sales are made without representation, warranty or recourse of any kind by Company (other than customary representations regarding title and absence of liens on the Charged-Off Receivables, and the status of Company, due authorization, enforceability, no conflict and no required consents in respect of such sale), (c) the sale by Company of Receivables to Holdings who immediately thereafter sells such Receivables to a special-purpose Subsidiary of Holdings, so long as, (i) the amount received by Company therefore and deposited into the Collection Account is no less than the aggregate Outstanding Principal Balances of such Receivables, (ii) such sale is made without representation, warranty or recourse of any kind by Company (other than customary representations regarding title, absence of liens on the Receivables, status of Company, due authorization, enforceability, no conflict and no required consents in respect of such sale), (iii) the manner in which such Receivables were selected by Company does not adversely affect the Lenders and (iv) the agreement pursuant to which such Receivables were sold to Holdings or such special-purpose Subsidiary, as the case may be, contains an obligation on the part of Holdings or such special-purpose Subsidiary to not file or join in filing any involuntary bankruptcy petition against Company prior to the end of the period that is one year and one day after the payment in full of all Obligations of Company under this Agreement and not to cooperate with or encourage others to file involuntary bankruptcy petitions against Company during the same period, and (d) the sale by Company of Receivables with the written consent of the Administrative Agent, the Requisite Class A Revolving Lenders and the Requisite Class B Revolving Lenders.
Permitted Discretion” means, with respect to any Person, a determination or judgment made by such Person in good faith in the exercise of reasonable (from the perspective of a secured lender) credit or business judgment.
Permitted Investments” means the following, subject to qualifications hereinafter set forth: (i) obligations of, or obligations guaranteed as to principal and interest by, the U.S. government or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the United States of America; (ii) federal funds, unsecured certificates of deposit and time deposits of any bank, the short-term debt obligations of which are rated A-1+ (or the equivalent) by each of the rating agencies and, if it has a term in excess of three months, the long-term debt obligations of which are rated AAA (or the equivalent) by each of the Moody’s and S&P; (iii) deposits that are fully insured by the Federal Deposit Insurance Corp. (FDIC); (iv) only to the extent permitted by Rule 3a-7 under the Investment Company Act of 1940, investments in money market funds which invest substantially all their assets in securities of the types described in clauses (i) through (iii) above that are rated in the highest rating category by Moody’s or S&P; and (v) such other investments as to which the Administrative Agent consent in its sole discretion. Each of the Permitted Investments may be purchased by the Paying Agent or Collateral Agent through an affiliate of the Paying Agent or Collateral Agent.
Notwithstanding the foregoing, “Permitted Investments” (i) shall exclude any security with the S&P’s “r” symbol (or any other rating agency’s corresponding symbol) attached to the rating (indicating high volatility or dramatic fluctuations in their expected returns because of market risk), as well as any mortgage-backed securities and any security of the type commonly known as “strips”; (ii) shall not have maturities in excess of one year; (iii) shall be limited to those instruments that have a predetermined fixed dollar of principal due at maturity that cannot vary or change; and (iv) shall exclude any investment where





the right to receive principal and interest derived from the underlying investment provides a yield to maturity in excess of 120% of the yield to maturity at par of such underlying investment. Interest may either be fixed or variable, and any variable interest must be tied to a single interest rate index plus a single fixed spread (if any), and move proportionately with that index. No investment shall be made which requires a payment above par for an obligation if the obligation may be prepaid at the option of the issuer thereof prior to its maturity. All investments shall mature or be redeemable upon the option of the holder thereof on or prior to the earlier of (x) three months from the date of their purchase or (y) the Business Day preceding the day before the date such amounts are required to be applied hereunder.
Person” means and includes natural persons, corporations, limited partnerships, general partnerships, partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities.
Pledged Receivables” shall have the meaning attributed to such term in the Servicing Agreement.
Portfolio” means the Receivables purchased by Company from Holdings pursuant to the Asset Purchase Agreement.
Prime Rate” means, as of any day, the rate of interest per annum equal to the prime rate publicly announced by the majority of the eleven largest commercial banks chartered under United States Federal or State banking law as its prime rate (or similar base rate) in effect at its principal office. The determination of such eleven largest commercial banks shall be based upon deposits as of the prior year-end, as reported in the American Banker or such other source as may be reasonably selected by the Paying Agent.
Principal Office” means, for Administrative Agent, Administrative Agent’s “Principal Office” as set forth on Appendix B, or such other office as Administrative Agent may from time to time designate in writing to Company and each Lender; provided, however, that for the purpose of making any payment on the Obligations or any other amount due hereunder or any other Credit Document, the Principal Office of Administrative Agent shall be as set forth on Appendix B (or such other location within the City and State of New York as Administrative Agent may from time to time designate in writing to Company and each Lender).
Pro Rata Share” means, as the context may require, with respect to (a) any Class A Revolving Lender, the percentage obtained by dividing (i) the Class A Revolving Exposure of that Lender by (ii) the aggregate Class A Revolving Exposure of all Class A Revolving Lenders, (b) any Class B Revolving Lender, the percentage obtained by dividing (i) the Class B Revolving Exposure of that Lender by (ii) the aggregate Class B Revolving Exposure of all Class B Revolving Lenders and (c) any Lender, the percentage obtained by dividing (i) the Revolving Exposure of that Lender by (ii) the aggregate Revolving Exposure of all Lenders.
Protective Undertaking Certification” means a certification provided by an Equity Lienholder to the Administrative Agent, for the benefit of the Lenders, in form and substance reasonably satisfactory to the Administrative Agent, whereby such Equity Lienholder certifies that such Equity Lienholder will not (a) cause the Company to commence a voluntary or involuntary proceeding under any Debtor Relief Law, (b) in connection with any such proceeding, challenge the “true sale” characterization of any sale of Receivables by Holdings to the Company, or (c) in connection with any such proceeding, attempt to cause the Company to be “substantively consolidated” with Holdings or any other Person.





Re-Aged” means returning a delinquent, open-end account to current status without collecting the total amount of principal, interest, and fees that are contractually due. For the avoidance of doubt, any Receivable subject to a Material Modification (in accordance with the Underwriting Policies) shall not be considered to be Re-Aged for purposes hereof unless subsequent to such Material Modification the Receivable becomes a Delinquent Receivable and it is then returned to current status without collecting the total amount of principal, interest, and fees that are contractually due.
Receivable” means any loan or similar contract with a Receivables Obligor pursuant to which Holdings or the Receivables Account Bank extends credit to such Receivables Obligor including all rights under any and all security documents or supporting obligations related thereto, including the applicable Receivable Agreements.
Receivable Agreements” means, collectively, with respect to any Receivable, a Business Loan and Security Agreement, a Business Loan and Security Agreement Supplement or Loan Summary, the Authorization Agreement for Direct Deposit (ACH Credit) and Direct Payments (ACH Debit), in each case, in substantially the form provided to the Administrative Agent on or prior to the Fourth Amendment Effective Date and as may be amended, supplemented or modified from time to time in accordance with the terms of this Agreement and the other documents related thereto to which the Receivables Obligor is a party.
Receivable File” means, with respect to any Receivable, (i)  copies of each applicable document listed in the definition of “Receivable Agreements,” (ii) the UCC financing statement, if any, filed against the Receivables Obligor in connection with the origination of such Receivable and (iii) copies of each of the documents required by, and listed in, the Document Checklist attached to the Custodial Agreement, each of which may be in electronic form.
Receivable Yield” means, with respect to any Receivable, the imputed interest rate that is calculated on the basis of the expected aggregate annualized rate of return (calculated inclusive of all interest and fees (other than any Upfront Fees)) of such Receivable over the life of such Receivable.
Such calculation shall assume:
(a)52 Payment Dates per annum, for Weekly Pay Receivables; and

(b)252 Payment Dates per annum, for Daily Pay Receivables.

Receivables Account Bank” means, with respect to any Receivable, (i) BofI Federal Bank, a federal savings institution, (ii) Celtic Bank, a Utah chartered industrial bank or (iii) with the consent of the Administrative Agent (not to be unreasonably withheld, conditioned or delayed), any other institution organized under the laws of the United States of America or any State thereof and subject to supervision and examination by federal or state banking authorities that originates and owns Receivables for the Seller pursuant to a Receivables Program Agreement.
Receivables Guarantor” means with respect to any Receivables Obligor, (a) each holder of the Capital Stock (or equivalent ownership or beneficial interest) of such Receivables Obligor in the case of a Receivables Obligor which is a corporation, partnership, limited liability company, trust or equivalent entity, who has agreed to unconditionally guarantee all of the obligations of the related Receivables Obligor under the related Receivable Agreements or (b) the natural person operating as the Receivables Obligor, if the Receivables Obligor is a sole proprietor.





Receivables Obligor” means with respect to any Receivable, the Person or Persons obligated to make payments with respect to such Receivable, excluding any Receivables Guarantor referred to in clause (a) of the definition of “Receivables Guarantor.”
Receivables Program Agreement” means the (i) Business Loan Marketing, Servicing and Purchase Agreement, dated as of June 6, 2014, between Holdings and Celtic Bank Corporation, a Utah industrial bank (as amended, modified or supplemented from time to time), and (ii) any other agreement between Holdings and a Receivables Account Bank pursuant to which Holdings may refer applicants for small business loans conforming to the Underwriting Policies to such Receivables Account Bank and such Receivables Account Bank has the discretion to fund or not fund a loan to such applicant based on its own evaluation of such applicant and containing those provisions as are reasonably necessary to ensure that the transfer of small business loans by such Receivables Account Bank to Holdings thereunder are treated as absolute sales.
Receivables Purchase Agreement” means a Bill of Sale and Assignment of Assets, by and between Holdings and any Subsidiary of Holdings, in substantially the form of Exhibit H hereto.
Reduction Period” has the meaning set forth in Appendix G.
Register” means a Class A Register or Class B Register, as applicable.
Regulation D” means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
Related Agreements” means, collectively the Organizational Documents of Company and each Receivables Program Agreement.
Related Fund” means, with respect to any Lender that is an investment fund or managed account, any other investment fund or managed account that invests in commercial loans or similar debt instruments and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
Related Security” shall have the meaning attributed to such term in the Asset Purchase Agreement.
Replacement Lender” as defined in Section 2.19.
Requirements of Law” means as to any Person, any law (statutory or common), treaty, rule, ordinance, order, judgment, Governmental Authorization, or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject.
Requisite Class A Revolving Lenders” means one or more Class A Revolving Lenders having or holding Class A Revolving Exposure and representing more than 50% of the sum of the aggregate Class A Revolving Exposure of all Class A Revolving Lenders.
Requisite Class B Revolving Lenders” means one or more Class B Revolving Lenders having or holding Class B Revolving Exposure and representing more than 50% of the sum of the aggregate Class B Revolving Exposure of all Class B Revolving Lenders.





Requisite Lenders” means (a) until the Revolving Commitment Termination Date shall have occurred and all Class A Revolving Loans and all other Obligations owing to the Class A Revolving Lenders have been paid in full in cash, the Requisite Class A Revolving Lenders and (b) thereafter, the Requisite Class B Revolving Lenders.
Reserve Account” means a Deposit Account with account number 84176301 at Wells Fargo Bank N.A. in the name of Company.
Reserve Account Funding Amount” means, on any day the excess, if any, of (a) the Reserve Account Funding Requirement as of such day, over (b) the amount then on deposit in the Reserve Account.
Reserve Account Funding Requirement” means, (A) on any day during the Revolving Period, the sum of (a) the product of (i) 100 basis points and (ii) the Total Utilization of Class A Revolving Commitments as of such day, and (b) the product of (i) 100 basis points and (ii) the Total Utilization of Class B Revolving Commitments as of such day, and (B) on any day thereafter, zero.
Responsible Officer” means, when used with respect to any Person, any officer of such Person, including any president, vice president, executive vice president, assistant vice president, treasurer, secretary, assistant secretary or any other officer thereof customarily performing functions similar to those performed by the individuals who at the time shall be such officers, respectively, or to whom any matter is referred because of such officer’s knowledge of or familiarity with the particular subject and having direct responsibility for the administration of this Agreement and the other Credit Documents to which such Person is a party.
Restricted Junior Payment” means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of Capital Stock of Company now or hereafter outstanding, except a dividend payable solely in shares of Capital Stock to the holders of that class; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of Company now or hereafter outstanding; and (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of Company now or hereafter outstanding.
Revolving Availability” means Class A Revolving Availability or Class B Revolving Availability, as applicable.
Revolving Commitment” means a Class A Revolving Commitment or Class B Revolving Commitment, as applicable.
Revolving Commitment Period” means the period from the Original Closing Date to but excluding the Revolving Commitment Termination Date.
Revolving Commitment Termination Date” means the earliest to occur of (i) (A) with respect to the Class A Revolving Commitments, the date that is the 2d Anniversary Date, or (B) with respect to the Class B Revolving Commitments, December 17, 2019; (ii) (A) with respect to the Class A Revolving Commitments, the date the Class A Revolving Commitments are permanently reduced to zero pursuant to Section 2.9(a), or (B) with respect to the Class B Revolving Commitments, the date the Class B Revolving Commitments are permanently reduced to zero pursuant to Section 2.9(a); (iii) the date of the termination of the Revolving Commitments pursuant to Section 7.1; and (iv) the first day of the Early Amortization Period.





Revolving Exposure” means, (a) with respect to any Class A Revolving Lender as of any date of determination, such Class A Revolving Lender’s Class A Revolving Exposure and (b) with respect to any Class B Revolving Lender as of any date of determination, such Class B Revolving Lender’s Class B Revolving Exposure.
Revolving Loan” means a Class A Revolving Loan or a Class B Revolving Loan, as applicable.
Revolving Loan Note” means Class A Revolving Loan Note or a Class B Revolving Loan Note, as applicable.
Rolling 3-Month Average Excess Spread” means, for any Monthly Period, the arithmetic average Excess Spread for such Monthly Period and the two (2) Monthly Periods immediately preceding such Monthly Period.
Rolling 3-Month Average Maximum 15 Day Delinquency Rate” means, for any Monthly Period, the arithmetic average Maximum 15 Day Delinquency Rate for such Monthly Period and the two (2) Monthly Periods immediately preceding such Monthly Period.
Rolling 3‐Month Average Maximum Default Rate” means, for any Monthly Period, the arithmetic average Maximum Default Rate for such Monthly Period and the two (2) Monthly Periods immediately preceding such Monthly Period.
S&P” means Standard & Poor’s Ratings Services, a Standard & Poor’s Financial Services LLC business, and its permitted successors and assigns.
Second Amendment Effective Date” means May 25, 2017.
Secured Parties” shall have the meaning attributed to such term in the Security Agreement.
Securities” means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit‑sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
Securities Account” means a “securities account” (as defined in the UCC).
Securities Account Control Agreement” shall have the meaning attributed to such term in the Security Agreement.
Securities Act” means the Securities Act of 1933, as amended from time to time, and any successor statute.
Security Agreement” means that certain Security Agreement dated as of the Original Closing Date between Company and the Collateral Agent, as it may be amended, restated or otherwise modified from time to time.
Select Portfolio Weighted Average Receivable Yield” means as of any date of determination, the quotient, expressed as a percentage, obtained by dividing (a) the sum, for all Eligible





Receivables that are Select Receivables, of the product of (i) the Receivable Yield for each such Select Receivable multiplied by (ii) the Outstanding Principal Balance of such Select Receivable as of such date, by (b) the Eligible Select Portfolio Outstanding Principal Balance as of such date.
Select Receivables” means a Receivable designated as “Select” in the Underwriting Policies and classified as such by Holdings.
Seller” has the meaning set forth in the Asset Purchase Agreement.
Servicer” means Holdings, in its capacity as the “Servicer” under the Servicing Agreement, and, after any removal or resignation of Holdings as the “Servicer” in accordance with the Servicing Agreement, any Successor Servicer.
Servicer Default” shall have the meaning attributed to such term in the Servicing Agreement.
Servicing Agreement” means that certain Servicing Agreement dated as of the Original Closing Date between Company, Holdings and the Administrative Agent, as amended by Amendment No. 1 to Servicing Agreement dated as of the Second Amendment Effective Date, and as it may be amended, restated or otherwise modified from time to time, and, after the appointment of any Successor Servicer, the Successor Servicing Agreement to which such Successor Servicer is a party, as it may be amended, restated or otherwise modified from time to time.
Servicing Fees” shall have the meaning attributed to such term in the Servicing Agreement; provided, however that, after the appointment of any Successor Servicer, the Servicing Fees shall mean the Successor Servicer Fees payable to such Successor Servicer.
Servicing Reports” means the Servicing Reports delivered pursuant to the Servicing Agreement, including the Monthly Servicing Report.
Servicing Standard” shall have the meaning attributed to such term in the Servicing Agreement.
Servicing Transition Expenses” means all reasonable, out-of-pocket costs and expenses actually incurred by the Successor Servicer in connection with the assumption of servicing of the Pledged Receivables by a Successor Servicer after the delivery of a Termination Notice to the Servicer.
Servicing Transition Period” means the period commencing on the giving of a Termination Notice and ending such number of days thereafter as shall be determined by the Administrative Agent in its Permitted Discretion.
Solvency Certificate” means a Solvency Certificate of the chief financial officer (or the equivalent thereof) of each of Holdings and Company substantially in the form of Exhibit F‑2.
Solvent” means, with respect to Company or Holdings, that as of the date of determination, both (i) (a) the sum of such entity’s debt (including contingent liabilities) does not exceed the present fair saleable value of such entity’s present assets; (b) such entity’s capital is not unreasonably small in relation to its business as contemplated on the Original Closing Date; and (c) such entity has not incurred and does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise); and (ii) such entity is “solvent” within the meaning given that term and similar terms under laws applicable to it relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be





computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5).
Specified Event of Default” means any Event of Default occurring under Sections 7.1(a), (f) or (g).
SPV Event” has the meaning set forth on Appendix G.
SPV Indebtedness” has the meaning set forth on Appendix G.
Subordinated Indebtedness” means any Indebtedness of Holdings that is fully subordinated to all senior indebtedness for borrowed money of Holdings, as to right and time of payment and as to any other rights and remedies thereunder, including, an agreement on the part of the holders of such Indebtedness that the maturity of such Indebtedness cannot be accelerated prior to the maturity date of such senior indebtedness for borrowed money.
Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association, or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided, in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a “qualifying share” of the former Person shall be deemed to be outstanding.
Subsidiary Receivables” means certain Receivables (i) owned by any Subsidiary of Holdings, and (ii) sold by such Subsidiary of Holdings to Holdings pursuant to a Receivables Purchase Agreement, and immediately thereafter sold by Holdings to Company, in each case, on one or more Transfer Dates.
Successor Servicer” shall have the meaning attributed to such term in the Servicing Agreement.
Successor Servicing Agreement” shall have the meaning attributed to such term in the Servicing Agreement.
Successor Servicer Fees” means the servicing fees payable to a Successor Servicer pursuant to a Successor Servicing Agreement.
Tangible Net Worth” means, as of any day, the total of (a) Holdings’ total stockholders’ equity, minus (b) all Intangible Assets of Holdings, minus (c) all amounts due to Holdings from its Affiliates, plus (d) any Convertible Indebtedness, plus (e) any Warrant Liability.
Tax” means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed, including any interest, additions to tax or penalties applicable thereto.
Terminated Lender” as defined in Section 2.19.





Termination Date” means the date on, and as of, which (a) all Revolving Loans have been repaid in full in cash, (b) all other Obligations (other than contingent indemnification obligations for which demand has not been made) under this Agreement and the other Credit Documents have been paid in full in cash or otherwise completely discharged, and (c) the Commitments shall have been permanently reduced to zero.
Termination Notice” shall have the meaning attributed to such term in the Servicing Agreement.
Third Amendment Effective Date” means December 15, 2017.
Total Utilization of Class A Revolving Commitments” means, as at any date of determination, the aggregate principal amount of all outstanding Class A Revolving Loans.
Total Utilization of Class B Revolving Commitments” means, as at any date of determination, the aggregate principal amount of all outstanding Class B Revolving Loans.
Transaction Costs” means the fees, costs and expenses payable by Holdings or Company on or within ninety (90) days after the Fourth Amendment Effective Date, in connection with the transactions contemplated by the Credit Documents.
Transfer Date” has the meaning assigned to such term in the Asset Purchase Agreement.
UCC” means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.
UCC Agent” means Corporation Service Company, a Delaware corporation, in its capacity as agent for Holdings or other entity providing secured party representation services for Holdings from time to time.
Undertakings Agreement” means that certain agreement, dated as of the Original Closing Date, and as it may be amended, restated or otherwise modified from time to time, by and among Holdings, the Company, the lenders party thereto, the Paying Agent and the Administrative Agent.
Underwriting Policies” means the credit policies and procedures of Holdings, including the underwriting guidelines and OnDeck Score methodology, and the collection policies and procedures of Holdings, in each case in effect as of the Fourth Amendment Effective Date and in substantially the form provided to the Administrative Agent on or prior to the Fourth Amendment Effective Date, as such policies, procedures, guidelines and methodologies may be amended from time to time in accordance with Section 6.17.
Upfront Fees” means, with respect to any Receivable, the sum of any fees charged by Holdings or the Receivables Account Bank, as the case may be, to a Receivables Obligor in connection with the disbursement of a loan, as set forth in the Receivables Agreement related to such Receivable, which are deducted from the initial amount disbursed to such Receivables Obligor, including the “Origination Fee” set forth on the applicable Receivable Agreement.
Volcker Rule” means the common rule entitled “Proprietary Trading and Certain Interests and Relationships with Covered Funds” published at 79 Fed. Reg. 5779 et seq.





Warrant Liability” means, as of any day, the aggregate stated balance sheet fair value of all outstanding warrants exercisable for redeemable convertible preferred shares of Holdings determined in accordance with GAAP.
Weekly Pay Receivable” means any Receivable for which a Payment is generally due once per week.
1.2    Accounting Terms. Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Company to Lenders pursuant to Section 5.1(a) and Section 5.1(b) shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in Section 5.1(d), if applicable). If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Credit Document, and either Company, the Requisite Lenders or the Administrative Agent shall so request, the Administrative Agent, the Lenders and Company shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (a) such ratio or requirement shall continue to be computed in accordance with GAAP and accounting principles and policies in conformity with those used to prepare the Historical Financial Statements and (b) Company shall provide to the Administrative Agent and each Lender financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. If Administrative Agent, Company and the Administrative Agent cannot agree upon the required amendments within thirty (30) days following the date of implementation of any applicable change in GAAP, then all financial statements delivered and all calculations of financial covenants and other standards and terms in accordance with this Agreement and the other Credit Documents shall be prepared, delivered and made without regard to the underlying change in GAAP. For the avoidance of doubt, any lease that would be characterized as an operating lease in accordance with GAAP on the Fourth Amendment Effective Date (whether or not such operating lease was in effect on such date) shall continue to be accounted for as an operating lease (and not as a Capital Lease) for purposes of this Agreement regardless of any change in GAAP following the Fourth Amendment Effective Date that would otherwise require such lease to be recharacterized (on a prospective or retroactive basis or otherwise) as a Capital Lease or reflected as Indebtedness hereunder.
    
1.3    Interpretation, etc.

Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word “include” or “including,” when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not no limiting language (such as “without limitation” or “but not limited to” or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter.
1.4    Amendment and Restatement. In order to facilitate the Amendment and Restatement:

(a)Each of the parties hereto hereby agree that upon the effectiveness of this Agreement, the terms and provisions of the Existing Credit Agreement shall be and hereby are amended and restated to the extent provided by this Agreement.





(b)All of the “Obligations” (as defined in the Existing Credit Agreement, the “Existing Obligations”) outstanding under the Existing Credit Agreement and other “Credit Documents” (as defined in the Existing Credit Agreement, the “Existing Credit Documents”) shall continue as Obligations hereunder to the extent not repaid on the Fourth Amendment Effective Date, and this Agreement is given as a substitution of and modification of, to the extent provided herein, and not as a payment of or novation of, the indebtedness, liabilities and Existing Obligations of the Company under the Existing Credit Agreement, and neither the execution and delivery of this Agreement nor the consummation of any other transaction contemplated hereunder is intended to constitute a novation or rescission of the Existing Credit Agreement or any obligations hereunder.

SECTION 2.        LOANS

2.1    Revolving Loans.

(a)Revolving Commitments.

(i)During the Revolving Commitment Period, subject to the terms and conditions hereof, including, without limitation delivery of an updated Borrowing Base Certificate and Borrowing Base Report pursuant to Section 3.3(a)(i), each Class A Revolving Lender severally agrees to make Class A Revolving Loans to Company in an aggregate amount up to but not exceeding such Class A Revolving Lender’s Revolving Commitment; provided that no Class A Revolving Lender shall make any such Class A Revolving Loan or portion thereof to the extent that, after giving effect to such Class A Revolving Loan:

(a)the Total Utilization of Class A Revolving Commitments exceeds the Class A Borrowing Base;

(b)a Class A Borrowing Base Deficiency or a Class B Borrowing Base Deficiency exists; or

(c)the aggregate outstanding principal amount of the Class A Revolving Loans funded by such Class A Revolving Lender hereunder shall exceed its Class A Revolving Commitment.

(ii)During the Revolving Commitment Period, subject to the terms and conditions hereof, including, without limitation delivery of an updated Borrowing Base Certificate and Borrowing Base Report pursuant to Section 3.3(a)(i), each Class B Revolving Lender severally agrees to make Class B Revolving Loans to Company in an aggregate amount up to but not exceeding such Lender’s Class B Revolving Commitment; provided that no Class B Revolving Lender shall make any such Class B Revolving Loan or portion thereof to the extent that, after giving effect to such Class B Revolving Loan:

(a)the Total Utilization of Class B Revolving Commitments exceeds the Class B Borrowing Base;

(b)a Class A Borrowing Base Deficiency or a Class B Borrowing Base Deficiency exists; or






(c)the aggregate outstanding principal amount of the Class B Revolving Loans funded by such Class B Revolving Lender hereunder shall exceed its Class B Revolving Commitment.

(b)Amounts borrowed pursuant to Section 2.1(a) may be repaid and reborrowed during the Revolving Commitment Period subject to the terms, if any, set forth in a Fee Letter, and any repayment of the Revolving Loans (other than (i) pursuant to Section 2.10 (which circumstance shall be governed by Section 2.10), (ii) on any Interest Payment Date upon which no Event of Default or Early Amortization Event has occurred and is continuing (which circumstance shall be governed by Section 2.12(a)) or (iii) except as set forth in the last sentence of this clause (b), on a date during the Early Amortization Period or on a date upon which an Event of Default has occurred and is continuing (which circumstances shall be governed by Section 2.12(b))) shall be applied as directed by Company, provided that the Company (A) may not repay (x) the Class A Revolving Loans more than three (3) times per week and (y) the Class B Revolving Loans more than one (1) time per calendar month; provided, further, that the Company may make one (1) additional repayment of Class B Revolving Loans during the last week of any calendar quarter with the prior written consent of the Requisite Class B Revolving Lenders, (B) must deliver to the Administrative Agent, the Paying Agent and the Class B Revolving Lenders a Controlled Account Voluntary Payment Notice pursuant to Section 2.11(c)(vii) in connection with such repayment and (C) each repayment of the Class A Revolving Loans or Class B Revolving Loans shall be in a minimum amount of $250,000. Each Lender’s Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Commitments shall be paid in full no later than (1) with respect to the Class A Revolving Loans, the Class A Maturity Date, and (2) with respect to the Class B Revolving Loans, the Class B Maturity Date. Notwithstanding any provision to the contrary herein, however, and for the avoidance of doubt, (i) the Company may also at any time or from time to time during the Early Amortization Period, or any time after the 2d Anniversary Date, voluntarily prepay the Revolving Loans in whole or in part, with such prepayment to be applied first to repayment of the Class A Revolving Loans and then to repayment of the Class B Revolving Loans and (ii) Company may pay the Class B Revolving Loans in full on December 17, 2019, provided that, as of such date, (x) no Event of Default has occurred and is continuing, (y) the Early Amortization Period is not then occurring and (z) the Administrative Agent and the Class A Revolving Lenders shall have received a Borrowing Base Report and such other evidence in form and substance satisfactory to the Administrative Agent and the Class A Revolving Lenders demonstrating pro forma compliance by Company with the Class A Borrowing Base and Financial Covenants after giving effect to such prepayment.

(c)Borrowing Mechanics for Revolving Loans.

(i)Class A Revolving Loans shall be made in an aggregate minimum amount of $50,000, and Class B Revolving Loans shall be made in an aggregate minimum amount of $50,000.

(ii)Whenever Company desires that Lenders make Revolving Loans, Company shall deliver a fully executed and delivered Funding Notice to (A) the Administrative Agent, the Paying Agent and the Custodian no later than 11:00 a.m. (New York City time) at least one (1) Business Day in advance of the proposed Credit Date (or such shorter period as shall be agreed between the Administrative Agent and Company) with respect to Class A Revolving Loans and (B) the Class B Revolving Lenders, the Paying Agent and the Custodian no later than 11:00 a.m. (New York City time) five (5) Business Days in advance of the proposed Credit Date (or such shorter period as shall be agreed between the Class B Revolving Lenders and Company) with respect to Class B Revolving





Loans, other than any borrowing of Class B Revolving Loans on the Fourth Amendment Effective Date, which Funding Notice may be delivered three (3) Business Days in advance of the Fourth Amendment Effective Date. Each such Funding Notice shall be delivered with a Borrowing Base Certificate reflecting sufficient Class A Revolving Availability and Class B Revolving Availability, as applicable, for the requested Revolving Loans and a Borrowing Base Report.

(iii)Each Lender shall make the amount of its Revolving Loan available to the Paying Agent not later than 1:00 p.m. (New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars to the Funding Account, and the Paying Agent shall remit such funds to the Company not later than 3:00 p.m. (New York City time) by wire transfer of same day funds in Dollars from the Funding Account to another account of Company designated in the related Funding Notice.

(iv)Company may borrow Class A Revolving Loans pursuant to this Section 2.1, purchase Eligible Receivables pursuant to Section 2.11(c)(vii)(C) and/or repay Class A Revolving Loans pursuant to Section 2.11(c)(vii)(B) no more than three (3) times per week. Company may borrow Class B Revolving Loans pursuant to this Section 2.1 no more than one (1) time a calendar month; provided, that the Company may make one (1) additional borrowing of Class B Revolving Loans during the last week of any calendar quarter with the written consent (to be given in their sole discretion) of the Requisite Class B Revolving Lenders.

(d)Deemed Requests for Revolving Loans to Pay Required Payments. All payments of principal, interest, fees and other amounts payable to Lenders of any Class under this Agreement or any Credit Document may be paid from the proceeds of Revolving Loans of such Class, made pursuant to a Funding Notice from Company pursuant to Section 2.1(c).

2.2    Pro Rata Shares. All Revolving Loans of each Class shall be made by Class A Revolving Lenders or Class B Revolving Lenders, as applicable, simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender’s obligation to make a Revolving Loan requested hereunder nor shall any Revolving Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender’s obligation to make a Revolving Loan requested hereunder.

2.3    Use of Proceeds. The proceeds of the Revolving Loans made on or after the Fourth Amendment Effective Date shall be applied by Company to (a) finance the acquisition of Eligible Receivables from Holdings pursuant to the Asset Purchase Agreement, (b) pay Transaction Costs and ongoing fees and expenses of Company hereunder, (c) make other payments in accordance with Section 2.12. and (d) in the case of Revolving Loans made pursuant to Section 2.1(d), to make payments of principal, interest, fees and other amounts owing to the Lenders under the Credit Documents. The proceeds of the Class B Revolving Loans may also be used to make a Borrower Distribution in accordance with Section 6.5. No portion of the proceeds of any Credit Extension shall be used in any manner that causes or might cause such Credit Extension or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Exchange Act.

2.4    Evidence of Debt; Register; Lenders’ Books and Records; Notes.

(a)Lenders’ Evidence of Debt. Each Lender shall maintain on its internal records an account or accounts evidencing the Obligations of Company to such Lender, including the amounts of the Revolving Loans made by it and each repayment and prepayment in respect thereof. Any such recordation





shall be conclusive and binding on Company, absent manifest error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect any Lender’s Revolving Commitments or Company’s Obligations in respect of any applicable Revolving Loans; and provided further, in the event of any inconsistency between the Registers and any Lender’s records, the recordations in the Registers shall govern absent manifest error.

(b)Registers.

(i)Class A Register. The Administrative Agent, acting for this purpose as an agent of the Company, shall maintain at its Principal Office a register for the recordation of the names and addresses of the Class A Revolving Lenders and the Class A Revolving Commitments and Class A Revolving Loans of each Class A Revolving Lender from time to time (the “Class A Register”). The Class A Register shall be available for inspection by Company or any Class A Revolving Lender at any reasonable time and from time to time upon reasonable prior notice. The Administrative Agent shall record in the Class A Register the Class A Revolving Commitments and the Class A Revolving Loans, and each repayment or prepayment in respect of the principal amount of the Class A Revolving Loans, and any such recordation shall be conclusive and binding on Company and each Class A Revolving Lender, absent manifest error; provided, failure to make any such recordation, or any error in such recordation, shall not affect any Class A Lender’s Class A Revolving Commitments or Company’s Obligations in respect of any Class A Revolving Loan. Company hereby designates the entity serving as the Administrative Agent to serve as Company’s agent solely for purposes of maintaining the Class A Register as provided in this Section 2.4, and Company hereby agrees that, to the extent such entity serves in such capacity, the entity serving as the Administrative Agent and its officers, directors, employees, agents and affiliates shall constitute “Indemnitees.”

(ii)Class B Register. The Administrative Agent, acting for this purpose as an agent of the Company, shall maintain at its Principal Office a register for the recordation of the names and addresses of the Class B Revolving Lenders and the Class B Revolving Commitments and Class B Revolving Loans of each Class B Revolving Lender from time to time (the “Class B Register”). The Class B Register shall be available for inspection by Company or any Class B Revolving Lender at any reasonable time and from time to time upon reasonable prior notice. The Administrative Agent shall record in the Class B Register the Class B Revolving Commitments and the Class B Revolving Loans, and each repayment or prepayment in respect of the principal amount of the Class B Revolving Loans, and any such recordation shall be conclusive and binding on Company and each Class B Revolving Lender, absent manifest error; provided, failure to make any such recordation, or any error in such recordation, shall not affect any Class B Lender’s Class B Revolving Commitments or Company’s Obligations in respect of any Class B Revolving Loan. Company hereby designates the Administrative Agent to serve as Company’s agent solely for purposes of maintaining the Class B Register as provided in this Section 2.4, and Company hereby agrees that, to the extent such entity serves in such capacity, the Administrative Agent and its officers, directors, employees, agents and affiliates shall constitute “Indemnitees.”

(c)Revolving Loan Notes. If so requested by any Lender by written notice to Company (with a copy to Administrative Agent) at least two (2) Business Days prior to the Original Closing Date, or at any time thereafter, Company shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 9.6) on the Original Closing Date (or, if such notice is delivered after the Original Closing Date, promptly after Company’s receipt of such notice) a Class A Revolving Loan Note or Class B Revolving Loan Note, as applicable, to evidence such Lender’s Revolving Loans.





2.5    Interest on Loans.

(a)Except as otherwise set forth herein, (i) the Class A Revolving Loans shall accrue interest daily in an amount equal to the product of (A) the unpaid principal amount thereof as of such day and (B) (x) during any period in which no Event of Default has occurred and is continuing, the LIBO Rate for such period plus the Class A Applicable Margin, and (y) during any period in which an Event of Default has occurred and is continuing, the Base Rate for such period plus the Class A Applicable Margin, and (ii) the Class B Revolving Loans shall accrue interest daily in an amount equal to the product of (A) the greater of the unpaid principal amount thereof as of such day and the Class B Minimum Utilization Amount and (B) (x) during any period in which no Event of Default has occurred and is continuing, the LIBO Rate for such period plus the Class B Applicable Margin, and (y) during any period in which an Event of Default has occurred and is continuing, the Base Rate for such period plus the Class B Applicable Margin.

(b)Interest payable pursuant to Section 2.5(a) shall be computed on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Revolving Loan, the date of the making of such Revolving Loan or the first day of an Interest Period applicable to such Revolving Loan shall be included, and the date of payment of such Revolving Loan or the expiration date of an Interest Period applicable to such Revolving Loan shall be excluded; provided, if a Revolving Loan is repaid on the same day on which it is made, one (1) day’s interest shall be paid on that Revolving Loan. The Administrative Agent shall provide an invoice of the interest accrued and to accrue to each Interest Payment Date on its Revolving Loans not later than 3:00 p.m. (New York city time) on the Interest Rate Determination Date immediately preceding such Interest Payment Date.

(c)Except as otherwise set forth herein, interest on each Revolving Loan shall be payable in arrears (i) on each Interest Payment Date; (ii) upon the request of the Administrative Agent (unless such prepayment results in a permanent reduction of the Revolving Commitments), upon any prepayment of that Revolving Loan, whether voluntary or mandatory, to the extent accrued on the amount being prepaid; and (iii) at maturity.

(d)Notwithstanding the foregoing or any other provision of this Agreement, no Default, Event of Default or breach of any other provision of any Credit Document shall occur, or be deemed to occur, during the Early Amortization Period if there are insufficient amounts in the Controlled Accounts on any Interest Payment Date to pay any costs, fees and accrued interest on the Class B Revolving Loans and expenses payable to the Class B Revolving Lenders pursuant to the Credit Documents in accordance with the terms of Section 2.12(b) on any Interest Payment Date on which there is any outstanding Class A Revolving Exposure.

2.6    Reserved.

2.7    Fees.

(a)Company agrees to pay to each Person entitled to payment thereunder, in the amounts and at the times set forth in the Fee Letters.

(b)Except as otherwise set forth in a Fee Letter, all fees referred to in Section 2.7(a) shall be calculated on the basis of a 360‑day year and the actual number of days elapsed and shall be payable monthly in arrears on (i) each Interest Payment Date, commencing on the first such date to occur after the Original Closing Date, and (ii) (A) with respect to the Class A Revolving Loans, the Class A Maturity Date, and (2) with respect to the Class B Revolving Loans, the Class B Maturity Date.






2.8    Repayment on or Before Applicable Maturity Date. Company shall repay (i) the Class A Revolving Loans and (ii) all other Obligations (other than contingent indemnification obligations for which demand has not been made) owed to the Class A Revolving Lenders under this Agreement and the other Credit Documents, in each case, in full in cash on or before the Class A Maturity Date. Company shall repay (i) the Class B Revolving Loans and (ii) all other Obligations (other than contingent indemnification obligations for which demand has not been made) owed to the Class B Revolving Lenders under this Agreement and the other Credit Documents, in each case, in full in cash on or before the Class B Maturity Date.

2.9    Voluntary Commitment Reductions.

(a)Subject to payment of any prepayment premium described in Section 2.9(c), except as otherwise set forth in a Fee Letter, Company may, upon not less than three (3) Business Days’ prior written notice to Administrative Agent and the Class B Revolving Lenders at any time and from time to time terminate in whole or permanently reduce in part the Revolving Commitments in an amount up to the amount by which the Class A Revolving Commitments exceed the Total Utilization of Class A Revolving Commitments or the Class B Revolving Commitments exceed the Total Utilization of Class B Revolving Commitments, as applicable, in each case at the time of such proposed termination or reduction; provided, any such partial reduction of the Class A Revolving Commitments shall be in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount and any such partial reduction of the Class B Revolving Commitments shall be in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount.

(b)Company’s notice shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Commitments shall be effective on the date specified in Company’s notice and shall reduce the Revolving Commitment of each applicable Class A Revolving Lender and/or Class B Revolving Lender proportionately to its applicable Pro Rata Share thereof.

(c)If Company voluntarily reduces or terminates any Class A Revolving Commitments as provided in Section 2.9(a), Company shall pay to Paying Agent, on behalf of the Class A Revolving Lenders whose Class A Revolving Commitments were terminated or reduced, on the date of such reduction or termination, the amounts (if any) described in the Undertakings Agreement.

2.10    Borrowing Base Deficiency. Company shall prepay the Revolving Loans within two (2) Business Day of the earlier of (i) an Authorized Officer or the Chief Financial Officer (or in each case, the equivalent thereof) of Company becoming aware that a Borrowing Base Deficiency exists and (ii) receipt by Company of notice from any Agent or any Lender that a Borrowing Base Deficiency exists, in each case in an amount equal to such Borrowing Base Deficiency, which shall be applied first, to prepay the Class A Revolving Loans as necessary to cure any Class A Borrowing Base Deficiency, and, second, to prepay the Class B Revolving Loans as necessary to cure any Class B Borrowing Base Deficiency.

2.11    Controlled Accounts.

(a)Company shall establish and maintain cash management systems reasonably acceptable to the Administrative Agent, including, without limitation, with respect to blocked account arrangements. Other than a segregated trust account (the “Funding Account”) maintained at the Paying Agent into which proceeds of Revolving Loans may be funded at the direction of Company, Company shall





not establish or maintain a Deposit Account or Securities Account other than a Controlled Account and Company shall not, and shall cause Servicer not to deposit Collections or proceeds thereof in a Securities Account or Deposit Account which is not a Controlled Account (provided, that, inadvertent and non-reoccurring errors by Servicer in applying such Collections or proceeds that are promptly, and in any event within two (2) Business Days after Servicer or Company has (or should have had in the exercise of reasonable diligence) knowledge thereof, cured shall not be considered a breach of this covenant). All Collections and proceeds of Collateral shall be subject to an express trust for the benefit of Collateral Agent on behalf of the Secured Parties and shall be delivered to Lenders for application to the Obligations or any other amount due under any other Credit Document as set forth in this Agreement.

(b)On or prior to the Original Closing Date, Company shall cause to be established and maintained, (i) a trust account (or sub-accounts) in the name of Company and under the sole dominion and control of, the Collateral Agent designated as the “Collection Account” in each case bearing a designation clearly indicating that the funds and other property credited thereto are held for Collateral Agent for the benefit of the Lenders and subject to the applicable Securities Account Control Agreement and (ii) a Deposit Account into which the proceeds of all Pledged Receivables, including by automatic debit from Receivables Obligors’ operating accounts, shall be deposited in the name of Company designated as the “Lockbox Account” as to which the Collateral Agent has sole dominion and control over such account for the benefit of the Secured Parties within the meaning of Section 9-104(a)(2) of the UCC pursuant to the Lockbox Account Control Agreement. The Lockbox Account Control Agreement will provide that all funds (less an amount of up to $10,000 or such other amount as shall be mutually agreed in writing (which writing may be via electronic mail) between the Administrative Agent and the Company) in the Lockbox Account will be swept daily into the Collection Account.

(c)Lockbox System.

(i)Company has established pursuant to the Lockbox Account Control Agreement and the other Control Agreements for the benefit of the Collateral Agent, on behalf of the Secured Parties, a system of lockboxes and related accounts or deposit accounts as described in Sections 2.11(a) and (b) (the “Lockbox System”) into which (subject to the proviso in Section 2.11(a)) all Collections shall be deposited.

(ii)Company shall have identified a method reasonably satisfactory to Administrative Agent to grant Backup Servicer (and its delegates) access to the Lockbox Account when the Backup Servicer has become the Successor Servicer in accordance with the Credit Documents, for purposes of initiating ACH transfers from Receivables Obligors’ operating accounts after the Original Closing Date.

(iii)Company shall not establish any lockbox or lockbox arrangement without the consent of the Administrative Agent in its sole discretion, and prior to establishing any such lockbox or lockbox arrangement, Company shall cause each bank or financial institution with which it seeks to establish such a lockbox or lockbox arrangement, to enter into a control agreement with respect thereto in form and substance satisfactory to the Administrative Agent in its sole discretion.

(iv)Without the prior written consent of the Administrative Agent, Company shall not (A) change the general instructions given to the Servicer in respect of payments on account of Pledged Receivables to be deposited in the Lockbox System or (B) change any instructions given to any bank or financial institution which in any manner redirects any Collections or proceeds thereof in the Lockbox System to any account which is not a Controlled Account.






(v)Company acknowledges and agrees that (A) the funds on deposit in the Lockbox System shall continue to be collateral security for the Obligations secured thereby, and (B) upon the occurrence and during the continuance of an Event of Default or Early Amortization Event, at the election of the Requisite Lenders, the funds on deposit in the Lockbox System may be applied as provided in Section 2.12(b).

(vi)Company has directed, and will at all times hereafter direct, the Servicer to direct payment from each of the Receivables Obligors on account of Pledged Receivables directly to the Lockbox System. Company agrees (A) to instruct the Servicer to instruct each Receivables Obligor to make all payments with respect to Pledged Receivables directly to the Lockbox System and (B) promptly (and, except as set forth in the proviso to this Section 2.11(c)(vi), in no event later than two (2) Business Days following receipt) to deposit all payments received by it on account of Pledged Receivables, whether in the form of cash, checks, notes, drafts, bills of exchange, money orders or otherwise, in the Lockbox System in precisely the form in which they are received (but with any endorsements of Company necessary for deposit or collection), and until they are so deposited to hold such payments in trust for and as the property of the Collateral Agent; provided, however, that with respect to any payment received that does not contain sufficient identification of the account number to which such payment relates or cannot be processed due to an act beyond the control of the Servicer, such deposit shall be made no later than the second Business Day following the date on which such account number is identified or such payment can be processed, as applicable.

(vii)So long as no Event of Default has occurred and shall be continuing, Company or its designee shall be permitted to direct the investment of the funds from time to time held in the Collection Account and the Reserve Account (A) in Permitted Investments and to sell or liquidate such Permitted Investments and reinvest proceeds from such sale or liquidation in other Permitted Investments (but none of the Collateral Agent, the Administrative Agent or the Lenders shall have liability whatsoever in respect of any failure by the Controlled Account Bank to do so), with all such proceeds and reinvestments to be held in the Collection Account or the Reserve Account, as applicable; provided, however, that the maturity of the Permitted Investments on deposit in the Collection Account or the Reserve Account, as applicable, shall be no later than the Business Day immediately preceding the date on which such funds are required to be withdrawn therefrom pursuant to this Agreement, and provided further that any such investment and/or reinvestment in Permitted Investments during the Early Amortization Period or after the 2d Anniversary Date may only be made with the consent of the Administrative Agent in its Permitted Discretion, (B) to repay the Revolving Loans in accordance with Section 2.1(b), provided, however, that (w) in order to effect any such repayment from a Controlled Account, Company shall deliver to the Administrative Agent, the Paying Agent and the Class B Revolving Lenders a Controlled Account Voluntary Payment Notice in substantially the form of Exhibit G hereto no later than 12:00 p.m. (New York City time) on the Business Day prior to the date of any such repayment specifying the date of prepayment, the amount to be repaid per Class and the Controlled Account from which such repayment shall be made, (x) no more than three (3) repayments of Class A Revolving Loans pursuant to Section 2.1 may be made in any calendar week, (y) the minimum amount of any such repayment on the Revolving Loans shall be $50,000, and (z) after giving effect to each such repayment, an amount equal to not less than the sum of (i) any Reserve Account Funding Requirement and (ii) the aggregate of 105% of the aggregate pro forma amount of interest, fees and expenses projected to be due hereunder and under the Servicing Agreement, the Backup Servicing Agreement, the Custodial Agreement and the Successor Servicing Agreement, if any, until the next Interest Payment Date, based on the Accrued Interest Amount on such date and a projection of the interest to accrue on the Revolving Loans until the next Interest





Payment Date using the same assumptions as are contained in the calculation of the Accrued Interest Amount, and the Total Utilization of Class A Revolving Commitments and the Total Utilization of Class B Revolving Commitments on such date (after giving effect to such repayments), shall remain in the Controlled Accounts, or (C) so long as no Early Amortization Period has occurred and shall be continuing and the 2d Anniversary Date has not occurred, to purchase additional Eligible Receivables pursuant to the terms and conditions of the Asset Purchase Agreement, provided, that a Borrowing Base Certificate (evidencing sufficient Revolving Availability after giving effect to the release of Collections and the making of any Revolving Loan being made on such date and that after giving effect to the release of Collections, no event has occurred and is continuing that constitutes, or would result from such release that would constitute, a Borrowing Base Deficiency, Default or Event of Default) and a Borrowing Base Report shall be delivered to the Administrative Agent, the Paying Agent, the Class B Revolving Lenders and the Custodian no later than 11:00 a.m. (New York City time) at least two (2) Business Days in advance of any such proposed purchase or release, (w) if such purchase of Eligible Receivables were being funded with Revolving Loans, the conditions for making such Revolving Loans on such date contained in Section 3.3(a)(iii) and Section 3.3(a)(vi) would be satisfied as of such date, and provided further, that if such withdrawal from the Collection Account does not occur simultaneously with the making of a Revolving Loan by the Lenders hereunder pursuant to the delivery of a Funding Notice, such withdrawal shall be considered a “Revolving Loan” solely for purposes of Section 2.1(c)(iv), (x) no more than three (3) borrowings of Class A Revolving Loans pursuant to Section 2.1 may be made in any calendar week, (y) no more than one (1) borrowing of Class B Revolving Loans pursuant to Section 2.1 may be made in any calendar month; provided, that the Company may make one (1) additional borrowing of Class B Revolving Loans during the last week of any calendar quarter with the written consent (to be given in their sole discretion) of the Requisite Class B Revolving Lenders and (z) after giving effect to such release, an amount equal to not less than the sum of (i) any Reserve Account Funding Requirement and (ii) the aggregate of 105% of the aggregate pro forma amount of interest, fees and expenses projected to be due hereunder and under the Servicing Agreement, the Backup Servicing Agreement, the Custodial Agreement and the Successor Servicing Agreement, if any, until the next Interest Payment Date, based on the Accrued Interest Amount on such date and a projection of the interest to accrue on the Revolving Loans until the next Interest Payment Date using the same assumptions as are contained in the calculation of the Accrued Interest Amount, and the Total Utilization of Class A Revolving Commitments and the Total Utilization of Class B Revolving Commitments on such date shall remain in the Controlled Accounts.

(viii)All income and gains from the investment of funds in the Collection Account shall be retained in the Collection Account until each Interest Payment Date, at which time such income and gains shall be applied in accordance with Section 2.12(a) or (b) (or, if sooner, until utilized for a repayment pursuant to Section 2.11(c)(vii)(B) or a purchase of additional Eligible Receivables pursuant to Section 2.11(c)(vii)(C)), as the case may be. As between Company and Collateral Agent, Company shall treat all income, gains and losses from the investment of amounts in the Collection Account as its income or loss for federal, state and local income tax purposes.

(d)Reserve Account. On or prior to the Original Closing Date, Company shall cause to be established and maintained a Deposit Account in the name of Company designated as the “Reserve Account” as to which the Collateral Agent has control over such account for the benefit of the Lenders within the meaning of Section 9-104(a)(2) of the UCC pursuant to the Blocked Account Control Agreement. The Reserve Account will be funded with funds available therefor pursuant to Section 2.12(a). At any time after the giving of a Termination Notice by the Administrative Agent, the Paying Agent shall at the written direction of the Administrative Agent withdraw an amount from the Reserve Account required to pay Servicing Transition Expenses during the Servicing Transition Period (provided, for the avoidance of doubt, only one





such withdrawal may be made from the Reserve Account to pay Servicing Transition Expenses). On the first Interest Payment Date after the occurrence and during the continuance of an Event of Default or Early Amortization Event, the Paying Agent shall at the written direction of the Administrative Agent transfer into the Collection Account for application on such Interest Payment Date in accordance with Section 2.12(b) the amount by which the amount in the Reserve Account exceeds the excess, if any, of $100,000 over the aggregate amount previously withdrawn from the Reserve Account to pay Servicing Transition Expenses. If the first Interest Payment Date after the end of a Servicing Transition Period is during the continuance of an Event of Default or following the occurrence of an Early Amortization Event, the Paying Agent shall at the written direction of the Administrative Agent transfer into the Collection Account for application on such Interest Payment Date in accordance with Section 2.12(b) all amounts in the Reserve Account.

2.12    Application of Proceeds.

(a)Application of Amounts in the Collection Account and the Lockbox Account. So long as no Event of Default has occurred and is continuing (after giving effect to the application of funds in accordance herewith on the relevant date) and an Early Amortization Period is not then occurring, on each Interest Payment Date, all amounts in the Collection Account, the Lockbox Account and all amounts (if any) in the Reserve Account in excess of the Reserve Account Funding Requirement as of the last day of the related Interest Period shall be applied by the Paying Agent based on the Monthly Servicing Report as follows:

(i)first, to Company, on a pari passu basis, (A) amounts sufficient for Company to maintain its limited liability company existence and to pay similar expenses up to an amount not to exceed $1,000 in any Fiscal Year, and only to the extent not previously distributed to Company during such Fiscal Year pursuant to clause (ix) below, and (B) to pay any accrued and unpaid Servicing Fees;

(ii)second, on a pari passu basis, (A) to the Backup Servicer to pay any accrued and unpaid Backup Servicing Fees; (B) to the Custodian to pay any costs, fees and indemnities then due and owing to the Custodian; and (C) to the Controlled Account Bank to pay any costs, fees and indemnities then due and owing to the Controlled Account Bank (in respect of the Controlled Accounts), (D) to Administrative Agent to pay any costs, fees or indemnities then due and owing to Administrative Agent under the Credit Documents; (E) to Collateral Agent to pay any costs, fees or indemnities then due and owing to Collateral Agent under the Credit Documents; and (F) to Paying Agent to pay any costs, fees or indemnities then due and owing to Paying Agent under the Credit Documents; provided, however, that the aggregate amount of costs, fees or indemnities payable to the Backup Servicer, Administrative Agent, the Custodian, the Collateral Agent, the Controlled Account Bank (in respect of the Controlled Accounts) and the Paying Agent pursuant to this clause (ii) shall not exceed $450,000 in any Fiscal Year;

(iii)third, on a pro rata basis, to the Administrative Agent for further distribution to the Class A Revolving Lenders to pay costs, fees, and accrued interest (calculated in accordance with Section 2.5(a)) on the Class A Revolving Loans and expenses payable pursuant to the Credit Documents;

(iv)fourth, to the Administrative Agent for further distribution on a pro rata basis to the Class A Lenders to repay principal on the Class A Revolving Loans, (A) prior to the first Interest Payment Date immediately succeeding the 2d Anniversary Date, (1) during any Reduction Period or Election Period, in an amount necessary to reduce any Class A Borrowing Base Deficiency - Regular to zero and (2) otherwise, in an amount necessary to reduce any Class A Borrowing Base





Deficiency to zero, or (B) on and after the first Interest Payment Date immediately succeeding the 2d Anniversary Date, in an amount equal to the greater of (1) an amount necessary to reduce any Class A Borrowing Base Deficiency to zero, and (2) all Collections received during the immediately preceding Monthly Period (other than any Collections received prior to the 2d Anniversary Date) that were applied by the Servicer to reduce the Outstanding Principal Balance of the Pledged Receivables in accordance with the Servicing Agreement;

(v)fifth, to the Administrative Agent for further distribution on a pro rata basis, to the Class B Revolving Lenders to pay costs, fees, and accrued interest (calculated in accordance with Section 2.5(a)) on the Class B Revolving Loans and expenses payable pursuant to the Credit Documents;

(vi)sixth, during any Reduction Period or Election Period, on a pro rata basis, to the Administrative Agent for further distribution to the Class A Revolving Lenders to reduce any Class A Borrowing Base Deficiency - SPV Event to zero;

(vii)seventh, to the Administrative Agent for further distribution on a pro rata basis to the Class B Lenders, (A) until the Class B Maturity Date, in an amount necessary to reduce any Class B Borrowing Base Deficiency to zero, and (B) on the Class B Maturity Date, until the Class B Revolving Loans are paid in full;

(viii)eighth, to pay to the Backup Servicer, the Administrative Agent, the Custodian, the Collateral Agent, the Controlled Account Bank (in respect of the Controlled Accounts) and the Paying Agent any costs, fees or indemnities not paid in accordance with clause (ii) above;

(ix)ninth, to the Reserve Account an amount equal to any Reserve Account Funding Amount;

(x)tenth, to pay all other Obligations or any other amount then due and payable hereunder;

(xi)eleventh, at the election of Company, on a pro rata basis, to the Administrative Agent for further distribution to the Class A Revolving Lenders and/or the Class B Revolving Lenders, as applicable, to repay the principal of the Revolving Loans; provided, that on and after the first Interest Payment Date following the 2d Anniversary Date, any such repayment shall be applied first to repay the principal of the Class A Revolving Loans until paid in full and second to repay any outstanding principal of the Class B Revolving Loans; and

(xii)twelfth, provided that no Borrowing Base Deficiency would occur after giving effect to such distribution and provided that no Reduction Period or Election Period is then in effect, any remainder to Company or as Company shall direct consistent with Section 6.5; provided further, that on and after the first Interest Payment Date immediately succeeding the 2d Anniversary Date, the first 50% of all funds available for application pursuant to this clause twelfth shall be applied to the Administrative Agent for further distribution on a pro rata basis to the Class A Lenders, as applicable, to repay the principal of the Class A Revolving Loans and any remainder to the Company or as the Company shall direct consistent with Section 6.5.

(b)Notwithstanding anything herein to the contrary, upon the occurrence and during the continuance of an Event of Default or during the Early Amortization Period, on each Interest Payment Date,





all amounts in the Controlled Accounts shall be applied by the Paying Agent based on the Monthly Servicing Report as follows:
(i)first, to Company, on a pari passu basis, (A) amounts sufficient for Company to maintain its limited liability company existence and to pay similar expenses up to an amount not to exceed $1,000 in any Fiscal Year, and only to the extent not previously distributed to Company during such Fiscal Year pursuant to Section 2.12(a)(i) or 2.12(a)(xii) above, and (B) to pay any accrued and unpaid Servicing Fees;

(ii)second, on a pari passu basis, (A) to the Backup Servicer to pay any accrued and unpaid Backup Servicing Fees; (B) to the Custodian to pay any costs, fees and indemnities then due and owing to the Custodian; and (C) to the Controlled Account Bank to pay any costs, fees and indemnities then due and owing to the Controlled Account Bank (in respect of the Controlled Accounts), (D) to Administrative Agent to pay any costs, fees or indemnities then due and owing to Administrative Agent under the Credit Documents; (E) to Collateral Agent to pay any costs, fees or indemnities then due and owing to Collateral Agent under the Credit Documents; and (F) to Paying Agent to pay any costs, fees or indemnities then due and owing to Paying Agent under the Credit Documents;

(iii)third, to the Administrative Agent for further distribution on a pro rata basis, to the Class A Revolving Lenders to pay costs, fees, and accrued interest (calculated in accordance with Section 2.5(a)) on the Class A Revolving Loans and expenses payable pursuant to the Credit Documents;

(iv)fourth, to the Administrative Agent for further distribution on a pro rata basis, to the Class A Revolving Lenders until the Class A Revolving Loans are paid in full;

(v)fifth, to the Administrative Agent for further distribution on a pro rata basis, to the Class B Revolving Lenders to pay costs, fees, and accrued interest (calculated in accordance with Section 2.5(a)) on the Class B Revolving Loans and expenses payable pursuant to the Credit Documents;

(vi)sixth, to the Administrative Agent for further distribution on a pro rata basis, to the Class B Revolving Lenders until the Class B Revolving Loans are paid in full;

(vii)seventh, to pay all other Obligations or any other amount then due and payable hereunder; and

(viii)eighth, any remainder to Company.

2.13    General Provisions Regarding Payments.

(a)All payments by Company of principal, interest, fees and other Obligations shall be made in Dollars in immediately available funds, without defense, recoupment, setoff or counterclaim, free of any restriction or condition, and paid not later than 12:00 p.m. (New York City time) on the date due via wire transfer of immediately available funds. Funds received after that time on such due date shall be deemed to have been paid by Company on the next Business Day (provided, that any repayment made pursuant to Section 2.11(c)(vii)(B) or any application of funds by Paying Agent pursuant to Section 2.12 on any Interest Payment Date shall be deemed for all purposes to have been made in accordance with the deadlines and payment requirements described in this Section 2.13).






(b)All payments in respect of the principal amount of any Revolving Loan (other than, unless requested by the Administrative Agent, voluntary prepayments of Revolving Loans or payments pursuant to Section 2.10) shall be accompanied by payment of accrued interest on the principal amount being repaid or prepaid.

(c)Paying Agent shall promptly distribute to each Class A Revolving Lender and each Class B Revolving Lender, at such address as such Lender shall indicate in writing, the applicable Pro Rata Share of each such Lender of all payments and prepayments of principal and interest due hereunder, together with all other amounts due with respect thereto, including, without limitation, all fees payable with respect thereto, to the extent received by Paying Agent.

(d)Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the commitment fees hereunder.

(e)Except as set forth in the proviso to Section 2.13(a), Paying Agent shall deem any payment by or on behalf of Company hereunder to them that is not made in same day funds prior to 12:00 p.m. (New York City time) to be a non-conforming payment. Any such payment shall not be deemed to have been received by Paying Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. Paying Agent shall give prompt notice via electronic mail to Company and Administrative Agent if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 7.1(a). Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the rate otherwise applicable to such paid amount from the date such amount was due and payable until the date such amount is paid in full.

2.14    Ratable Sharing. Lenders hereby agree among themselves that, except as otherwise provided herein or in the Collateral Documents with respect to amounts realized from the exercise of rights with respect to Liens on the Collateral, if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Revolving Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker’s lien, by counterclaim or cross action or by the enforcement of any right under the Credit Documents, or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to such Lender hereunder or under the other Credit Documents (collectively, the “Aggregate Amounts Due” to such Lender) which is greater than such Lender would be entitled pursuant to this Agreement (after giving effect to the priority of payments determining application of payments to the Class A Lenders and the Class B Lenders, respectively), then the Lender receiving such proportionately greater payment shall (a) notify Administrative Agent, Paying Agent and each Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that the recovery of such Aggregate Amounts Due shall be shared by the applicable Lenders in proportion to the Aggregate Amounts Due to them pursuant to this Agreement; provided, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent





of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker’s lien, setoff or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.

2.15    Increased Costs; Capital Adequacy.

(a)Compensation for Increased Costs and Taxes. Subject to the provisions of Section 2.16 (which shall be controlling with respect to the matters covered thereby), in the event that any Affected Party shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or Governmental Authority, in each case that becomes effective after the Fourth Amendment Effective Date, or compliance by such Affected Party with any guideline, request or directive issued or made after the date hereof (or with respect to any Lender which becomes a Lender after the date hereof, effective after such date) by any central bank or other Governmental Authority or quasi‑Governmental Authority (whether or not having the force of law): (i) subjects such Affected Party (or its applicable lending office) to any additional Tax (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) with respect to this Agreement or any of the other Credit Documents or any of its obligations hereunder or thereunder or any payments to such Affected Party (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC or other insurance or charge or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Affected Party; or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Affected Party (or its applicable lending office) or its obligations hereunder; and the result of any of the foregoing is to increase the cost to such Affected Party of agreeing to make, making or maintaining Revolving Loans hereunder or to reduce any amount received or receivable by such Affected Party (or its applicable lending office) with respect thereto; then, in any such case, if such Affected Party deems such change to be material, Company shall promptly pay to such Affected Party, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Affected Party in its sole discretion shall determine) as may be necessary to compensate such Affected Party for any such increased cost or reduction in amounts received or receivable hereunder and any reasonable expenses related thereto. Such Affected Party shall deliver to Company (with a copy to Administrative Agent and Paying Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Affected Party under this Section 2.15(a), which statement shall be conclusive and binding upon all parties hereto absent manifest error.

(b)Capital Adequacy Adjustment. In the event that any Affected Party shall have determined in its sole discretion (which determination shall, absent manifest effort, be final and conclusive and binding upon all parties hereto) that (i) the adoption, effectiveness, phase‑in or applicability of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or (ii) compliance by any Affected Party (or its applicable lending office) or any company controlling such Affected Party with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, in each case after the Fourth Amendment Effective Date, has





or would have the effect of reducing the rate of return on the capital of such Affected Party or any company controlling such Affected Party as a consequence of, or with reference to, such Affected Party’s Loans or Revolving Commitments, or participations therein or other obligations hereunder with respect to the Revolving Loans to a level below that which such Affected Party or such controlling company could have achieved but for such adoption, effectiveness, phase‑in, applicability, change or compliance (taking into consideration the policies of such Affected Party or such controlling company with regard to capital adequacy), then from time to time, within five (5) Business Days after receipt by Company from such Affected Party of the statement referred to in the next sentence, Company shall pay to such Affected Party such additional amount or amounts as will compensate such Affected Party or such controlling company on an after‑tax basis for such reduction. Such Affected Party shall deliver to Company (with a copy to Administrative Agent and Paying Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Affected Party under this Section 2.15(b), which statement shall be conclusive and binding upon all parties hereto absent manifest error. For the avoidance of doubt, subsections (i) and (ii) of this Section 2.15 shall apply, without limitation, to all requests, rules, guidelines or directives concerning liquidity and capital adequacy issued by any Governmental Authority (x) under or in connection with the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended to the date hereof and from time to time hereafter, and any successor statute and (y) in connection with the implementation of the recommendations of the Bank for International Settlements or the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority), regardless of the date adopted, issued, promulgated or implemented.

(c)Delay in Requests. Failure or delay on the part of any Affected Party to demand compensation pursuant to the foregoing provisions of this Section 2.15 shall not constitute a waiver of such Affected Party’s right to demand such compensation, provided that Company shall not be required to compensate an Affected Party pursuant to the foregoing provisions of this Section 2.15 for any increased costs incurred or reductions suffered more than one hundred twenty (120) days prior to the date that such Affected Party notifies Company of the matters giving rise to such increased costs or reductions and of such Affected Party’s intention to claim compensation therefor.

Notwithstanding anything to the contrary in this Section 2.15, with respect to any Affected Party, the Company shall not be required to pay any increased costs under this Section 2.15 if the payment of such increased cost would cause the Company’s all-in cost of borrowing hereunder, for the applicable period to be in excess of the LIBO Rate plus 10%.
2.16    Taxes; Withholding, etc.

(a)Payments to Be Free and Clear. Subject to Section 2.16(b), all sums payable by Company hereunder and under the other Credit Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax imposed, levied, collected, withheld or assessed by or within the United States or any political subdivision in or of the United States or any other jurisdiction from or to which a payment is made by or on behalf of Company or by any federation or organization of which the United States or any such jurisdiction is a member at the time of payment.
(b)Withholding of Taxes. If Company or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by Company to an Affected Party under any of the Credit Documents: (i) Company shall notify Paying Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (ii) Company or the Paying Agent shall make such deduction or withholding and pay any such Tax to the relevant Governmental Authority before the date on which penalties attach thereto, such payment to be made (if the





liability to pay is imposed on Company) for its own account or (if that liability is imposed on Paying Agent or such Affected Party, as the case may be) on behalf of and in the name of Paying Agent or such Affected Party; (iii) if such Tax is an Indemnified Tax, the sum payable by Company in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment (and any withholdings imposed on additional amounts payable under this paragraph), such Affected Party receives on the due date a sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (iv) within thirty (30) days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty (30) days after the due date of payment of any Tax which it is required by clause (ii) above to pay, Company shall deliver to Paying Agent evidence satisfactory to the other Affected Parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority. Each party hereto agrees that the Paying Agent and Company have the right to withhold on payments (without any corresponding gross-up) where a party fails to comply with the documentation requirements set forth in Section 2.16(d). Upon request from the Paying Agent, the Company will provide such additional information that it may have to assist the Paying Agent in making any withholdings or informational reports.

(c)Indemnification by Company. Company shall indemnify each Affected Party, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes payable or paid by such Affected Party or required to be withheld or deducted from a payment to such Affected Party and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Company by an Affected Party (with a copy to the Paying Agent), or by the Paying Agent on its own behalf or on behalf of an Affected Party, shall be conclusive absent manifest error.

(d)Evidence of Exemption or Reduced Rate From U.S. Withholding Tax.

(i)Each Lender and the Administrative Agent that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. federal income tax purposes (a “Non-US Lender”) shall, to the extent it is legally entitled to do so, deliver to Paying Agent and the Company, on or prior to the Original Closing Date (in the case of each Lender listed on the signature pages hereof on the Original Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Paying Agent (each in the reasonable exercise of its discretion), (A) two original copies of Internal Revenue Service Form W‑8BEN, W-8BEN-E, W-8ECI or W-8IMY, as applicable (with appropriate attachments) (or any successor forms), properly completed and duly executed by such the Administrative Agent or such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company or the Paying Agent to establish that the Administrative Agent or such Lender is not subject to, or is eligible for a reduction in the rate of, deduction or withholding of United States federal income tax with respect to any payments to Administrative Agent or such Lender of principal, interest, fees or other amounts payable under any of the Credit Documents, or (B) if such the Administrative Agent or such Lender is not a “bank” or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver Internal Revenue Service Form W-8IMY or W‑8ECI pursuant to clause (A) above and is relying on the so called “portfolio interest exception”, a Certificate Regarding Non-Bank Status together with two original copies of Internal Revenue Service Form W-8BEN or W-8BEN-E, as applicable (or any successor form), properly completed and duly executed by the Administrative Agent or such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company or the Paying Agent to establish that the Administrative Agent or such Lender is not subject, or is eligible for a reduction in the rate





of, to deduction or withholding of United States federal income tax with respect to any payments to the Administrative Agent or such Lender of interest payable under any of the Credit Documents. The Administrative Agent and each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this Section 2.16(d)(i) or Section 2.16(d)(ii) hereby agrees, from time to time after the initial delivery by the Administrative Agent or such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that the Administrative Agent or such Lender shall promptly deliver to Company and the Paying Agent two new original copies of Internal Revenue Service Form W‑8BEN, W-8BEN-E, W‑8IMY, or W‑8ECI, or, if relying on the “portfolio interest exception”, a Certificate Regarding Non-Bank Status and two original copies of Internal Revenue Service Form W‑8BEN or W-8BEN-E, as applicable (or any successor form), as the case may be, properly completed and duly executed by the Administrative Agent or such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company or Paying Agent to confirm or establish that the Administrative Agent or such Lender is not subject to, or is eligible for a reduction in the rate of, deduction or withholding of United States federal income tax with respect to payments to the Administrative Agent or such Lender under the Credit Documents, or notify Paying Agent and Company of its inability to deliver any such forms, certificates or other evidence.

(ii)Any Lender and the Administrative Agent that is a U.S. Person shall deliver to Company and the Paying Agent on or prior to the date on which such Lender becomes a Lender under this Agreement on the Original Closing Date or pursuant to an Assignment Agreement (and from time to time thereafter upon the reasonable request of Company or the Paying Agent), executed originals of IRS Form W-9 certifying that such Lender is a U.S. Person and exempt from U.S. federal backup withholding tax.

(iii)If a payment made to the Administrative Agent or a Lender under any Credit Document would be subject to U.S. federal withholding Tax imposed by FATCA if the Administrative Agent or such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), the Administrative Agent or such Lender shall deliver to Company and the Paying Agent at the time or times reasonably requested by Company or the Paying Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Company or the Paying Agent as may be necessary for Company and the Paying Agent to comply with their obligations under FATCA and to determine that the Administrative Agent or such Lender has complied with the Administrative Agent’s or such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this Section 2.16(d)(iii), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

(e)Payment of Other Taxes by the Company. The Company shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.

2.17    Obligation to Mitigate. Each Lender agrees that, as promptly as practicable after the officer of such Lender responsible for administering its Revolving Loans becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under Section 2.15 and/or Section 2.16, it will, to the extent





not inconsistent with the internal policies of such Lender and any applicable legal or regulatory restrictions, use reasonable efforts to (a) make, issue, fund or maintain its Credit Extensions through another office of such Lender, or (b) take such other measures as such Lender may deem reasonable, if as a result thereof the additional amounts which would otherwise be required to be paid to such Lender pursuant to 2.15 and/or 2.16 would be materially reduced and if, as determined by such Lender in its sole discretion, the making, issuing, funding or maintaining of such Revolving Commitments or Revolving Loans through such other office or in accordance with such other measures, as the case may be, would not otherwise adversely affect such Revolving Commitments or Revolving Loans or the interests of such Lender; provided, such Lender will not be obligated to utilize such other office pursuant to this Section 2.17 unless Company agrees to pay all reasonable and incremental expenses incurred by such Lender as a result of utilizing such other office as described above. A certificate as to the amount of any such expenses payable by Company pursuant to this Section 2.17 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to Company (with a copy to Administrative Agent) shall be conclusive absent manifest error.

2.18    Defaulting Lenders. Anything contained herein to the contrary notwithstanding, in the event that other than at the direction or request of any regulatory agency or authority, any Lender defaults (in each case, a “Defaulting Lender”) in its obligation to fund (a “Funding Default”) any Revolving Loan (in each case, a “Defaulted Loan”), then (a) during any Default Period with respect to such Defaulting Lender, such Defaulting Lender shall be deemed not to be a “Lender” for purposes of voting on any matters (including the granting of any consents or waivers) with respect to any of the Credit Documents; (b) to the extent permitted by applicable law, until such time as the Default Excess, if any, with respect to such Defaulting Lender shall have been reduced to zero, (i) any voluntary prepayment of the Revolving Loans shall be applied to the Revolving Loans of other Lenders of the applicable Class as if such Defaulting Lender had no Revolving Loans outstanding and the Revolving Exposure of such Defaulting Lender were zero, and (ii) any mandatory prepayment of the Revolving Loans of the applicable Class shall be applied to the Revolving Loans of other Lenders (but not to the Revolving Loans of such Defaulting Lender) of such Class as if such Defaulting Lender had funded all Defaulted Loans of such Class of such Defaulting Lender, it being understood and agreed that Company shall be entitled to retain any portion of any mandatory prepayment of the Revolving Loans of the applicable Class that is not paid to such Defaulting Lender solely as a result of the operation of the provisions of this clause (b); and (c) the Total Utilization of Class A Revolving Commitments or the Total Utilization of Class B Revolving Commitments, as applicable, as at any date of determination shall be calculated as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender. No Revolving Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this Section 2.18, performance by Company of its obligations hereunder and the other Credit Documents shall not be excused or otherwise modified as a result of any Funding Default or the operation of this Section 2.18. The rights and remedies against a Defaulting Lender under this Section 2.18 are in addition to other rights and remedies which Company may have against such Defaulting Lender with respect to any Funding Default and which Administrative Agent or any Lender may have against such Defaulting Lender with respect to any Funding Default or violation of Section 8.5(c).

2.19    Removal or Replacement of a Lender. Anything contained herein to the contrary notwithstanding, in the event that: (a) (i) any Lender (an “Increased-Cost Lender”) shall give notice to Company that such Lender is entitled to receive payments under Section 2.15 and/or Section 2.16, (ii) the circumstances which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five (5) Business Days after Company’s request for such withdrawal; or (b) (i) any Lender shall become a Defaulting Lender, (ii) the Default Period for such Defaulting Lender shall remain in effect, and (iii) such Defaulting Lender shall fail to cure the default as a result of which it has become a Defaulting Lender within five (5) Business Days after Company’s request that it cure such default; or (c) in connection with any proposed amendment, modification, termination, waiver or consent with respect





to any of the provisions hereof as contemplated by Section 9.5(b), the consent of Administrative Agent and Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a “Non-Consenting Lender”) whose consent is required shall not have been obtained and (ii) no Default or Event of Default shall then exist; then, with respect to each such Increased-Cost Lender, Defaulting Lender or Non-Consenting Lender (the “Terminated Lender”), Company may, by giving written notice to any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender and, if applicable, each other such Lender hereby irrevocably agrees) to assign its outstanding Revolving Loans and its Revolving Commitments, if any, in full to one or more Eligible Assignees identified by Company (each a “Replacement Lender”) in accordance with the provisions of Section 9.6; provided, (1) on the date of such assignment, the Replacement Lender shall pay to the Terminated Lender and, if applicable, such other Lenders, an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Revolving Loans of the Terminated Lender and, if applicable, such other Lenders, and (B) an amount equal to all accrued, but theretofore unpaid fees owing to such Terminated Lender and, if applicable, such other Lenders, pursuant to Section 2.7; (2) on the date of such assignment, Company shall pay any amounts payable to such Terminated Lender and, if applicable, such other Lenders pursuant to Section 2.15 and/or Section 2.16 and any other amounts due to such Terminated Lender and, if applicable, such other Lenders; and (3) in the event such Terminated Lender is an Increased-Cost Lender, such assignment will result in a reduction in any claims for payments under Section 2.15 and/or Section 2.16, as applicable, and (4) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender. Upon the prepayment of all amounts owing to any Terminated Lender and, if applicable, such other Lenders and the termination of such Terminated Lender’s Revolving Commitments and, if applicable, the Revolving Commitments of such other Lenders, such Terminated Lender and, if applicable, such other Lenders shall no longer constitute a “Lender” for purposes hereof; provided, any rights of such Terminated Lender and, if applicable, such other Lenders to indemnification hereunder shall survive as to such Terminated Lender and such other Lenders.

2.20    The Paying Agent.

(a) The Lenders hereby appoint Wells Fargo Bank, N.A. as the initial Paying Agent. All payments of amounts due and payable in respect of the Obligations that are to be made from amounts withdrawn from the Collection Account pursuant to Section 2.12 shall be made by the Paying Agent based on the Monthly Servicing Report (upon which the Paying Agent shall be entitled to conclusively rely).

(b)The Paying Agent hereby agrees that, subject to the provisions of this Section, it shall:

(i)hold any sums held by it for the payment of amounts due with respect to the Obligations in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided and pay such sums to such Persons as herein provided;

(ii)give the Administrative Agent and the Class B Revolving Lenders notice of any default by the Company in the making of any payment required to be made with respect to the Obligations of which it has actual knowledge;

(iii)comply with all requirements of the Internal Revenue Code and any applicable State law with respect to the withholding from any payments made by it in respect of any





Obligations of any applicable withholding taxes imposed thereon and with respect to any applicable reporting requirements in connection therewith; and
(iv)provide to the Agents such information as is required to be delivered under the Internal Revenue Code or any State law applicable to the particular Paying Agent, relating to payments made by the Paying Agent under this Agreement.

(c)Each Paying Agent (other than the initial Paying Agent) shall be appointed by the Lenders with the prior written consent of the Company (if required), in accordance with Section 2.20(r).

(d)The Company shall indemnify the Paying Agent and its officers, directors, employees and agents for, and hold them harmless against any loss, liability or expense incurred, other than in connection with the willful misconduct, fraud, gross negligence or bad faith on the part of the Paying Agent, arising out of or in connection with the performance of its obligations under and in accordance with this Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties under this Agreement. All such amounts shall be payable in accordance with Section 2.12 and such indemnity shall survive the termination of this Agreement and the resignation or removal of the Paying Agent.

(e)The Paying Agent undertakes to perform such duties, and only such duties, as are expressly set forth in this Agreement. No implied covenants or obligations shall be read into this Agreement against the Paying Agent. The Paying Agent may conclusively rely on the truth of the statements and the correctness of the opinions expressed in any certificates or opinions furnished to the Paying Agent pursuant to and conforming to the requirements of this Agreement.

(f)The Paying Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the direction or request of Requisite Lenders or the Administrative Agent or other relevant instructing party expressly permitted hereunder, or (ii) in the absence of its own fraud, gross negligence or willful misconduct as determined by a court of competent jurisdiction, no longer subject to appeal or review.

(g)The Paying Agent shall not be charged with knowledge of any event or information, including any Default or Event of Default unless a Responsible Officer of the Paying Agent obtains actual knowledge or receives written notice of such event from the Company, the Servicer or the Administrative Agent, as the case may be. The receipt and/or delivery of reports and other information under this Agreement by the Paying Agent, and any publicly-available information, shall not constitute notice or actual or constructive knowledge of any such event or information, including any Default or Event of Default contained therein.

(h)The Paying Agent shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if there shall be reasonable grounds for believing that the repayment of such funds or adequate indemnity against such risk or liability shall not be reasonably assured to it, and none of the provisions contained in this Agreement shall in any event require the Paying Agent to perform, or be responsible for the manner of performance of, any of the obligations of the Company under this Agreement.

(i)The Paying Agent may conclusively rely and shall be protected in acting or refraining from acting upon any resolution, certificate of an Authorized Officer, any Monthly Servicing Report, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties.






(j)The Paying Agent may consult with counsel of its choice with regard to legal questions arising out of or in connection with this Agreement and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, omitted or suffered by the Paying Agent in good faith and in accordance therewith.

(k)The Paying Agent shall be under no obligation to exercise any of the rights, powers or remedies vested in it by this Agreement or to institute, conduct or defend any litigation under this Agreement or in relation to this Agreement, at the request, order or direction of the Administrative Agent, any Lender or any Agent pursuant to the provisions of this Agreement, unless the Administrative Agent, on behalf of the Secured Parties, such Lender or such Agent shall have offered to the Paying Agent security or indemnity satisfactory to it against the costs, expenses and liabilities that may be incurred therein or thereby.

(l)Except as otherwise expressly set forth in Section 2.21, the Paying Agent shall not be bound to make any investigation into the facts of matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by the Administrative Agent; provided, that if the payment within a reasonable time to the Paying Agent of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation shall be, in the opinion of the Paying Agent, not reasonably assured by the Company, the Paying Agent may require reasonable indemnity against such cost, expense or liability as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Company or, if paid by the Paying Agent, shall be reimbursed by the Company to the extent of funds available therefor pursuant to Section 2.12.

(m)The Paying Agent shall not be responsible for the acts or omissions of the Administrative Agent, the Company, the Servicer, any Agent, any Lender or any other Person, and may assume compliance by such parties with their obligations, unless a Responsible Officer of the Paying Agent shall have received written notice to the contrary.

(n)Any Person into which the Paying Agent may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which to Paying Agent shall be a party, or any Person succeeding to the business of the Paying Agent, shall be the successor of the Paying Agent under this Agreement, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.

(o)The Paying Agent shall not be liable for ensuring that the Secured Parties’ interest in the Collateral is valid or enforceable, and does not assume and shall have no responsibility for, and makes no representation as to, monitoring the status of any lien or performance or value of any Collateral.

(p)If the Paying Agent shall at any time receive conflicting instructions from the Administrative Agent and the Company or the Servicer or any other party to this Agreement and the conflict between such instructions cannot be resolved by reference to the terms of this Agreement, the Paying Agent shall follow the instructions of the Administrative Agent. The Paying Agent may rely upon the validity of documents delivered to it, without investigation as to their authenticity or legal effectiveness, and the parties to this Agreement will hold the Paying Agent harmless from any claims that may arise or be asserted against the Paying Agent because of the invalidity of any such documents or their failure to fulfill their intended purpose.

(q)The Paying Agent is authorized, in its sole discretion, to disregard any and all notices or instructions given by any other party hereto or by any other person, firm or corporation, except only such





notices or instructions as are herein provided for and orders or process of any court entered or issued with or without jurisdiction. If any property subject hereto is at any time attached, garnished or levied upon under any court order or in case the payment, assignment, transfer, conveyance or delivery of any such property shall be stayed or enjoined by any court order, or in case any order, judgment or decree shall be made or entered by any court affecting such property or any part hereof, then and in any of such events the Paying Agent is authorized, in its sole discretion, to rely upon and comply with any such order, writ, judgment or decree, and if it complies with any such order, writ, judgment or decree it shall not be liable to any other party hereto or to any other person, firm or corporation by reason of such compliance even though such order, writ, judgment or decree maybe subsequently reversed, modified, annulled, set aside or vacated.

(r)The Paying Agent may: (i) terminate its obligations as Paying Agent under this Agreement (subject to the terms set forth herein) upon at least 30 days’ prior written notice to the Company, the Servicer and the Administrative Agent; provided, however, that, without the consent of the Administrative Agent, such resignation shall not be effective until a successor Paying Agent reasonably acceptable to the Administrative Agent and, so long as no Event of Default is then existing, the Company (such consent not to be unreasonably withheld or delayed) shall have accepted appointment by the Lenders as Paying Agent, pursuant hereto and shall have agreed to be bound by the terms of this Agreement; or (ii) be removed at any time upon thirty (30) days’ written notice by the Administrative Agent (acting at the direction of the Requisite Lenders), delivered to the Paying Agent, the Company and the Servicer. In the event of such termination or removal, the Lenders with, so long as no Event of Default is then existing, the consent of the Company (such consent not to be unreasonably withheld or delayed) shall appoint a successor paying agent. If, however, a successor paying agent is not appointed by the Lenders within sixty (60) days after the giving of notice of resignation or removal, the Paying Agent may petition a court of competent jurisdiction for the appointment of a successor Paying Agent.

(s)Any successor Paying Agent appointed pursuant hereto shall (i) execute, acknowledge, and deliver to the Company, the Servicer, the Administrative Agent, and to the predecessor Paying Agent an instrument accepting such appointment under this Agreement. Thereupon, the resignation or removal of the predecessor Paying Agent shall become effective and such successor Paying Agent, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties, and obligations of its predecessor as Paying Agent under this Agreement, with like effect as if originally named as Paying Agent. The predecessor Paying Agent shall upon payment of its fees and expenses deliver to the successor Paying Agent all documents and statements and monies held by it under this Agreement; and the Company and the predecessor Paying Agent shall execute and deliver such instruments and do such other things as may reasonably be requested for fully and certainly vesting and confirming in the successor Paying Agent all such rights, powers, duties, and obligations.

(t)The Company shall reimburse the Paying Agent for the reasonable out-of-pocket expenses of the Paying Agent actually incurred in connection with the succession of any successor Paying Agent including in transferring any funds in its possession to the successor Paying Agent.

(u)The Paying Agent shall have no obligation to invest and reinvest any cash held in the Collection Account or any other moneys held by the Paying Agent pursuant to this Agreement in the absence of timely and specific written investment direction from Company. In no event shall the Paying Agent be liable for the selection of investments or for investment losses incurred thereon. The Paying Agent shall have no liability in respect of losses incurred as a result of the liquidation of any investment prior to its stated maturity or the failure of the Company to provide timely written investment direction.






(v)If the Paying Agent shall be uncertain as to its duties or rights hereunder or under any other Credit Documents or shall receive instructions from any of the parties hereto pursuant to this Agreement which, in the reasonable opinion of the Paying Agent, are in conflict with any of the provisions of this Agreement or another Credit Document to which it is a party, the Paying Agent shall be entitled (without incurring any liability therefor to the Company or any other Person) to (i) consult with counsel of its choosing and act or refrain from acting based on the advice of such counsel and (ii) refrain from taking any action until it shall be directed otherwise in writing by all of the parties hereto or by final order of a court of competent jurisdiction.

(w)The Paying Agent shall incur no liability nor be responsible to Company or any other Person for delays or failures in performance resulting from acts beyond its control that significantly and adversely affect the Paying Agent’s ability to perform with respect to this Agreement. Such acts shall include, but not be limited to, acts of God, strikes, work stoppages, acts of terrorism, civil or military disturbances, nuclear or natural catastrophes, or the unavailability of the Federal Reserve Bank wire or telex or other wire or communication facility.

(x)The Paying Agent may execute any of its powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, provided that the Paying Agent shall remain obligated and liable for the administration of its duties hereunder, to the same extent and under the same terms and conditions as if it alone were acting as Paying Agent.

(y)The Paying Agent shall not be required to take any action that is not in accordance with applicable law. The right of the Paying Agent to perform any permissive or discretionary act enumerated in this Agreement or any related document shall not be construed as a duty.

(z)Knowledge of the Paying Agent shall not be attributed or imputed to Wells Fargo’s other roles in the transaction and knowledge of the Custodian, Collateral Agent or Controlled Account Bank shall not be attributed or imputed to the Paying Agent (other than those where the roles are performed by the same group or division within Wells Fargo or otherwise share the same Responsible Officers), or any affiliate, line of business, or other division of Wells Fargo (and vice versa).

(aa)The Paying Agent shall not be responsible for filing any financing or continuation statements or recording any documents or instruments in any public office at any time or times or otherwise perfecting any security interest in the Collateral. It is expressly agreed, to the maximum extent permitted by applicable law, that the Paying Agent shall have no responsibility for (A) monitoring the perfection, continuation of perfection or the sufficiency or validity of any security interest in or related to the Collateral, (B) taking any necessary steps to preserve rights against any Person with respect to any Collateral, or (C) taking any action to protect against any diminution in value of the Collateral.

(ab)The Lenders hereby authorize and direct the Paying Agent to execute and deliver the Undertakings Agreement.

2.21    Duties of Paying Agent.

(a)Borrowing Base Reports. Upon receipt of any Borrowing Base Report and the related Borrowing Base Certificate delivered pursuant to Section 2.1(c)(ii), Section 2.11(c)(vii)(B) or Section 2.11(c)(vii)(C), Paying Agent shall, on the Business Day following receipt of such Borrowing Base Report, to the extent that Paying Agent has access to all information necessary to perform the duties set forth herein:





(i)compare the ending Eligible Portfolio Outstanding Principal Balance set forth in such Borrowing Base Report with the aggregate Outstanding Principal Balance of the Eligible Receivables listed in the Master Record and identify any discrepancy;

(ii)compare the number of Pledged Receivables listed in the Master Record with the number of Pledged Receivables provided to the Paying Agent by the Servicer pursuant to Section 4.3 of the Custodial Agreement as the number of Pledged Receivables for which the Custodian holds a Receivable File pursuant to the Custodial Agreement and identify any discrepancy;

(iii)confirm that each Pledged Receivable listed in the Master Record has a unique loan identification number;

(iv)compare the amount set forth in such Borrowing Base Report as the amount on deposit in the Collection Account with the amount shown on deposit in the Collection Account as of the date of such Borrowing Base Report and identify any discrepancy;

(v)in the case of a Borrowing Base Report delivered pursuant to Section 2.11(c)(vii)(B) or Section 2.11(c)(vii)(C), recalculate the amount set forth in such Borrowing Base Report as the amount that will be on deposit in the Collection Account after giving effect to the related repayment of Revolving Loans or the related purchase of Eligible Receivables set forth therein and identify any discrepancy;

(vi)confirm that the Accrued Interest Amount and an estimate of accrued fees as of the date of repayment or the Transfer Date, as the case may be, multiplied by 105%, is the amount set forth in such Borrowing Base Request as 105% of the estimated amount of accrued interest and fees and identify any discrepancy;

(vii)recalculate the Class A Revolving Availability and the Class B Revolving Availability, based on the Class A Borrowing Base and the Class B Borrowing Base set forth in such Borrowing Base Report and the Total Utilization of Class A Revolving Commitments and the Total Utilization of Class B Revolving Commitments set forth in the Paying Agent’s records and identify any discrepancies;

(viii)in the case of a Borrowing Base Report delivered pursuant to Section 3.3(a)(i), (A) confirm that the Class A Revolving Loans requested in the related Funding Request are not greater than the Class A Revolving Availability and the amount of Class B Revolving Loans requested in the related Funding Request are not greater than the Class B Revolving Availability and (B) confirm that, after giving effect to such Revolving Loans, the Total Utilization of Class A Revolving Loans will not exceed the Class A Revolving Commitments and the Total Utilization of Class B Revolving Loans will not exceed the Class B Revolving Commitments; and

(ix)notify the Administrative Agent and the Lenders of the results of such review.

(b)Monthly Servicing Reports. Upon receipt of any Monthly Servicing Report delivered pursuant to Section 5.1(f), Paying Agent shall, to the extent that Paying Agent has access to all information necessary to perform the duties set forth herein:






(i)compare the Eligible Portfolio Outstanding Principal Balance set forth therein with the aggregate Outstanding Principal Balance of the Eligible Receivables listed in the Master Record and identify any discrepancy;

(ii)confirm the aggregate repayments of Revolving Loans during the period covered by the Monthly Servicing Report set forth therein with the Borrowing Base Reports delivered to Paying Agent pursuant to Section 2.11(c)(vii)(B) during such period and identify any discrepancies;

(iii)compare the amount set forth therein as the amount on deposit in the Collection Account with the amount shown on deposit in the Collection Account as of the date of such Monthly Servicing Report and identify any discrepancy;

(iv)compare the amount of accrued and unpaid interest and unused fees payable to the Class A Revolving Lenders and the amount of accrued and unpaid interest and unused fees payable to the Class B Revolving Lenders, respectively, set forth therein to the amounts set forth in the related invoices received by Paying Agent and identify any discrepancies;

(v)compare the amount of Servicing Fees payable to the Servicer set forth therein to the amount set forth in the related invoice received by Paying Agent and identify any discrepancy;

(vi)compare the amount of Backup Servicing Fees and expenses payable to the Backup Servicer set forth therein to the amounts set forth in the related invoice received by Paying Agent and identify any discrepancy;

(vii)compare the amount of fees and expenses payable to the Custodian set forth therein to the amounts set forth in the related invoice received by Paying Agent and identify any discrepancy;

(viii)compare the amount of fees and expenses payable to the Collateral Agent set forth therein to the amounts set forth in the related invoice received by Paying Agent and identify any discrepancy;

(ix)compare the amount of fees and expenses payable to the Paying Agent set forth therein to the amounts set forth in the related invoice submitted by Paying Agent and identify any discrepancy;

(x)recalculate the Class A Revolving Availability and the Class B Revolving Availability based on the Class A Borrowing Base and the Class B Borrowing Base set forth therein and the Total Utilization of Class A Revolving Commitments and the Total Utilization of Class B Revolving Commitments set forth in the Paying Agent’s records and identify any discrepancies; and

(xi)notify the Administrative Agent and the Lenders of the results of such review.

(c)For the avoidance of doubt, Paying Agent’s sole responsibility with respect to the obligations set forth in Section 2.21 is to compare or confirm information in the Borrowing Base Report or Monthly Servicing Report, as applicable, in accordance with Section 2.21 based on the information indicated therein received by Paying Agent from Company, the Servicer or the Custodian, as the case may be.







2.22    Collateral Agent.

(a)The Collateral Agent shall be entitled to the same rights, protections, indemnities and immunities as the Paying Agent hereunder.

(b)In addition to Section 2.22(a), the Collateral Agent shall be entitled to the following additional protections:

(i)The Collateral Agent shall have no duty (A) to see to any recording, filing, or depositing of this Agreement or any agreement referred to herein or any financing statement or continuation statement evidencing a security interest, or to see to the maintenance of any such recording or filing or depositing or to any rerecording, re-filing or re-depositing of any thereof, (B) to see to any insurance, or (C) to see to the payment or discharge of any tax, assessment, or other governmental charge or any lien or encumbrance of any kind owing with respect to, assessed or levied against, any part of the Collateral;

(ii)The Collateral Agent shall be authorized to, but shall not be responsible for, filing any financing or continuation statements or recording any documents or instruments in any public office at any time or times or otherwise perfecting any security interest in the Collateral. It is expressly agreed, to the maximum extent permitted by applicable law, that the Collateral Agent shall have no responsibility for (A) monitoring the perfection, continuation of perfection or the sufficiency or validity of any security interest in or related to the Collateral, (B) taking any necessary steps to preserve rights against any Person with respect to any Collateral, or (C) taking any action to protect against any diminution in value of the Collateral;

(iii)The Collateral Agent shall be fully justified in failing or refusing to take any action under this Agreement and any other Credit Document (A) if such action would, in the reasonable opinion of the Collateral Agent, in good faith (which may be based on the advice or opinion of counsel), be contrary to applicable law, this Agreement or any other Credit Document, (B) if such action is not provided for in this Agreement or any other Credit Document, (C) if, in connection with the taking of any such action hereunder, under any other Credit Document that would constitute an exercise of remedies, it shall not first be indemnified to its satisfaction by the Administrative Agent and/or the Lenders against any and all risk of nonpayment, liability and expense that may be incurred by it, its agents or its counsel by reason of taking or continuing to take any such action, or (D) if the Collateral Agent would be required to make payments on behalf of the Lenders pursuant to its obligations as Collateral Agent hereunder, it does not first receive from the Lenders sufficient funds for such payment;

(iv)The Collateral Agent shall not be required to take any action under this or any other Credit Document if taking such action (A) would subject the Collateral Agent to a tax in any jurisdiction where it is not then subject to a tax, or (B) would require the Collateral Agent to qualify to do business in any jurisdiction where it is not then so qualified;

(v)Neither the Collateral Agent nor its respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Administrative Agent or the Lenders, or to take any other action whatsoever with regard to the Collateral or any part thereof. The powers conferred on the Collateral Agent hereunder are solely to protect the Collateral Agent’s and the Lenders’ interests in the Collateral and shall not





impose any duty upon the Collateral Agent to exercise any such powers. The Collateral Agent shall be accountable only for amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Administrative Agent or the Lenders for any act or failure to act hereunder, except for its own fraud, gross negligence or willful misconduct.

2.23    Intention of Parties.

It is the intention of the parties that the Revolving Loans be characterized as indebtedness for federal income tax purposes. The terms of the Revolving Loans shall be interpreted to further this intention and neither the Lenders nor Company will take an inconsistent position on any federal, state or local tax return.
SECTION 3.        CONDITIONS PRECEDENT

3.1    Conditions Precedent to Effectiveness of the Existing Credit Agreement. The Existing Credit Agreement became effective on the Third Amendment Effective Date subject to the satisfaction of the conditions precedent set forth in Section 3.1 of the Existing Credit Agreement.

3.2    Conditions Precedent to Effectiveness of the Amended and Restated Credit Agreement. The amendment and restatement of the Existing Credit Agreement provided for hereby shall become effective on the Fourth Amendment Effective Date subject to the satisfaction, or waiver in accordance with Section 9.5, of the following conditions on or before the Fourth Amendment Effective Date:

(a)Credit Documents and Related Agreements. The Administrative Agent shall have received copies of each Credit Document, originally executed and delivered by each applicable Person and copies of each Related Agreement.

(b)Organizational and Capital Structure. The organizational structure and capital structure of Company shall be as described in Section 4.2.

(c)Transaction Costs. On or prior to the Fourth Amendment Effective Date, Company shall have delivered to Administrative Agent, Company’s reasonable best estimate of the Transaction Costs (other than fees payable to any Agent).

(d)Governmental Authorizations and Consents. Company and Holdings shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable to be obtained by them, in connection with the transactions contemplated by the Credit Documents and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to the Administrative Agent. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Credit Documents or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired.

(e)Opinions of Counsel to Company and Holdings. The Administrative Agent and counsel to Administrative Agent shall have received executed copies of the favorable written opinions of Paul Hastings LLP, counsel for Company and Holdings, as to such matters as the Administrative Agent may reasonably request, dated as of the Fourth Amendment Effective Date and otherwise in form and substance





reasonably satisfactory to the Administrative Agent (and Company hereby instructs, and Holdings shall instruct, such counsel to deliver such opinions to Agents and Lenders).

(f)Fourth Amendment Effective Date Certificate. Holdings and Company shall have delivered to the Administrative Agent an originally executed Fourth Amendment Effective Date Certificate, together with all attachments thereto.

(g)No Litigation. There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Authority that, in the reasonable discretion of the Administrative Agent, singly or in the aggregate, materially impairs any of the transactions contemplated by the Credit Documents or that would reasonably be expected to result in a Material Adverse Effect.

(h)Reserve Account. Company shall have deposited an amount equal to the Reserve Account Funding Amount into the Reserve Account.

(i)No Material Adverse Change. Since December 31, 2017, no event, circumstance or change shall have occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.

(j)Completion of Proceedings. All partnership, corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto shall be satisfactory in form and substance to the Administrative Agent and counsel to Administrative Agent, and the Administrative Agent, and counsel to Administrative Agent shall have received all such counterpart originals or certified copies of such documents as they may reasonably request.

(k)Beneficial Ownership Certification. At least five (5) days prior to the date of this Agreement, all documentation and other information required by bank regulatory authorities or reasonably requested by the Administrative Agent or any Lender under or in respect of applicable “know your customer” and anti-money laundering Legal Requirements including the Patriot Act and, if Company qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, a Beneficial Ownership Certification in relation to Company;

The Administrative Agent and each Lender, by delivering its signature page to this Agreement, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by the Administrative Agent, Requisite Lenders or Lenders, as applicable on the Fourth Amendment Effective Date.
3.3    Conditions to Each Credit Extension.

(a)Conditions Precedent. The obligation of each Lender to make any Revolving Loan on any Credit Date, including if applicable the Fourth Amendment Effective Date, is subject to the satisfaction, or waiver in accordance with Section 9.5, of the following conditions precedent:

(i)Administrative Agent, the Paying Agent, the Custodian and the Class B Revolving Lenders shall have received a fully executed and delivered Funding Notice together with a Borrowing Base Certificate, evidencing sufficient Revolving Availability with respect to the requested Revolving Loans, and a Borrowing Base Report;





(ii)both before and after making any Revolving Loans requested on such Credit Date, the Total Utilization of Class A Revolving Commitments shall not exceed the Class A Borrowing Base and the Total Utilization of Class B Revolving Commitments shall not exceed the Class B Borrowing Base;

(iii)as of such Credit Date, the representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects on and as of that Credit Date to the same extent as though made on and as of that date, other than those representations and warranties which are qualified by materiality, in which case, such representation and warranty shall be true and correct in all respects on and as of that Credit Date, except, in each case, to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects, or true and correct in all respects, as the case may be on and as of such earlier date;

(iv)as of such Credit Date, no event shall have occurred and be continuing or would result from the consummation of the applicable Credit Extension that would constitute an Event of Default or a Default;

(v)the Administrative Agent, the Class B Revolving Lenders and the Paying Agent shall have received the Borrowing Base Report for the Business Day prior to the Credit Date which shall be delivered on a pro forma basis for the first Credit Date hereunder;

(vi)in accordance with the terms of the Custodial Agreement, Company has delivered, or caused to be delivered to the Custodian, the Receivable File related to each Receivable, if any, that is, on such Credit Date, being transferred and delivered to Company pursuant to the Asset Purchase Agreement, and the Administrative Agent has received a Collateral Receipt and Exception Report from the Custodian, which Collateral Receipt and Exception Report is acceptable to the Administrative Agent in its Permitted Discretion;

(vii)as of such Credit Date, the Reserve Account shall have been (or will be, out of the proceeds of the Revolving Loans to be made on such date), funded so that it contains funds in an amount not less than the Reserve Account Funding Requirement as of such date; and

(viii)no Reduction Period, Election Period or Early Amortization Event has occurred and is continuing.

Notwithstanding anything contained herein to the contrary, neither the Paying Agent nor the Collateral Agent shall be responsible or liable for determining whether any conditions precedent to making a Revolving Loan have been satisfied.
(b)Notices. Any Funding Notice shall be executed by an Authorized Officer in a writing delivered to Administrative Agent, the Class B Revolving Lenders and the Paying Agent.

SECTION 4.        REPRESENTATIONS AND WARRANTIES

In order to induce Agents and Lenders to enter into this Agreement and to make each Credit Extension to be made thereby, Company represents and warrants to each Agent and Lender, on the Fourth Amendment Effective Date, and on each Credit Date and on each Transfer Date following the Fourth Amendment Effective Date, that the following statements are true and correct:





4.1    Organization; Requisite Power and Authority; Qualification; Other Names. Company (a) is duly organized or formed, validly existing and in good standing under the laws of the State of Delaware, (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Credit Documents to which it is a party and to carry out the transactions contemplated thereby, and (c) is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had, and would not reasonably be expected to result in a Material Adverse Effect. Company does not operate or do business under any assumed, trade or fictitious name. Company has no Subsidiaries.

4.2    Capital Stock and Ownership. The Capital Stock of Company has been duly authorized and validly issued and is fully paid and non‑assessable. As of the Original Closing Date, there is no existing option, warrant, call, right, commitment or other agreement to which Company is a party requiring, and there is no membership interest or other Capital Stock of Company outstanding which upon conversion or exchange would require, the issuance by Company of any additional membership interests or other Capital Stock of Company or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase, a membership interest or other Capital Stock of Company. All membership interests in the Company as of the Fourth Amendment Effective Date are owned by Holdings.

4.3    Due Authorization. The execution, delivery and performance of the Credit Documents to which Company is a party have been duly authorized by all necessary action of Company.

4.4    No Conflict. The execution, delivery and performance by Company of the Credit Documents to which it is party and the consummation of the transactions contemplated by the Credit Documents do not and will not (a) violate in any material respect any provision of any law or any governmental rule or regulation applicable to Company, any of the Organizational Documents of Company, or any order, judgment or decree of any court or other Governmental Authority binding on Company; (b) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company; (c) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company (other than any Liens created under any of the Credit Documents in favor of Collateral Agent, on behalf of Secured Parties); or (d) require any approval of stockholders, members or partners or any approval or consent of any Person under any Contractual Obligation of Company, except as would not reasonably be expected to result in a Material Adverse Effect.

4.5    Governmental Consents. The execution, delivery and performance by Company of the Credit Documents to which Company is a party and the consummation of the transactions contemplated by the Credit Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Collateral Agent for filing and/or recordation, as of the Original Closing Date other than (a) those that have already been obtained and are in full force and effect, or (b) any consents or approvals the failure of which to obtain will not have a Material Adverse Effect.

4.6    Binding Obligation. Each Credit Document to which Company is a party has been duly executed and delivered by Company and is the legally valid and binding obligation of Company, enforceable against Company in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.






4.7    Eligible Receivables. Each Receivable that is identified by Company as an Eligible Receivable in a Borrowing Base Certificate satisfies all of the criteria set forth in the definition of Eligibility Criteria.

4.8    Historical Financial Statements. The Historical Financial Statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position, on a consolidated basis, of the Persons described in such financial statements as at the respective dates thereof and the results of operations and cash flows, on a consolidated basis, of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year‑end adjustments.

4.9    No Material Adverse Effect. Since December 31, 2017, no event, circumstance or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.

4.10    Adverse Proceedings, etc. There are no Adverse Proceedings (other than counter claims relating to ordinary course collection actions by or on behalf of Company) pending against Company that challenges Company’s right or power to enter into or perform any of its obligations under the Credit Documents to which it is a party or that would reasonably be expected to result in a Material Adverse Effect.  Company is not (a) in violation of any applicable laws in any material respect, or (b) subject to or in default with respect to any judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other Governmental Authority, except as would not reasonably be expected to result in a Material Adverse Effect.

4.11    Payment of Taxes. Except as otherwise permitted under Section 5.3, all material tax returns and reports of Company required to be filed by it have been timely filed, and all material taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Company and upon its properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. Company knows of no proposed tax assessment against Company which is not being actively contested by Company in good faith and by appropriate proceedings; provided, such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor.

4.12    Title to Assets. Company has no fee, leasehold or other property interests in any real property assets. Company has good and valid title to all of its assets reflected in the most recent financial statements delivered pursuant to Section 5.1. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. All Liens purported to be created in any Collateral pursuant to any Collateral Document in favor of Collateral Agent are First Priority Liens.

4.13    No Indebtedness. Company has no Indebtedness, other than Indebtedness incurred under (or contemplated by) the terms of this Agreement or otherwise permitted hereunder.

4.14    No Defaults. Company is not in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists which, with the giving of notice or the lapse of time or both, could constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, would not reasonably be expected to result in a Material Adverse Effect.






4.15    Material Contracts. Company is not a party to any Material Contracts.

4.16    Government Contracts. Company is not a party to any contract or agreement with any Governmental Authority, and the Pledged Receivables are not subject to the Federal Assignment of Claims Act (31 U.S.C. Section 3727) or any similar state or local law.

4.17    Governmental Regulation. Company is not subject to regulation under the Public Utility Holding Company Act of 2005, the Federal Power Act or the Investment Company Act of 1940 (without reliance on the exemptions provided under Sections 3(c)(1) or 3(c)(7) thereof) or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. Company is not a “registered investment company” or a company “controlled” by a “registered investment company” or a “principal underwriter” of a “registered investment company” as such terms are defined in the Investment Company Act of 1940.

4.18    Margin Stock. Company is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Revolving Loans made to Company will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such Margin Stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of the Board of Governors of the Federal Reserve System.

4.19    Employee Benefit Plans. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. Company does not maintain or contribute to any Employee Benefit Plan.

4.20    Solvency; Fraudulent Conveyance. Company is and, upon the incurrence of any Credit Extension by Company on any date on which this representation and warranty is made, will be, Solvent. Company is not transferring any Collateral with any intent to hinder, delay or defraud any of its creditors. Company shall not use the proceeds from the transactions contemplated by this Agreement to give preference to any class of creditors. Company has given fair consideration and reasonably equivalent value in exchange for the sale of the Receivables by Holdings under the Asset Purchase Agreement.

4.21    Compliance with Statutes, etc. Company is in compliance in all material respects with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, in respect of the conduct of its business and the ownership of its property, except as would not reasonably be expected to result in a Material Adverse Effect.

4.22    Matters Pertaining to Related Agreements.

(a)Delivery. Company has delivered, or caused to be delivered, to each Agent and each Lender complete and correct copies of (i) each Related Agreement and of all exhibits and schedules thereto as of the Original Closing Date, and (ii) copies of any material amendment, restatement, supplement or other modification to or waiver of each Related Agreement entered into after the Original Closing Date.

(b)The Asset Purchase Agreement creates a valid transfer and assignment to Company of all right, title and interest of Holdings in and to all Pledged Receivables and all Related Security conveyed to Company thereunder and Company has a First Priority perfected security interest therein. Company has





given reasonably equivalent value to Holdings in consideration for the transfer to Company by Holdings of the Pledged Receivables and Related Security pursuant to the Asset Purchase Agreement.

(c)Each Receivables Program Agreement creates a valid transfer and assignment to Holdings of all right, title and interest of the Receivables Account Bank in and to all Receivables and Related Security conveyed or purported to be conveyed to Holdings thereunder. Holdings has given reasonably equivalent value to the Receivables Account Bank in consideration for the transfer to Holdings by the Receivables Account Bank of the Receivables and Related Security pursuant to the applicable Receivables Program Agreement.

4.23    Disclosure. No documents, certificates, written statements or other written information furnished to Lenders by or on behalf of Holdings or Company for use in connection with the transactions contemplated hereby, taken as a whole, contains any untrue statement of a material fact, or taken as a whole, omits to state a material fact (known to Holdings or Company, in the case of any document not furnished by either of them) necessary in order to make the statements contained therein not misleading in light of the circumstances in which the same were made, provided, that, projections and pro forma financial information contained in such materials were prepared based upon good faith estimates and assumptions believed by the preparer thereof to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results and such differences may be material.

4.24    Patriot Act. To the extent applicable, Company and Holdings are in compliance, in all material respects, with the (a) Trading with the Enemy Act, as amended, and each of the foreign assets control regulations of the United States Treasury Department (31 C.F.R., Subtitle B, Chapter V, as amended) and any other enabling legislation or executive order relating thereto, and (b) Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA Patriot Act of 2001) (the “Act”). No part of the proceeds of the Revolving Loans will be used, directly or indirectly, for any payments to any governmental official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977, as amended to the date hereof and from time to time hereafter, and any successor statute.

4.25    Remittance of Collections.

Company represents and warrants that each remittance of Collections by it hereunder to any Agent or any Lender hereunder will have been (a) in payment of a debt incurred by Company in the ordinary course of business or financial affairs of Company and (b) made in the ordinary course of business or financial affairs.
4.26    Tax Status.

(a)Company is, and shall at all relevant times continue to be, a “disregarded entity” within the meaning of U.S. Treasury Regulation § 301.7701-3.

(b)Company is not and will not at any relevant time become an association (or a publicly traded partnership) taxable as a corporation for U.S. federal income tax purposes.


 





4.27    Beneficial Ownership.
As of the Fourth Amendment Effective Date, the information included in the Beneficial Ownership Certification is true and correct in all respects.
SECTION 5.        AFFIRMATIVE COVENANTS

Company covenants and agrees that until the Termination Date, Company shall perform (or cause to be performed, as applicable) all covenants in this Section 5.
5.1    Financial Statements and Other Reports. Unless otherwise provided below, Company or its designee will deliver to each Agent and each Lender:

(a)Quarterly Financial Statements. Promptly after becoming available, and in any event within forty-five (45) days after the end of each Fiscal Quarter (other than the fourth Fiscal Quarter) of each Fiscal Year, the consolidated balance sheet of Holdings as at the end of such Fiscal Quarter and the related consolidated statements of income, stockholders’ equity and cash flows of Holdings for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year, all in reasonable detail, together with a Financial Officer Certification with respect thereto;

(b)Annual Financial Statements. Promptly after becoming available, and in any event within ninety (90) days after the end of each Fiscal Year, (i) the consolidated balance sheets of Holdings as at the end of such Fiscal Year and the related consolidated statements of income, stockholders’ equity and cash flows of Holdings for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year, in reasonable detail, together with a Financial Officer Certification with respect thereto; and (ii) with respect to such consolidated financial statements a report thereon of Ernst & Young LLP or other independent certified public accountants of recognized national standing as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Holdings as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards);

(c)Compliance Certificates. Together with each delivery of financial statements of Holdings pursuant to Sections 5.1(a) and 5.1(b), a duly executed and completed Compliance Certificate;

(d)Statements of Reconciliation after Change in Accounting Principles. If, as a result of any change in accounting principles and policies from those used in the preparation of the Historical Financial Statements, the consolidated financial statements of (i) Holdings and (ii) Company delivered pursuant to Section 5.1(a) or 5.1(b) will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then, together with the first delivery of such financial statements after such change, one or more statements of reconciliation for all such prior financial statements in form and substance reasonably satisfactory to Administrative Agent;

(e)Public Reporting. The obligations in Sections 5.1(a) and (b) may be satisfied by furnishing, at the option of Holdings, the applicable financial statements as described above or an Annual





Report on Form 10-K or Quarterly Report on Form 10-Q for Holdings for any Fiscal Year, as filed with the U.S. Securities and Exchange Commission.

(f)Collateral Reporting.

(i)On each Monthly Reporting Date, with each Funding Notice, and at such other times as any Agent or Lender shall request in its Permitted Discretion, a Borrowing Base Certificate (calculated as of the close of business of the previous Monthly Period or as of a date no later than three (3) Business Days prior to such request), together with a reconciliation to the most recently delivered Borrowing Base Certificate and Borrowing Base Report, in form and substance reasonably satisfactory to Administrative Agent. Each Borrowing Base Certificate delivered to Administrative Agent, the Class B Revolving Lenders and Paying Agent shall bear a signed statement by an Authorized Officer certifying the accuracy and completeness in all material respects of all information included therein. The execution and delivery of a Borrowing Base Certificate shall in each instance constitute a representation and warranty by Company to Administrative Agent, the Class B Revolving Lenders and Paying Agent that each Receivable included therein as an “Eligible Receivable” is, in fact, an Eligible Receivable. For avoidance of doubt, and without derogation of the Company’s obligations hereunder, in the event any request for a Revolving Loan, or a Borrowing Base Certificate or other information required by this Section 5.1(f) is delivered to Administrative Agent, the Class B Revolving Lenders and Paying Agent by Company electronically or otherwise without signature, such request, or such Borrowing Base Certificate or other information shall, upon such delivery, be deemed to be signed and certified on behalf of Company by an Authorized Officer and constitute a representation to Administrative Agent, the Class B Revolving Lenders and Paying Agent as to the authenticity thereof. The Administrative Agent shall have the right to review and adjust any such calculation of the Borrowing Base to reflect exclusions from Eligible Receivables or such other matters as are necessary to determine the Borrowing Base, but in each case only to the extent the Administrative Agent is expressly provided such discretion by this Agreement. Further, by no later than each Monthly Reporting Date the Company shall provide notice to the Administrative Agent (which notice may be by electronic mail) of any breach of a Level 2 Performance Covenant for the Monthly Period most recently ended.

(ii)On each Monthly Reporting Date, the Master Record and the Monthly Servicing Report (which shall include the performance information reasonably requested by the Administrative Agent related to Repurchased Receivables (as defined in the Asset Purchase Agreement)) to Administrative Agent, the Class B Revolving Lenders and Paying Agent on the terms and conditions set forth in the Servicing Agreement.

(g)Notice of Default. Promptly, and in any event within two (2) Business Days, upon an Authorized Officer of Company obtaining knowledge (i) of any condition or event that constitutes an Early Amortization Event, a Default or an Event of Default or that notice has been given to Holdings or Company with respect thereto; (ii) that any Person has given any notice to Holdings or Company or taken any other action with respect to any event or condition set forth in Section 7.1(b); or (iii) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, a certificate of its Authorized Officers specifying the nature and period of existence of such condition, event or change, or specifying the notice given and action taken by any such Person and the nature of such claimed Event of Default, default, event or condition, and what action Holdings or Company, as applicable, has taken, is taking and proposes to take with respect thereto;






(h)Notice of Litigation. Promptly upon any Authorized Officer of Company obtaining knowledge of an Adverse Proceeding that is reasonably likely to have a Material Adverse Effect, written notice thereof together with such other information as may be reasonably available to Company or Holdings to enable Lenders and their counsel to evaluate such matters;

(i)ERISA. Promptly upon any Authorized Officer of Company becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event which, in either such case, would reasonably be expected to result in a Material Adverse Effect or a Lien on the Collateral under ERISA or Section 430 of the Internal Revenue Code, a written notice specifying the nature thereof, what action Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto;

(j)Information Regarding Collateral. Prior written notice to Collateral Agent and Administrative Agent of any change (i) in Company’s corporate name, (ii) in Company’s identity, corporate structure or jurisdiction of organization, or (iii) in Company’s Federal Taxpayer Identification Number. Company agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the UCC or otherwise that are required in order for Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral and for the Collateral at all times following such change to have a valid, legal and perfected security interest as contemplated in the Collateral Documents;

(k)Other Information.

(i)not later than Friday of each week (or if such day is not a Business Day, the immediately preceding Business Day) in which a Borrowing Base Report has not otherwise been delivered hereunder, a Borrowing Base Report;

(ii)any change in the information provided in the Beneficial Ownership Certification that would result in a change to the list of beneficial owners identified in such certification; and

(iii)such material information and data with respect to Holdings or any of its Subsidiaries as from time to time may be reasonably requested by any Agent or Lender, in each case, which relate to Company’s or Holdings’ financial or business condition or the Collateral.

5.2    Existence. Except as otherwise permitted under Section 6.8, Company will at all times preserve and keep in full force and effect its existence and all rights and franchises, licenses and permits material to its business.

5.3    Payment of Taxes and Claims. Company will pay all material Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (a) adequate reserve or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefor, and (b) in the case of a Tax or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the





sale of any portion of the Collateral to satisfy such Tax or claim. Company will not file or consent to the filing of any consolidated income tax return with any Person (other than Holdings or any of its Subsidiaries). In addition, Company agrees to pay to the relevant Governmental Authority in accordance with applicable law any current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies (including, without limitation, mortgage recording taxes, transfer taxes and similar fees) imposed by any Governmental Authority that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any Credit Document.

5.4    Insurance. Company shall cause Holdings to maintain or cause to be maintained, with financially sound and reputable insurers, (a) all insurance required to be maintained under the Servicing Agreement, (b) business interruption insurance reasonably satisfactory to Administrative Agent, and (c) casualty insurance, such public liability insurance, third party property damage insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Holdings and its Subsidiaries as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self‑insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for such Persons. Each Agent and Lender hereby agrees and acknowledges that the insurance maintained by Holdings on the Original Closing Date satisfies the requirements set forth in this Section 5.4.

5.5    Inspections; Compliance Audits.

(a)At any time during the existence of an Event of Default, and otherwise not more than one (1) time per Fiscal Year, Company will, upon reasonable advance notice by the Administrative Agent, permit or cause to be permitted, as applicable, one or more authorized representatives designated by the Administrative Agent and the Class B Revolving Lenders to visit and inspect (a “Compliance Review”) during normal working hours any of the properties of Company or Holdings to (i) inspect, copy and take extracts from relevant financial and accounting records, and to discuss its affairs, finances and accounts with any Person, including, without limitation, employees of Company or Holdings and independent public accountants and (ii) verify the compliance by Company or Holdings with the Credit Agreement, the other Credit Documents and/or the Underwriting Policies, as applicable; provided, that Company shall not be obligated to pay more than $75,000 in the aggregate during any Fiscal Year in connection with any Compliance Review and inspection pursuant to Section 2.4 of the Custodial Agreement; provided, further that such expense reimbursement limitation shall not apply to a Compliance Review conducted during the existence of an Event of Default. In connection with any such Compliance Review, Company will permit any authorized representatives designated by the Administrative Agent and the Class B Revolving Lenders to review Company’s form of Receivable Agreements, Underwriting Policies, information processes and controls, and compliance practices and procedures (“Materials”). Such authorized representatives may make written recommendations regarding Company’s compliance with applicable Requirements of Law, and Company shall consult in good faith with the Administrative Agent and the Class B Revolving Lenders regarding such recommendations. The Administrative Agent and the Class B Revolving Lenders agree to use a single independent certified public accountants or other third-party provider in connection with any Compliance Review pursuant to this Section 5.5 and the results of such review will be provided to the Administrative Agent and the Class B Revolving Lenders.

(b)If the Administrative Agent engages any independent certified public accountants or other third-party provider to prepare any report in connection with the Compliance Review, the Administrative Agent shall make such report available to any Lender, upon request, provided, that delivery of any such report may be conditioned on prior receipt by such independent certified public accountants or other third





party provider of the acknowledgements and agreements that such independent certified public accountants or third party provider customarily requires of recipients of reports of that kind.

(c)In connection with a Compliance Review, the Administrative Agent or its designee may contact a Receivables Obligor as reasonably necessary to perform such inspection or Compliance Review, as the case may be, provided, however, such contact shall be made in the name of, and in cooperation with, Holdings and Company.

5.6    Compliance with Laws. Company shall, and shall cause Holdings to, comply with the Requirements of Law, noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

5.7    Separateness. The Company shall at all times comply with the separateness covenants set forth in the Company’s Limited Liability Company Agreement.

5.8    Further Assurances. At any time or from time to time upon the request of any Agent or Lender, Company will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as such Agent or Lender may reasonably request in order to effect fully the purposes of the Credit Documents, including providing Lenders with any information reasonably requested pursuant to Section 9.21. In furtherance and not in limitation of the foregoing, Company shall take such actions as the Administrative Agent may reasonably request from time to time to ensure that the Obligations are secured by substantially all of the assets of Company.

5.9    Communication with Accountants.

(a)At any time during the existence of an Event of Default, Company authorizes Administrative Agent to communicate directly with Company’s independent certified public accountants and authorizes and shall instruct such accountants to communicate directly with Administrative Agent and authorizes such accountants to (and, upon Administrative Agent’s request therefor (at the request of any Agent), shall request that such accountants) communicate to Administrative Agent information relating to Company with respect to the business, results of operations and financial condition of Company (including the delivery of audit drafts and letters to management), provided that advance notice of such communication is given to Company, and Company is given a reasonable opportunity to cause an officer to be present during any such communication.

(b)If the independent certified public accountants report delivered in connection with Section 5.1(b) is qualified, then the Company authorizes the Administrative Agent to communicate directly with the Company’s independent certified public accountants with respect to such qualification, provided that advance notice of such communication is given to the Company, and the Company is given a reasonable opportunity to cause an officer to be present during any such communication.

(c)The failure of the Company to be present during any communication permitted under Section 5.9(a) and/or Section 5.9(b) after the Company has been given a reasonable opportunity to cause an officer to be present shall in no way impair the rights of the Administrative Agent under Section 5.9(a) and/or Section 5.9(b).

5.10    Acquisition of Receivables from Holdings. With respect to each Pledged Receivable, Company shall (a) acquire such Receivable pursuant to and in accordance with the terms of the Asset Purchase Agreement, (b) take all actions necessary to perfect, protect and more fully evidence Company’s ownership





of such Receivable, including, without limitation, executing or causing to be executed (or filing or causing to be filed) such other instruments or notices as may be necessary or appropriate and (c) take all additional action that the Administrative Agent may reasonably request to perfect, protect and more fully evidence the respective interests of Company, the Agents and the Lenders.

5.11    Class B Revolving Lenders Information Rights. Company shall provide to the Class B Revolving Lenders (a) substantially contemporaneously with its provision to the Administrative Agent any written information required to be provided to the Administrative Agent under any Credit Document, and (b) prompt written notice of (i) any Event of Default under this Agreement and (ii) any written waiver or consent provided under, or any amendment of, any Credit Document.

5.12    Level 2 Performance Covenant. The Company shall comply with each Level 2 Performance Covenant.

SECTION 6.        NEGATIVE COVENANTS

Company covenants and agrees that, until the Termination Date, Company shall perform (or cause to be performed, as applicable) all covenants in this Section 6.
6.1    Indebtedness. Company shall not directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except the Obligations.

6.2    Liens. Company shall not directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Company, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the UCC of any State or under any similar recording or notice statute, except Liens in favor of Collateral Agent for the benefit of Secured Parties granted pursuant to any Credit Document.

6.3    Reserved.

6.4    No Further Negative Pledges. Except pursuant to the Credit Documents Company shall not enter into any Contractual Obligation prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired.

6.5    Restricted Junior Payments. Company shall not through any manner or means or through any other Person to, directly or indirectly, declare, order, pay, make or set apart, or agree to declare, order, pay, make or set apart, any sum for any Restricted Junior Payment except that, Restricted Junior Payments may be made by Company from time to time with respect to any amounts distributed to Company (a) in accordance with Section 2.12(a)(xii) or (b) from and after the occurrence and during the continuation of an Event of Default or Early Amortization Event, in accordance with Section 2.12(b)(viii) only. Notwithstanding anything herein to the contrary, on any Credit Date with respect to a Credit Extension of a Class B Revolving Loan, Company may without further action on the part of Company distribute the proceeds of such Class B Revolving Loan to Holdings so long as no Class B Borrowing Base Deficiency or Class A Borrowing Base Deficiency has occurred or would result therefrom (a “Borrower Distribution”).






6.6    Subsidiaries. Company shall not form, create, organize, incorporate or otherwise have any Subsidiaries.

6.7    Investments. Company shall not, directly or indirectly, make or own any Investment in any Person, including without limitation any Joint Venture, except Investments in Cash, Permitted Investments and Receivables (and property received from time to time in connection with the workout or insolvency of any Receivables Obligor), and Permitted Investments in the Controlled Accounts.

6.8    Fundamental Changes; Disposition of Assets; Acquisitions. Company shall not enter into any transaction of merger or consolidation, or liquidate, wind‑up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub lease (as lessor or sublessor), exchange, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired (other than, provided no Event of Default pursuant to Section 7.1(a), 7.1(f), 7.1(g) or 7.1(l) has occurred and is continuing, Permitted Asset Sales, provided, that Permitted Asset Sales under clause (d) of the definition thereof shall be permitted at all times subject to receipt of the consent required therein), or acquire by purchase or otherwise (other than acquisitions of Eligible Receivables, or Permitted Investments in a Controlled Account (and property received from time to time in connection with the workout or insolvency of any Receivables Obligor)) the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business or other business unit of any Person.

6.9    Sales and Lease-Backs. Company shall not, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease of any property (whether real, personal or mixed), whether now owned or hereafter acquired, which Company (a) has sold or transferred or is to sell or to transfer to any other Person, or (b) intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by Company to any Person in connection with such lease.

6.10    Transactions with Shareholders and Affiliates. Company shall not, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of ten percent (10%) or more of any class of Capital Stock of Holdings or any of its Subsidiaries or with any Affiliate of Holdings or of any such holder other than the transactions contemplated or permitted by the Credit Documents and the Related Agreements.

6.11    Conduct of Business. From and after the Original Closing Date, Company shall not engage in any business other than the businesses engaged in by Company on the Original Closing Date.

6.12    Fiscal Year. Company shall not change its Fiscal Year‑end from December 31st.

6.13    Servicer; Backup Servicer; Custodian. Company shall use its commercially reasonable efforts to cause Servicer, the Backup Servicer and the Custodian respectively, to comply at all times with the applicable terms of the Servicing Agreement, the Backup Servicing Agreement and the Custodial Agreement respectively. The Company may not (i) terminate, remove, replace Servicer, Backup Servicer or the Custodian or (ii) subcontract out any portion of the servicing or permit third party servicing other than the Backup Servicer, except, in each case, as expressly set forth in the applicable Credit Document and subject to satisfaction of the related requirements therein. The Administrative Agent may not terminate, remove, replace Servicer, Backup Servicer or the Custodian except as expressly set forth in the applicable Credit Document and subject to satisfaction of the related requirements therein.






6.14    Acquisitions of Receivables. Company may not acquire Receivables from any Person other than Holdings pursuant to the Asset Purchase Agreement.

6.15    Independent Manager. Company shall not fail at any time to have at least one independent manager (an “Independent Manager”) who:

(a)is provided by a nationally recognized provider of independent directors;

(b)is not and has not been employed by Company or Holdings or any of their respective Subsidiaries or Affiliates as an officer, director, partner, manager, member (other than as a special member in the case of single member Delaware limited liability companies), employee, attorney or counsel of, Company or Holdings or any of their respective Affiliates within the five years immediately prior to such individual’s appointment as an Independent Manager, provided that this paragraph (b) shall not apply to any person who serves as an independent director or an independent manager for any Affiliate of any of Company or Holdings;

(c)is not, and has not been within the five years immediately prior to such individual’s appointment as an Independent Manager, a customer or creditor of, or supplier to, Company or Holdings or any of their respective Affiliates who derives any of its purchases or revenue from its activities with Company or Holdings or any of their respective Affiliates thereof (other than a de minimis amount);

(d)is not, and has not been within the five years immediately prior to such individual’s appointment as an Independent Manager, a person who controls or is under common control with any Person described by clause (b) or (c) above;

(e)does not have, and has not had within the five years immediately prior to such individual’s appointment as an Independent Manager, a personal services contract with Company or Holdings or any of their respective Subsidiaries or Affiliates, from which fees and other compensation received by the person pursuant to such personal services contract would exceed 5% of his or her gross revenues during the preceding calendar year;

(f)is not affiliated with a tax-exempt entity that receives, or has received within the five years prior to such appointment as an Independent Manager, contributions from Company or Holdings or any of their respective Subsidiaries or Affiliates, in excess of the lesser of (i) 3% of the consolidated gross revenues of Holdings and its Subsidiaries during such fiscal year and (ii) 5% of the contributions received by the tax-exempt entity during such fiscal year;

(g)is not and has not been a shareholder (or other equity owner) of any of Company or Holdings or any of their respective Affiliates within the five years immediately prior to such individual’s appointment as an Independent Manager;

(h)is not a member of the immediate family of any Person described by clause (b) through (g) above;

(i)is not, and was not within the five years prior to such appointment as an Independent Manager, a financial institution to which Company or Holdings or any of their respective Subsidiaries or Affiliates owes outstanding Indebtedness for borrowed money in a sum exceeding more than 5% of Holdings’ total consolidated assets;






(j)has prior experience as an independent director or manager for a corporation or limited liability company whose charter documents required the unanimous consent of all independent directors thereof before such corporation or limited liability company could consent to the institution of bankruptcy or insolvency proceedings against it or could file a petition seeking relief under any applicable federal or state law relating to bankruptcy; and

(k)has at least three (3) years of employment experience with one or more entities that provide, in the ordinary course of their respective businesses, advisory, management or placement services to issuers of securitization or structured finance instruments, agreements or securities.

Upon Company learning of the death or incapacity of an Independent Manager, Company shall have ten (10) Business Days following such death or incapacity to appoint a replacement Independent Manager. Any replacement of an Independent Manager will be permitted only upon (a) two (2) Business Days’ prior written notice to each Agent and Lender, (b) Company’s certification that any replacement manager will satisfy the criteria set forth in clauses (a)-(i) of this Section 6.15 and (c) the Administrative Agent’ written consent to the appointment of such replacement manager. For the avoidance of doubt, other than in the event of the death or incapacity of an Independent Manager, Company shall at all times have an Independent Manager and may not terminate any Independent Manager without the prior written consent of the Administrative Agent, which consent the Administrative Agent may withhold in its sole discretion.
6.16    Organizational Agreements. Except as otherwise expressly permitted by other provisions of this Agreement or any other Credit Document, Company shall not (a) amend, restate, supplement or modify, or permit any amendment, restatement, supplement or modification to, its Organizational Documents, without obtaining the prior written consent of the Requisite Lenders to such amendment, restatement, supplement or modification, as the case may be; (b) agree to any termination, amendment, restatement, supplement or other modification to, or waiver of, or permit any termination, amendment, restatement, supplement or other modification to, or waivers of, any of the provisions of any Credit Document without the prior written consent of the Requisite Lenders; or (c) amend, restate, supplement or modify in any material respect, or permit any amendments, restatements, supplements or modifications in any material respect, to any Receivables Program Agreement in a manner that could reasonably be expected to be materially adverse to the Lenders.

6.17    Changes in Underwriting or Other Policies. Company shall provide the Administrative Agent and the Requisite Class B Revolving Lenders (collectively, the “Notice Parties”) with prior written notice of any change or modification to the Underwriting Policies that would reasonably be expected to be adverse to the Lenders. Without the prior consent of the Administrative Agent and the Requisite Class B Revolving Lenders, such consent not to be unreasonably withheld, conditioned or delayed (with any such consent being deemed to be automatically granted by the Administrative Agent and the Requisite Class B Revolving Lenders on the fifteenth (15th) calendar day after the Administrative Agent and the Requisite Class B Revolving Lenders confirms receipt of notice of the applicable change unless the Administrative Agent or the Requisite Class B Revolving Lenders shall have notified the Company in writing that the requested consent is not being provided and its rationale therefor), the Company shall not agree to, and shall cause Holdings not to, (a) make any change to (i) the forms of Business Loan and Security Agreement, Business Loan and Security Agreement Supplement and Loan Summary used to originate Receivables from the form provided to the Administrative Agent prior to the Fourth Amendment Effective Date, or (ii) the form of Authorization Agreement for Direct Deposit (ACH Credit) and Direct Payments (ACH Debit) used in connection with the origination of Receivables in substantially the form provided to the Administrative Agent on or prior to the Fourth Amendment Effective Date that, in any such case, would reasonably be expected to result in an Adverse Effect, or (b) make any change to the Underwriting Policies that would reasonably be expected to be materially adverse to the Lenders (provided, that any change to the Underwriting





Policies which (A) has the effect of modifying the Eligibility Criteria or (B) changes the calculation of the Class A Borrowing Base and the Class B Borrowing Base shall be deemed to be materially adverse to the Lenders for purposes of this Section 6.17).

6.18    Receivable Program Agreements. The Company shall (a) perform and comply with its obligations under the Receivables Program Agreements and (b) enforce the rights and remedies afforded to it against the Receivables Account Bank under the Receivables Program Agreements, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in an Adverse Effect.

SECTION 7.        EVENTS OF DEFAULT

7.1    Events of Default. If any one or more of the following conditions or events shall occur.

(a)Failure to Make Payments When Due. Other than with respect to a Borrowing Base Deficiency, failure by Company to pay (i) when due, the principal on any Revolving Loan whether at stated maturity, by acceleration or otherwise; (ii) within two (2) Business Days after its due date, any interest on any Revolving Loan or any fee due hereunder; (iii) within thirty (30) days after its due date, any other amount due hereunder; or (iv) the amounts required to be paid pursuant to Section 2.8 on or before (y) with respect to the Class A Revolving Loans, the Class A Maturity Date, and (z) with respect to the Class B Revolving Loans, the Class B Maturity Date; or

(b)Default in Other Agreements.

(i)Failure of Company to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in Section 7.1(a)), in each case beyond the grace period, if any, provided therefor; or (ii) breach or default by Company with respect to any other material term of (1) one or more items of Indebtedness referred to in clause (i) above, or (2) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness, in each case beyond the grace period, if any, provided therefore, if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness (or a trustee on behalf of such holder or holders), to cause, that Indebtedness to become or be declared due and payable (or subject to a compulsory repurchase or redeemable) prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be;

(ii)Breach or default by Holdings or any Domestic Subsidiary of Holdings (other than Company) with respect to any material term of (1) one or more items of Indebtedness for borrowed money incurred by Holdings or any Domestic Subsidiary of Holdings (other than Company) (other than any SPV Indebtedness that is not guaranteed by Holdings or any Domestic Subsidiary of Holdings (other than any special purpose Subsidiary of Holdings)) with a principal amount in excess of $1,000,000; or (2) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness for borrowed money (other than any SPV Indebtedness that is not guaranteed by Holdings or any Domestic Subsidiary of Holdings (other than any special purpose Subsidiary of Holdings )), in each case beyond the grace period, if any, provided therefor, and such failure, breach or default, as described in clauses (1) and (2), results, in any such case, in the acceleration of amounts owed thereunder, provided that any resulting acceleration caused by such failure, breach or default, as the case may be, shall constitute an Event of Default hereunder only after the Administrative Agent shall have provided written notice to Company that the resulting acceleration caused by such failure, breach or default, as the case may be, constitutes an Event of Default hereunder; or





(c)Breach of Certain Covenants. Failure of Company to perform or comply with any term or condition contained in Section 2.3, Section 2.11, Section 5.1(g), Section 5.1(h), Section 5.2, Section 5.7, Section 5.12 or Section 6, or failure to distribute Collections in accordance with Section 2.12; or

(d)Breach of Representations, etc. Any representation or warranty, certification or other statement made or deemed made by Company or Holdings (or Holdings as Servicer) in any Credit Document or in any statement or certificate at any time given by Company or Holdings (or Holdings as Servicer) in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect, other than any representation, warranty, certification or other statement which is qualified by materiality or “Material Adverse Effect”, in which case, such representation, warranty, certification or other statement shall be true and correct in all respects, in each case, as of the date made or deemed made and such default shall not have been remedied or waived within thirty (30) days after the earlier of (i) an Authorized Officer of Company or Holdings becoming aware of such default, or (ii) receipt by Company of notice from any Agent or Lender of such default; or

(e)Other Defaults Under Credit Documents. Company or Holdings shall default in the performance of or compliance with any term contained herein or any of the other Credit Documents other than any such term referred to in any other Section of this Section 7.1 and such default shall not have been remedied or waived within thirty (30) days (or, in the case of a default under (A) Section 5.1(f), five (5) Business Days or (B) Section 5.1(k)(i), two (2) Business Days) after the earlier of (i) an Authorized Officer of Company or Holdings becoming aware of such default, or (ii) receipt by Company or Holdings of notice from Administrative Agent or any Lender of such default; or

(f)Involuntary Bankruptcy; Appointment of Receiver, etc. (i) A court of competent jurisdiction shall enter a decree or order for relief in respect of Company or Holdings in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Company or Holdings under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Company or Holdings, or over all or a substantial part of its respective property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Company or Holdings for all or a substantial part of its respective property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Company or Holdings, and any such event described in this clause (ii) shall continue for sixty (60) days without having been dismissed, bonded or discharged; or

(g)Voluntary Bankruptcy; Appointment of Receiver, etc. (i) Company or Holdings shall have an order for relief entered with respect to it or shall commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its respective property; or Company or Holdings shall make any assignment for the benefit of creditors; or (ii) Company or Holdings shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the board of directors (or similar governing body) of Company or Holdings (or any committee thereof) shall





adopt any resolution or otherwise authorize any action to approve any of the actions referred to herein or in Section 7.1(f); or

(h)Judgments and Attachments.

(i)Any money judgment, writ or warrant of attachment or similar process (to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Company or any of its assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of thirty (30) days; or

(ii)Any money judgment, writ or warrant of attachment or similar process involving (i) in any individual case an amount in excess of $2,000,000 or (ii) in the aggregate at any time an amount in excess of $5,000,000 (in either case to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Holdings (or Holdings as Servicer) or any of its assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days; or

(iii)Any tax lien or lien of the PBGC shall be entered or filed against Company or Holdings (involving, with respect to Holdings only, an amount in excess of $1,000,000) or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of ten (10) days;

(i)Dissolution. Any order, judgment or decree shall be entered against Company or Holdings decreeing the dissolution or split up of Company or Holdings, as the case may be, and such order shall remain undischarged or unstayed for a period in excess of thirty (30) days; or

(j)Employee Benefit Plans. (i) There shall occur one or more ERISA Events which individually or in the aggregate results in or would reasonably be expected to result in a Material Adverse Effect during the term hereof or result in a Lien being imposed on the Collateral; or (ii) Company shall establish or contribute to any Employee Benefit Plan; or

(k)Contest Validity or Enforceability of Credit Documents. Company or Holdings shall contest the validity or enforceability of any Credit Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Credit Document to which it is a party; or

(l)Servicing Agreement. A Servicer Default shall have occurred and be continuing and the Administrative Agent shall have delivered written notice thereof to the Servicer, and provided that the Administrative Agent shall have used commercially reasonable efforts to timely engage a replacement servicer following the date of delivery of such notice of Servicer Default, within forty-five (45) days of the date of delivery of such notice of Servicer Default no replacement servicing agreement with a replacement servicer shall be effective; or

(m)Borrowing Base Deficiency; Repurchase Failure. (i) Failure by Company to cure any Borrowing Base Deficiency within (A) if such Borrowing Base Deficiency exists other than as a result of the occurrence of an SPV Event and a consequent reduction in the Applicable Class A Advance Rate as elected by Company and described in Appendix G, two (2) Business Days after the due date thereof or (B) if such Borrowing Base Deficiency exists solely as a result of the occurrence of an SPV Event and a consequent reduction in the Applicable Class A Advance Rate as elected by Company and described in Appendix G,





thirty (30) days after the after the occurrence of such SPV Event or (ii) failure of Holdings to repurchase any Receivable as and when required under the Asset Purchase Agreement; or

(n)Collateral Documents and other Credit Documents. At any time after the execution and delivery thereof, (i) this Agreement or any Collateral Document ceases to be in full force and effect (other than in accordance with its terms) or shall be declared null and void by a court of competent jurisdiction or the enforceability thereof shall be impaired in any material respect, or the Collateral Agent shall not have or shall cease to have a valid and perfected Lien in any Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document (in each case, other than (A) by reason of a release of Collateral in accordance with the terms hereof or thereof or (B) the satisfaction in full of the Obligations and any other amount due hereunder or any other Credit Document in accordance with the terms hereof); or (ii) any of the Credit Documents for any reason, other than the satisfaction in full of all Obligations and any other amount due hereunder or any other Credit Document (other than contingent indemnification obligations for which demand has not been made), shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void by a court of competent jurisdiction or a party thereto, as the case may be, or Holdings shall repudiate its obligations thereunder or shall contest the validity or enforceability of any Credit Document in writing; or

(o)Breach of Financial Covenants. A breach of any Financial Covenant shall have occurred; or

(p)Investment Company Act. Holdings or Company become subject to any federal or state statute or regulation which may render all or any portion of the Obligations unenforceable, or Company becomes a company “controlled” by a “registered investment company” or a “principal underwriter” of a “registered investment company” as such terms are defined in the Investment Company Act of 1940;

THEN, upon the occurrence of any Event of Default, the Administrative Agent may, and shall, at the written request of the Requisite Lenders (in all cases subject to the terms of the Intercreditor Side Letter), take any of the following actions: (w) upon notice to the Company, terminate the Revolving Commitments, if any, of each Lender having such Revolving Commitments, (x) upon notice to the Company, declare the unpaid principal amount of and accrued interest on the Revolving Loans and all other Obligations immediately due and payable, in each case without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Company; (y) direct the Collateral Agent to enforce any and all Liens and security interests created pursuant to the Collateral Documents and (z) take any and all other actions and exercise any and all other rights and remedies of the Administrative Agent under the Credit Documents; provided that upon the occurrence of any Event of Default described in Section 7.1(f) or 7.1(g), the unpaid principal amount of and accrued interest on the Revolving Loans and all other Obligations shall immediately become due and payable, and  the Revolving Commitments shall automatically and immediately terminate, in each case without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Company.
SECTION 8.        AGENTS

8.1    Appointment of Agents. Each Lender hereby authorizes SunTrust Bank to act as Administrative Agent to the Lenders hereunder and under the other Credit Documents and each Lender hereby authorizes SunTrust Bank, in such capacity, to act as its agent in accordance with the terms hereof and the other Credit Documents. Each Lender hereby authorizes Wells Fargo Bank N.A., to act as the Collateral Agent and Paying Agent on its behalf under the Credit Documents. Each Agent hereby agrees to act upon the express conditions contained herein and the other Credit Documents, as applicable. The





provisions of this Section 8 are solely for the benefit of Agents and Lenders and neither Company or Holdings shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, each Agent (other than Administrative Agent) shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Holdings or any of its Subsidiaries.

8.2    Powers and Duties. Each Lender irrevocably authorizes each Agent (other than Administrative Agent) to take such action on such Lender’s behalf and to exercise such powers, rights and remedies hereunder and under the other Credit Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Lender irrevocably authorizes Administrative Agent to take such action on such Lender’s behalf and to exercise such powers, rights and remedies hereunder and under the other Credit Documents as are specifically delegated or granted to Administrative Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein and the other Credit Documents. Each such Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No such Agent shall have, by reason hereof or any of the other Credit Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other Credit Documents, expressed or implied, is intended to or shall be so construed as to impose upon any such Agent any obligations in respect hereof or any of the other Credit Documents except as expressly set forth herein or therein.

8.3    General Immunity.

(a)No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency hereof or any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to Lenders or by or on behalf of Company or Holdings to any Agent or any Lender in connection with the Credit Documents and the transactions contemplated thereby or for the financial condition or business affairs of Company or Holdings or any other Person liable for the payment of any Obligations or any other amount due hereunder or any other Credit Document, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Credit Documents or as to the use of the proceeds of the Revolving Loans or as to the existence or possible existence of any Event of Default or Default or to make any disclosures with respect to the foregoing. Anything contained herein to the contrary notwithstanding, neither the Paying Agent nor the Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Revolving Loans or the component amounts thereof.

(b)Exculpatory Provisions Relating to Agents. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under or in connection with any of the Credit Documents except to the extent caused by such Agent’s gross negligence or willful misconduct, as determined by a court of competent jurisdiction in a final, non-appealable order. Each such Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or any of the other Credit Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from the Administrative Agent or the Requisite Lenders, as applicable (or such other Lenders as may be required to give such instructions under Section 9.5) and, upon receipt of such instructions from the Administrative Agent or Requisite Lenders, as applicable (or such other





Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each such Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Holdings and Company), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any such Agent as a result of such Agent acting or (where so instructed) refraining from acting hereunder or any of the other Credit Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 9.5). For the avoidance of doubt, the Paying Agent and the Collateral Agent shall take direction hereunder only in accordance with the written direction of the Administrative Agent (and not at the direction of any Lender or the Requisite Lenders).

8.4    Agents Entitled to Act as Lender. Any agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Revolving Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term “Lender” shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to, own securities of, and generally engage in any kind of banking, trust, financial advisory or other business with Holdings or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company for services in connection herewith and otherwise without having to account for the same to Lenders.

8.5    Lenders’ Representations, Warranties and Acknowledgment.

(a)Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Holdings and Company in connection with Credit Extensions hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Holdings and Company. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Revolving Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders.

(b)Each Lender, by delivering its signature page to this Agreement, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Fourth Amendment Effective Date.

8.6    Right to Indemnity. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, their Affiliates and their respective officers, partners, directors, trustees, employees and agents of each Agent (each, an “Indemnitee Agent Party”), to the extent that such Indemnitee Agent Party shall not have been reimbursed by Company or Holdings, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Indemnitee Agent Party in exercising its powers, rights and remedies or performing its duties hereunder or under the other Credit Documents or otherwise in its capacity as such Indemnitee





Agent Party in any way relating to or arising out of this Agreement or the other Credit Documents, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY, OR SOLE NEGLIGENCE OF SUCH INDEMNITEE AGENT PARTY; provided, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Indemnitee Agent Party’s gross negligence or willful misconduct, as determined by a court of competent jurisdiction in a final non-appealable order. If any indemnity furnished to any Indemnitee Agent Party for any purpose shall, in the opinion of such Indemnitee Agent Party, be insufficient or become impaired, such Indemnitee Agent Party may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, in no event shall this sentence require any Lender to indemnify any Indemnitee Agent Party against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender’s Pro Rata Share thereof; provided, this sentence shall not be deemed to require any Lender to indemnify any Indemnitee Agent Party against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence; and provided, further, that this Section 8.6 is subject to the terms of the Intercreditor Side Letter.

8.7    Successor Administrative Agent and Collateral Agent.

(a)Administrative Agent.

(i)Administrative Agent may resign at any time by giving thirty (30) days’ prior written notice thereof to the Lenders and Company. Upon any such notice of resignation, the Requisite Lenders shall have the right, upon five (5) Business Days’ notice to Company, to appoint a successor Administrative Agent provided, that the appointment of a successor Administrative Agent shall require the approval of the Requisite Class B Revolving Lenders and (so long as no Default or Event of Default has occurred and is continuing) Company’s approval, which approval shall not be unreasonably withheld, delayed or conditioned. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall promptly (i) transfer to such successor Administrative Agent all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent under the Credit Documents, and (ii) take such other actions, as may be necessary or appropriate in connection with the appointment of such successor Administrative Agent, whereupon such retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Section 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent hereunder. If Administrative Agent is a Class A Revolving Lender or an Affiliate thereof on the date on which the Class A Maturity Date shall have occurred and all Class A Revolving Loans and all other Obligations owing to the Class A Revolving Lenders have been paid in full in cash, such Administrative Agent shall provide immediate notice of resignation to the Company and the Class B Revolving Lenders, and the Requisite Class B Revolving Lenders shall have the right, upon five (5) Business Days’ notice to the Company, to appoint a successor Administrative Agent; provided, that the appointment of any successor Administrative Agent that is not a Class B Revolving Lender or an Affiliate thereof shall require (so long as no Default or Event of Default has occurred and is continuing) Company’s approval, which approval shall not be unreasonably withheld, delayed or conditioned.






(ii)Notwithstanding anything herein to the contrary, Administrative Agent may assign its rights and duties as Administrative Agent hereunder to one of its Affiliates without the prior written consent of, or prior written notice to, Company or the Revolving Lenders; provided that Company and the Lenders may deem and treat such assigning Administrative Agent as Administrative Agent for all purposes hereof, unless and until such assigning Administrative Agent provides written notice to Company and the Lenders of such assignment. Upon such assignment such Affiliate shall succeed to and become vested with all rights, powers, privileges and duties as Administrative Agent hereunder and under the other Credit Documents.

(b)Collateral Agent.

(i)Collateral Agent may resign at any time by giving thirty (30) days’ prior written notice thereof to Lenders and Company. Upon any such notice of resignation, the Requisite Lenders shall have the right, upon five (5) Business Days’ notice to Company, to appoint a successor Collateral Agent provided, that the appointment of a successor Collateral Agent shall require (so long as no Default or Event of Default has occurred and is continuing) Company’s approval, which approval shall not be unreasonably withheld, delayed or conditioned. If, however, a successor Collateral Agent is not appointed within sixty (60) days after the giving of notice of resignation, the Collateral Agent may petition a court of competent jurisdiction for the appointment of a successor Collateral Agent. Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, that successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Collateral Agent and the retiring Collateral Agent shall promptly (i) transfer to such successor Collateral Agent all sums, Securities and other items of Collateral held under the Collateral Documents, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Collateral Agent under the Credit Documents, and (ii) execute and deliver to such successor Collateral Agent such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the appointment of such successor Collateral Agent and the assignment to such successor Collateral Agent of the security interests created under the Collateral Documents, whereupon such retiring Collateral Agent shall be discharged from its duties and obligations hereunder. After any retiring Collateral Agent’s resignation hereunder as Collateral Agent, the provisions of this Section 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Collateral Agent hereunder.

(ii)Notwithstanding anything herein to the contrary, Collateral Agent may assign its rights and duties as Collateral Agent hereunder to one of its Affiliates without the prior written consent of, or prior written notice to, Company or the Lenders; provided that Company and the Lenders may deem and treat such assigning Collateral Agent as Collateral Agent for all purposes hereof, unless and until such assigning Collateral Agent provides written notice to Company and the Lenders of such assignment. Upon such assignment such Affiliate shall succeed to and become vested with all rights, powers, privileges and duties as Collateral Agent hereunder and under the other Credit Documents.

8.8    Collateral Documents.

(a)Collateral Agent under Collateral Documents. Each Lender hereby further authorizes Collateral Agent, on behalf of and for the benefit of the Secured Parties, to be the agent for and representative of the Secured Parties with respect to the Collateral and the Collateral Documents. Subject to Section 9.5, without further written consent or authorization from Lenders, Collateral Agent may execute any documents





or instruments necessary to release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted hereby or to which Requisite Lenders (or such other Lenders as may be required to give such consent under Section 9.5) have otherwise consented. Anything contained in any of the Credit Documents to the contrary notwithstanding, Company, the Agents and each Lender hereby agree that (i) no Lender shall have any right individually to realize upon any of the Collateral, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by Collateral Agent acting at the written direction of the Administrative Agent (unless otherwise expressly set forth herein or in another Credit Document), on behalf of the Secured Parties in accordance with the terms hereof and all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent acting at the written direction of the Administrative Agent, and (ii) in the event of a foreclosure by Collateral Agent (acting at the written direction of the Administrative Agent; provided, that the Administrative Agent shall have provided each Class B Revolving Lender 30 days’ prior written notice of its intent to direct the Collateral Agent to start the foreclosure process) on any of the Collateral pursuant to a public or private sale, Collateral Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Collateral Agent, as agent for and representative of Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations or any other amount due hereunder as a credit on account of the purchase price for any collateral payable by Collateral Agent at such sale. In the event of a foreclosure by Collateral Agent (acting at the written direction of the Administrative Agent), on any of the Collateral pursuant to a public or private sale, the Collateral Agent will seek firm bids from at least two bidders and the Class B Revolving Lenders or its designee (collectively, the “Bidders”) for the purchase of all or a portion of the Collateral for scheduled settlement substantially in accordance with the then-current market practice in the principal market for the Collateral; provided, that the Class B Revolving Lenders shall have the right but not the obligation to provide any firm bid. The Collateral Agent shall sell the Collateral to the Bidder(s) providing the highest firm bid or weighted average of combined firm bids; provided, however, that in the event two or more Bidders provide equal firm bids constituting the highest firm bid, and one such Bidder is a Class B Revolving Lender, the firm bid provided by such Class B Revolving Lender shall be deemed to constitute the highest firm bid; provided, further that if the bid from the Class B Revolving Lender is not the highest or if the Class B Revolving Lender does not make a bid, and the initial firm bid is in an amount less than the amount necessary to pay in full the Class B Revolving Loans then outstanding (after application of the proceeds thereof to the then outstanding Class A Revolving Loans), the Class B Revolving Lender shall be given three (3) Business Days’ prior written notice of such sale and shall have the right of first refusal with respect to such sale. If one or more firm bids cannot be obtained in accordance with the foregoing, then the Collateral Agent shall use commercially reasonable efforts to obtain firm bids again by following the same process until a firm bid is obtained and settlement is completed.

SECTION 9.        MISCELLANEOUS

9.1    Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to Company, Collateral Agent, Paying Agent or Administrative Agent shall be sent to such Person’s address as set forth on Appendix B or in the other relevant Credit Document, and in the case of any Lender, the address as indicated on Appendix B or otherwise indicated to Administrative Agent in writing. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three (3) Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided, no notice to any Agent shall be effective until received by such Agent, provided,





however, that Company may deliver, or cause to be delivered, the Borrowing Base Certificate, Borrowing Base Report, Funding Notices, Controlled Account Voluntary Payment Notice and any financial statements or reports (including the Financial Plan and any collateral performance tests) by electronic mail pursuant to procedures approved by the Administrative Agent until any Agent or Lender notifies Company that it can no longer receive such documents using electronic mail. Any Borrowing Base Certificate, Borrowing Base Report, Funding Notice, Controlled Account Voluntary Payment Notice or financial statements or reports sent to an electronic mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, if available, return electronic mail or other written acknowledgement), provided, that if such document is sent after 5:00 p.m. Eastern Standard time, such document shall be deemed to have been sent at the opening of business on the next Business Day.

9.2    Expenses. Company agrees to pay promptly (a) (i) all the Administrative Agent’s actual, reasonable and documented out-of-pocket costs and expenses (including reasonable and customary fees and expenses of counsel to the Administrative Agent of negotiation, preparation, execution and administration of the Credit Documents and any consents, amendments, waivers or other modifications thereto, (ii) reasonable and customary fees and expenses of a single counsel to the Class A Revolving Lenders in connection with any consents, amendments, waivers or other modifications to the Credit Documents; and (iii) reasonable and customary fees and expenses of counsel (including regulatory counsel) to the Class B Revolving Lenders in connection with this Agreement in an aggregate amount as set forth in the Fee Letter, and reasonable and customary fees and expenses of a single counsel to the Class B Revolving Lenders in connection with any consents, amendments, waivers or other modifications to the Credit Documents; (b) all the actual, documented out-of-pocket costs and reasonable out-of-pocket expenses of creating, perfecting and enforcing Liens in favor of Collateral Agent, for the benefit of Secured Parties, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable and documented out-of-pocket fees, expenses and disbursements of a single counsel for all Lenders; (c) subject to the terms of this Agreement (including any limitations set forth in Section 5.5), all the Administrative Agent’s actual, reasonable and documented out-of-pocket costs and reasonable fees, expenses for, and disbursements of any of Administrative Agent’s, auditors, accountants, consultants or appraisers incurred by Administrative Agent; (d) subject to the terms of this Agreement, all the actual, reasonable and documented out-of-pocket costs and expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by Collateral Agent and its counsel) in connection with the custody or preservation of any of the Collateral; (e) subject in all cases to any express limitations set forth in any Credit Document, all other actual, reasonable and documented out-of-pocket costs and expenses incurred by each Agent in connection with the syndication of the Revolving Loans and Commitments and the negotiation, preparation and execution of the Credit Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (f) after the occurrence of a Default or an Event of Default, all documented, out-of-pocket costs and expenses, including reasonable attorneys’ fees, and costs of settlement, incurred by any Agent or any Lender in enforcing any Obligations of or in collecting any payments due from Company or Holdings hereunder or under the other Credit Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a “work out” or pursuant to any insolvency or bankruptcy cases or proceedings.

9.3    Indemnity.

(a)In addition to the payment of expenses pursuant to Section 9.2, whether or not the transactions contemplated hereby shall be consummated, Company agrees to defend (subject to Indemnitees’





selection of counsel), indemnify, pay and hold harmless, each Affected Party and each Agent, their Affiliates and their respective officers, partners, directors, trustees, employees and agents (each, an “Indemnitee”), from and against any and all Indemnified Liabilities, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory, or sole negligence of such INDEMNITEE excluding any amounts not otherwise payable by Company under Section 2.16(b)(iii); provided, Company shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence, bad faith or willful misconduct, as determined by a court of competent jurisdiction in a final non-appealable order of that Indemnitee. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this Section 9.3 may be unenforceable in whole or in part because they are violative of any law or public policy, Company shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.

(b)To the extent permitted by applicable law, no party hereto shall assert, and all parties hereto hereby waive, any claim against any other parties and their respective Affiliates, directors, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, as a result of, or in any way related to, this Agreement or any Credit Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Revolving Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and all parties hereto hereby waive, release and agree not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.

9.4    Reserved.

9.5    Amendments and Waivers.

(a)Requisite Lenders’ Consent. Subject to Sections 9.5(b) and 9.5(c), no amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by Company or Holdings therefrom, shall in any event be effective without the written concurrence of Company, Administrative Agent and the Requisite Lenders.

(b)Affected Lenders’ Consent. Without the written consent of each Lender (other than a Defaulting Lender) that would be affected thereby (without giving effect to any distinctions between the Class A Lenders and the Class B Lenders), no amendment, modification, termination, or consent shall be effective if the effect thereof would:

(i)extend the scheduled final maturity of any Revolving Loan or Revolving Loan Note;

(ii)waive, reduce or postpone any scheduled repayment (but not prepayment);

(iii)reduce the rate of interest on any Revolving Loan (other than any waiver of any increase in the interest rate applicable to any Revolving Loan pursuant to Section 2.8) or any fee payable hereunder;

(iv)extend the time for payment of any such interest or fees;






(v)reduce the principal amount of any Revolving Loan;

(vi)(x) amend the definition of “Class A Borrowing Base” or “Class B Borrowing Base” or (y) amend, modify, terminate or waive Section 2.12, Section 2.13 or Section 2.14 or any provision of this Section 9.5(b) or Section 9.5(c);

(vii)(x) amend the definition of “Requisite Lenders”, “Requisite Class A Revolving Lenders,” “Requisite Class B Revolving Lenders,” “Class A Revolving Exposure,” “Class B Revolving Exposure,” “Committed Lender Pro Rata Share,” “Pro Rata Share,” “Applicable Class A Advance Rate,” “Applicable Class B Advance Rate,” “Class A Revolving Availability,” “Class B “Revolving Availability,” “Early Amortization Event” or “Early Amortization Period” or any definition used therein, or (y) waive the occurrence of the Early Amortization Start Date; provided, with the consent of Administrative Agent, Company and the Requisite Lenders, additional extensions of credit pursuant hereto may be included in the determination of “Requisite Lenders” or “Pro Rata Share” on substantially the same basis as the Revolving Commitments and the Revolving Loans are included on the Original Closing Date;

(viii)amend the definition of “Level 2 Performance Covenant” or any definition used therein;

(ix)release all or substantially all of the Collateral except as expressly provided in the Credit Documents; or

(x)consent to the assignment or transfer by Company or Holdings of any of its respective rights and obligations under any Credit Document.

(c)Other Consents. Subject to the terms of the Intercreditor Side Letter, no amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by Company or Holdings therefrom, shall:

(i)increase any Revolving Commitment of any Lender over the amount thereof then in effect without the consent of such Lender; provided, no amendment, modification or waiver of any condition precedent, covenant, Default or Event of Default shall constitute an increase in any Revolving Commitment of any Lender;

(ii)amend, modify, terminate or waive any provision of Section 3.3(a) with regard to any Credit Extension of the Class A Revolving Lenders without the consent of the Class A Requisite Lenders; or amend, modify, terminate or waive any provision of Section 3.3(a) with regard to any Credit Extension of the Class B Revolving Lenders without the consent of the Requisite Class B Revolving Lenders;

(iii)amend the definitions of “Eligibility Criteria” or “Eligible Receivables Obligor” or amend any portion of Appendix C without the consent of each of the Requisite Class A Revolving Lenders and the Requisite Class B Revolving Lenders;

(iv)amend or modify any provision of Sections 2.11, other than Sections 2.11(c)(vii) and 2.11(d), without the consent of each of the Requisite Class A Revolving Lenders and the Requisite Class B Revolving Lenders;






(v)amend or modify any provision of Section 7.1 without the consent of each of the Requisite Class A Revolving Lenders and the Requisite Class B Revolving Lenders; provided, however, that, notwithstanding the foregoing, any waiver of the occurrence of a Default or an Event of Default shall only require the consent of the Requisite Lenders; or

(vi)amend, modify, terminate or waive any provision of Section 8 as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent. In the event of any amendment or waiver of this Agreement without the consent of the Collateral Agent or Paying Agent, the Company shall promptly deliver a copy of such amendment or waiver to the Collateral Agent and the Paying Agent upon the execution thereof.

(d)Execution of Amendments, etc. Administrative Agent may, but shall have no obligation to, with the concurrence of the Requisite Lenders or any Lender, execute amendments, modifications, waivers or consents on behalf of the Requisite Lenders or such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Company or Holdings in any case shall entitle Company or Holdings to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 9.5 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by Company, on Company. Notwithstanding anything to the contrary contained in this Section 9.5, if the Administrative Agent and Company shall have jointly identified an obvious error or any error or omission of a technical nature, in each case that is immaterial (as determined by the Administrative Agent in its sole discretion), in any provision of the Credit Documents, then the Administrative Agent (as applicable, and in its respective capacity thereunder, the Administrative Agent or Collateral Agent) and Company shall be permitted to amend such provision and such amendment shall become effective without any further action or consent by the Requisite Lenders if the same is not objected to in writing by the Requisite Lenders within five (5) Business Days following receipt of notice thereof.

9.6    Successors and Assigns; Participations.

(a)Generally. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders. Neither Company’s rights or obligations hereunder nor any interest therein may be assigned or delegated by it without the prior written consent of all Lenders. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, Indemnitee Agent Parties under Section 8.6, Indemnitees under Section 9.3, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates of each of the Agents and Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)Register. Company, the Paying Agent, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Registers as the holders and owners of the corresponding Commitments and Revolving Loans listed therein for all purposes hereof, and no assignment or transfer of any such Revolving Commitment or Revolving Loan shall be effective, in each case, unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by Administrative Agent and recorded in the Registers as provided in Section 9.6(e). Prior to such recordation, all amounts owed with respect to the applicable Revolving Commitment or Revolving Loan shall be owed to the Lender listed in the Registers as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Registers as a





Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Revolving Commitments or Revolving Loans.

(c)Right to Assign. Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including, without limitation, all or a portion of its Revolving Commitment or Revolving Loans owing to it or other Obligations (provided, however, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Revolving Loan and any related Revolving Commitments) to any Person constituting an Eligible Assignee. Each such assignment pursuant to this Section 9.6(c) (other than an assignment to any Person meeting the criteria of clause (i) of the definition of the term of “Eligible Assignee”) shall be in an aggregate amount of not less than $1,000,000 (or such lesser amount as may be agreed to by Company and Administrative Agent or as shall constitute the aggregate amount of the Revolving Commitments and Revolving Loans of the assigning Lender) with respect to the assignment of the Revolving Commitments and Revolving Loans.

(d)Mechanics. The assigning Lender and the assignee thereof shall execute and deliver to Administrative Agent an Assignment Agreement, together with such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to Section 2.16(d).

(e)Notice of Assignment. Upon the Administrative Agent’s receipt and acceptance of a duly executed and completed Assignment Agreement and any forms, certificates or other evidence required by this Agreement in connection therewith, Administrative Agent, shall (i) record the information contained in such notice in the Class A Register or the Class B Register, as applicable, (ii) give prompt notice thereof to Company, and (iii) maintain a copy of such Assignment Agreement.

(f)Representations and Warranties of Assignee. Each Lender, upon execution and delivery of this Agreement or upon executing and delivering an Assignment Agreement, as the case may be, represents and warrants as of the Fourth Amendment Effective Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Revolving Commit-ments or Revolving Loans, as the case may be; and (iii) it will make or invest in, as the case may be, its Revolving Commitments or Revolving Loans for its own account in the ordinary course of its business and without a view to distribution of such Revolving Commitments or Revolving Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 9.6, the disposition of such Revolving Commitments or Revolving Loans or any interests therein shall at all times remain within its exclusive control).

(g)Effect of Assignment. Subject to the terms and conditions of this Section 9.6, as of the “Effective Date” specified in the applicable Assignment Agreement: (i) the assignee thereunder shall have the rights and obligations of a “Lender” hereunder to the extent such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and a “Lender” for all purposes hereof; (ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination hereof under Section 9.8) and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender’s rights and obligations hereunder, such Lender shall cease to be a party hereto; provided, anything contained in any of the Credit Documents to the contrary notwithstanding, such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect





to matters arising prior to the effective date of such assignment; (iii) the Revolving Commitments shall be modified to reflect the Revolving Commitment of such assignee and any Revolving Commitment of such assigning Lender, if any; and (iv) if any such assignment occurs after the issuance of any Revolving Loan Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Revolving Loan Notes to Administrative Agent for cancellation, and thereupon Company shall issue and deliver new Revolving Loan Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new Revolving Commitments and/or outstanding Revolving Loans of the assignee and/or the assigning Lender.

(h)Participations. Each Lender shall have the right at any time to sell one or more participations to any Person (other than Holdings, any of its Subsidiaries or any of its Affiliates or a Direct Competitor) in all or any part of its Revolving Commitments, Revolving Loans or in any other Obligation. The holder of any such participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would (i) extend the final scheduled maturity of any Revolving Loan or Revolving Loan Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant’s participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Revolving Commitment shall not constitute a change in the terms of such participation, and that an increase in any Revolving Commitment or Revolving Loan shall be permitted without the consent of any participant if the participant’s participation is not increased as a result thereof), (ii) consent to the assignment or transfer by Company of any of its rights and obligations under this Agreement, or (iii) release all or substantially all of the Collateral under the Collateral Documents (except as expressly provided in the Credit Documents) supporting the Revolving Loans hereunder in which such participant is participating. Company agrees that each participant shall be entitled to the benefits of Sections 2.15 or 2.16 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to clause (c) of this Section; provided, (i) a participant shall not be entitled to receive any greater payment under Sections 2.15 or 2.16 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, except to the extent such entitlement to receive a greater payment results from a change in law that occurs after the participant acquired the applicable participation, unless the sale of the participation to such participant is made with Company’s prior written consent, and (ii) a participant that would be a Non-US Lender if it were a Lender shall not be entitled to the benefits of Section 2.16 unless Company (through a Designated Officer) is notified of the participation at the time it is sold to such participant and such participant agrees, for the benefit of Company, to comply with Section 2.16 as though it were a Lender. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 9.4 as though it were a Lender, provided such Participant agrees to be subject to Section 2.14 as though it were a Lender. Any Lender that sells such a participation shall, acting solely for this purpose as an agent of the Company, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in such participation and other obligations under this Agreement (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register to any Person other than Company (through a Designated Officer), including the identity of any Participant or any information relating to a Participant’s interest or obligations under any Credit Document, except to the extent that such disclosure is necessary to establish that such Commitment, Revolving Loan or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding





any notice to the contrary. For the avoidance of doubt, the Paying Agent (in its capacity as Paying Agent) shall have no responsibility for maintaining a Participant Register. The Participant Register shall be available for inspection by Company at any reasonable time and from time to time upon reasonable prior notice. Company shall not disclose the identity of any Participant of any Lender or any information relating to such Participant’s interest or obligation to any Person, provided that Company may make (1) disclosures of such information to Affiliates of such Lender and to their agents and advisors provided that such Persons are informed of the confidential nature of the information and will be instructed to keep such information confidential, and (2) disclosures required or requested by any Governmental Authority or representative thereof or by the NAIC or pursuant to legal or judicial process or other legal proceeding; provided, that unless specifically prohibited by applicable law or court order, Company shall make reasonable efforts to notify the applicable Lender of any request by any Governmental Authority or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of Company by such Governmental Authority) for disclosure of any such non-public information prior to disclosure of such information.

(i)Certain Other Assignments. In addition to any other assignment permitted pursuant to this Section 9.6 any Lender may assign, pledge and/or grant a security interest in, all or any portion of its Revolving Loans, the other Obligations owed by or to such Lender, and its Revolving Loan Notes, if any, to secure obligations of such Lender including, without limitation, any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided, no Lender, as between Company and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank, pledgee or trustee be considered to be a “Lender” or be entitled to require the assigning Lender to take or omit to take any action hereunder.

9.7    Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.

9.8    Survival of Representations, Warranties and Agreements. All representations, warranties and agreements made herein shall survive the execution and delivery hereof and the making of any Credit Extension. Notwithstanding anything herein or implied by law to the contrary, the agreements of Company set forth in Sections 2.15, 2.16, 9.2, 9.3 and 9.10, the agreements of Lenders set forth in Sections 2.14 and 8.6 shall survive the payment of the Revolving Loans and the termination hereof.

9.9    No Waiver; Remedies Cumulative. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Credit Documents. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.

9.10    Marshalling; Payments Set Aside. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of Company or any other Person or against or in payment of any





or all of the Obligations or any other amount due hereunder. To the extent that Company makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent, on behalf of Lenders), or Administrative Agent, Collateral Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.

9.11    Severability. In case any provision in or obligation hereunder or any Revolving Loan Note or other Credit Document shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

9.12    Obligations Several; Actions in Concert. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitment of any other Lender hereunder. Nothing contained herein or in any other Credit Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. Anything in this Agreement or any other Credit Document to the contrary notwithstanding, each Lender hereby agrees with each other Lender that no Lender shall take any action to protect or enforce its rights arising out of this Agreement or any Revolving Loan Note or otherwise with respect to the Obligations without first obtaining the prior written consent of the Administrative Agent, it being the intent of Lenders that any such action to protect or enforce rights under this Agreement and any Revolving Loan Note or otherwise with respect to the Obligations shall be taken in concert and at the direction or with the consent of the Administrative Agent.

9.13    Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.

9.14    APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

9.15    CONSENT TO JURISDICTION.

1.ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT, OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 9.1 AND TO ANY PROCESS AGENT APPOINTED BY IT IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER





COMPANY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (d) AGREES THAT AGENTS AND LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN THE COURTS OF ANY OTHER JURISDICTION.

2.COMPANY HEREBY AGREES THAT PROCESS MAY BE SERVED ON IT BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE ADDRESSES PERTAINING TO IT AS SPECIFIED IN SECTION 9.1 OR ON HOLDINGS, WHICH COMPANY HEREBY APPOINTS AS ITS AGENT FOR SERVICE OF PROCESS HEREUNDER. ANY AND ALL SERVICE OF PROCESS AND ANY OTHER NOTICE IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE EFFECTIVE AGAINST COMPANY IF GIVEN BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, OR BY ANY OTHER MEANS OR MAIL WHICH REQUIRES A SIGNED RECEIPT, POSTAGE PREPAID, MAILED AS PROVIDED ABOVE. IN THE EVENT HOLDINGS SHALL NOT BE ABLE TO ACCEPT SERVICE OF PROCESS AS AFORESAID AND IF COMPANY SHALL NOT MAINTAIN AN OFFICE IN NEW YORK CITY, COMPANY SHALL PROMPTLY APPOINT AND MAINTAIN AN AGENT QUALIFIED TO ACT AS AN AGENT FOR SERVICE OF PROCESS WITH RESPECT TO THE COURTS SPECIFIED IN THIS SECTION 9.15 ABOVE, AND ACCEPTABLE TO THE ADMINISTRATIVE AGENT, AS COMPANY’S AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON COMPANY’S BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH ACTION, SUIT OR PROCEEDING.

9.16    WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL‑ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 9.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE REVOLVING LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.






9.17    Confidentiality. Each Agent and Lender shall hold all non-public information regarding Holdings and its Affiliates and their businesses obtained by such Lender or Agent confidential and shall not disclose information of such nature, it being understood and agreed by Company that, in any event, a Lender or Agent may make (a) disclosures of such information to Affiliates of such Lender or Agent and to their agents, auditors, attorneys and advisors (and to other persons authorized by a Lender or Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 9.17) provided that such Persons are informed of the confidential nature of the information and agree to keep, or with respect to the Collateral Agent and Paying Agent will be instructed to keep, such information confidential, provided, further that no disclosure shall be made to any Person that is a Direct Competitor or, with respect to the Collateral Agent and Paying Agent only, any Person that the Collateral Agent and/or Paying Agent has actual knowledge is a Direct Competitor, (b) disclosures of such information reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by such Lender of any Revolving Loans or any participations therein, provided that such Persons are informed of the confidential nature of the information and agree to keep such information confidential pursuant to a non-disclosure agreement, (c) disclosure to any rating agency when required by it provided that such Persons are informed of the confidential nature of the information and agree to keep, or with respect to the Collateral Agent and Paying Agent will be instructed to keep, such information confidential, (d) disclosures required by any applicable statute, law, rule or regulation or requested by any Governmental Authority or representative thereof or by any regulatory body or by the NAIC or pursuant to legal or judicial process or other legal proceeding; provided, that unless specifically prohibited by applicable law or court order, each Lender or Agent shall make reasonable efforts to notify Company of any request by any Governmental Authority or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender or Agent by such Governmental Authority) for disclosure of any such non-public information prior to disclosure of such information, and (e) any other disclosure authorized by the Company in writing in advance. Notwithstanding the foregoing, (i) the foregoing shall not be construed to prohibit the disclosure of any information that is or becomes publicly known or information obtained by a Lender or Agent from sources other than the Company other than as a result of a disclosure by an Agent or Lender in violation of this Section 9.17, and (ii) on or after the Original Closing Date, the Administrative Agent may, at its own expense issue news releases and publish “tombstone” advertisements and other announcements generally describing this transaction in newspapers, trade journals and other appropriate media (which may include use of logos of Company or Holdings) (collectively, “Trade Announcements”). Company shall not issue, and shall cause Holdings not to issue, any Trade Announcement using the name of any Agent or Lender, or their respective Affiliates or referring to this Agreement or the other Credit Documents, or the transactions contemplated thereunder except (x) disclosures required by applicable law, regulation, legal process or the rules of the Securities and Exchange Commission or (y) with the prior approval of Administrative Agent (such approval not to be unreasonably withheld).

9.18    Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged or agreed to be paid with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Revolving Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Revolving Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, Company shall pay to





Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of Lenders and Company to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender’s option be applied to the outstanding amount of the Revolving Loans made hereunder or be refunded to Company. In determining whether the interest contracted for, charged, or received by Administrative Agent or a Lender exceeds the Highest Lawful Rate, such Person may, to the extent permitted by applicable law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest, throughout the contemplated term of the Obligations hereunder.

9.19    Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
    
9.20    Effectiveness. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.

9.21    Patriot Act. Each Lender and Administrative Agent (for itself and not on behalf of any Lender) hereby notifies Company that (i) pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies Company, which information includes the name and address of Company and other information that will allow such Lender or Administrative Agent, as applicable, to identify Company in accordance with the Act and (ii) pursuant to the Beneficial Ownership Regulation, it is required to obtain a Beneficial Ownership Certificate.

[Remainder of page intentionally left blank]

















IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
RECEIVABLE ASSETS OF ONDECK, LLC, as Company
By:
/s/ Kenneth A. Brause    
Name: Kenneth A. Brause
Title: Chief Financial Officer


SUNTRUST BANK,
as Administrative Agent
By:
/s/ Kyle Shenton    
Name: Kyle Shenton
Title: First Vice President

SUNTRUST BANK,
as a Class A Lender
By:
/s/ Kyle Shenton    
Name: Kyle Shenton
Title: First Vice President

WELLS FARGO BANK, N.A.,
as Paying Agent and Collateral Agent
By:
/s/ Katie Jordan    
Name: Katie Jordan
Title: Assistant Vice President


Fixed Income Opportunities Nero, LLC, as Class B Revolving Lender
By: BlackRock Financial Management Inc., its Investment Manager
By:
/s/ Ronald G. Romano, Jr.    
Name: Ronald G. Romano, Jr.
Title: Managing Director




Exhibit


Exhibit 10.21

Third Amendment to
Second Amended and Restated
Loan and Security Agreement
Borrower:
On Deck Capital, Inc.
Address:
1400 Broadway, 25th Floor
 
New York, New York 10018
 
 
Guarantor:
ODWS, LLC
Address:
1400 Broadway, 25th Floor
 
New York, New York 10018
 
 
Guarantor:
ODX, LLC
Address:
1400 Broadway, 25th Floor
 
New York, New York 10018

Date:    October 4, 2018
This THIRD AMENDMENT TO SECOND Amended and Restated LOAN AND SECURITY AGREEMENT (this “Amendment”) is entered into between PACIFIC WESTERN BANK, a California state chartered bank (“Lender”), the borrower named above (“Borrower”) and the guarantors named above (jointly and severally, the “Guarantor”, and together with the Lender and the Borrower, the “Parties”).
The Parties agree to amend the Second Amended and Restated Loan and Security Agreement between them, dated June 30, 2016 (as amended by the First Amendment to Second Amended and Restated Loan and Security Agreement between the Parties, dated October 11, 2016, the Second Amendment to Second Amended and Restated Loan and Security Agreement between the Parties, dated November 17, 2016, and as further amended, restated, modified or supplemented from time to time prior to the date hereof, the “Loan Agreement”), as follows, effective as of the date hereof. (Capitalized terms used but not defined in this Amendment, shall have the meanings set forth in the Loan Agreement.)
1.    Added Definition of Australia Subsidiary. The definition of “Australian Subsidiary” is hereby added in Section 8 of the Loan Agreement, in alphabetical order, and shall read as follows:

Australian Subsidiary” means a Subsidiary organized under the laws of Australia or any territory thereof.
2.    Modified Definition of Qualified Cash. The definition of “Qualified Cash” set forth in Section 8 of the Loan Agreement is hereby amended and restated in its entirety to read as follows:

Qualified Cash” means Borrower’s cash or Cash Equivalents held in (i) any operating account or investment account maintained with Lender or Lender’s Affiliates and (ii) any operating account or investment account maintained at another bank; provided that the bank (other than Lender) at which such account is held has entered into with





Lender an account control agreement covering such account, providing Lender with a first-priority security interest in such cash or Cash Equivalents, in form and substance reasonably acceptable to Lender, and that such account control agreement remains in full force and effect and no termination thereof, or closure of such account, is pending; provided further that no cash held in trust or in escrow by Borrower shall be considered Qualified Cash hereunder.
3.    Added Definition of Third Amendment. The definition of “Third Amendment” is hereby added in Section 8 of the Loan Agreement, in alphabetical order, and shall read as follows:

Third Amendment” means that certain Third Amendment to Second Amended and Restated Loan and Security Agreement by and between Borrower and Lender and dated approximately October 4, 2018.
4.    Maturity Date. Section 4 of the Schedule to the Loan Agreement is hereby amended and restated in its entirety to read as follows:

4. MATURITY DATE
(Section 6.1):
January 26, 2019.
5.    Consent Regarding 2017 Australian Subsidiary Loans. Reference is hereby made to that certain Letter Agreement between Borrower and Lender dated February 23, 2017 (the “February 2017 Letter Agreement”) pursuant to which Lender consented to Borrower extending loans to On Deck Capital Australia Pty Ltd. (“On Deck Australia”), an Australian Subsidiary, in an aggregate amount not to exceed AU$15,000,000 (the “2017 Australian Subsidiary Loans”), which loans were collateralized by loans originated by On Deck Australia and which loans were to be repaid in full by On Deck Australia by December 31, 2017 and all related promissory notes terminated. Lender hereby consents to Borrower retaining in effect the promissory notes related to the 2017 Australian Subsidiary Loans provided that, following the date hereof, the amount owed by On Deck Australia or any other Australian Subsidiary thereunder shall not exceed AU$1,000,000 at any one time outstanding and provided further that such promissory notes and the loans represented thereby shall be repaid in full, and the promissory notes terminated, by December 31, 2019. This Section 5 shall be deemed effective as of December 31, 2017.

6.    Consent to Australian Subsidiary Revolving Loan. Lender hereby consents to Borrower extending a revolving loan (drawable and repayable in portions) to On Deck Australia or a wholly-owned subsidiary thereof in an aggregate amount to not exceed AU$15,000,000, which loans shall be collateralized by loans originated by On Deck Australia; provided that on or before December 31, 2019, such loans shall be repaid in full by On Deck Australia or wholly-owned subsidiary thereof (as applicable) and all related promissory notes terminated. The AU$15,000,000 is in addition to the AU$1,000,000 outstanding with respect to the 2017 Australian Subsidiary Loans.

7.    Consent to Investment in Canadian Subsidiary. Lender hereby consents to Borrower making an Investment in On Deck Capital Canada, ULC or any other Canadian Subsidiary formed in accordance with the Loan Agreement in an amount not to exceed the greater of US$15,000,000 and CA$17,000,000 in the aggregate. Such Investment shall be considered a Permitted Investment for purposes of the Loan Agreement.

8.    Condition Precedent. As a condition to the effectiveness of this Amendment, Lender shall have received, in form and substance satisfactory to Lender, the following:






(a)this Amendment, duly executed by Borrower and Guarantors;

(b)a certificate of the secretary of Borrower with respect to incumbency and resolutions authorizing the execution and delivery of this Amendment, in form acceptable to Lender; and

(c)payment of all Bank Expenses, including Bank’s expenses for the documentation of this Amendment and any related documents, and any UCC, good standing or intellectual property search or filing fees, which may be debited from any of Borrower’s accounts held with Lender.

9.    Fee. In consideration for Lender entering into this Amendment, Borrower shall on the date hereof pay Lender a fee in the amount of $5,000, which fee shall be non-refundable and shall be in addition to all interest and other fees payable to Lender under the Loan Documents. Lender is authorized to charge said fee to Borrower’s loan account or any of Borrower’s deposit accounts with Lender.

10.    Representations True. Each Loan Party represents and warrants to Lender that all representations and warranties set forth in the Loan Agreement, as amended hereby, are true and correct, as of the date hereof, except to the extent any such representation and warranty is made as of a specified date, in which case such representation and warranty shall have been true and correct as of such date.

11.    General Release. In consideration for Lender entering into this Amendment, each Loan Party hereby irrevocably releases and forever discharges Lender, and its successors, assigns, agents, shareholders, directors, officers, employees, agents, attorneys, parent corporations, subsidiary corporations, affiliated corporations, affiliates, participants, and each of them (collectively, the “Releasees”), from any and all claims, debts, liabilities, demands, obligations, costs, expenses, actions and causes of action, of every nature and description, which are actually known to any Loan Party at the date hereof (collectively, the “Released Claims”). Each Loan Party represents and warrants that it has not assigned to any other Person any Released Claim.

12.    No Waiver. Nothing herein constitutes a waiver of any default or Event of Default under the Loan Agreement, as amended hereby, or any other Loan Documents, whether or not known to Lender.






13.    Governing Law; Jurisdiction; Venue; Arbitration. This Amendment and all acts, transactions, disputes and controversies arising hereunder or relating hereto, and all rights and obligations of the Parties shall be governed by, and construed in accordance with, the internal laws (and not the conflict of laws rules) of the State of North Carolina. All disputes, controversies, claims, actions and other proceedings involving, directly or indirectly, any matter in any way arising out of, related to, or connected with, this Amendment or the relationship between any Loan Parties and Lender, and any and all other claims of a Loan Parties against Lender of any kind, shall be brought only in the General Court of Justice of North Carolina sitting in Durham County, North Carolina or the United States District Court for the Middle District of North Carolina, and each consents to the jurisdiction of any such court, and waives any and all rights the party may have to object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding, including, without limitation, any objection to venue or request for change in venue based on the doctrine of forum non conveniens; provided that, notwithstanding the foregoing, nothing herein shall limit the right of Lender to bring proceedings against any Loan Parties in the courts of any other jurisdiction. Each Loan Party consents to service of process in any action or proceeding brought against it by Lender, by personal delivery, or by mail addressed as set forth in this Amendment or by any other method permitted by law. If the jury waiver set forth in Section 15 below, is not enforceable, then any dispute, controversy, claim, action or similar proceeding arising out of or relating to this Amendment, the Loan Documents or any of the transactions contemplated therein shall be settled by final and binding arbitration held in Durham County, North Carolina in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with those rules. The arbitrator shall apply North Carolina law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment upon any award resulting from arbitration may be entered into and enforced by any state or federal court having jurisdiction thereof. Notwithstanding the foregoing, the Parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this Section. The costs and expenses of the arbitration, including without limitation, the arbitrator’s fees and expert witness fees, and reasonable attorneys’ fees, incurred by the Parties to the arbitration may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the Parties in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or a share) of such costs and expenses, Lender and the Loan Parties shall share equally in the payment of the arbitrator’s fees as and when billed by the arbitrator.

14.    General Provisions. Each Loan Party hereby ratifies and reaffirms its guarantee and grant of security interests and liens (as applicable) and confirms and agrees that such security interests and liens hereafter secure all of the Obligations under the Loan Documents, as amended hereby. Each Loan Parties hereby ratifies and confirms the continuing validity, enforceability and effectiveness of the Loan Agreement, as amended hereby, and all other Loan Documents. This Amendment, the Loan Agreement, as amended hereby, any prior written amendments to the Loan Agreement signed by Lender and the Loan Parties, and the other written documents and agreements between Lender and the Loan Parties set forth in full all of the representations and agreements of the Parties with respect to the subject matter hereof and supersede all prior discussions, representations, agreements and understandings between the Parties with respect to the subject hereof. Except as herein expressly amended, all of the terms and provisions of the Loan Agreement, as amended hereby, and all other documents and agreements between Lender and the Loan Parties shall continue in full force and effect and the same are hereby ratified and confirmed. This Amendment may be executed in multiple counterparts, by different Parties signing separate counterparts, and all of the same taken together shall constitute one and the same agreement.








15.    Mutual Waiver of Jury Trial. THE PARTIES EACH ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A CONSTITUTIONAL RIGHT, BUT THAT IT MAY BE WAIVED. EACH OF THE PARTIES, AFTER CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT, WITH COUNSEL OF THEIR CHOICE, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AMENDMENT OR ANY RELATED INSTRUMENT OR LOAN DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS AMENDMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), ACTION OR INACTION OF ANY OF THEM. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN MODIFIED IN ANY RESPECT OR RELINQUISHED BY LENDER OR ANY LOAN PARTY, EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY EACH OF THEM. IF FOR ANY REASON THE PROVISIONS OF THIS SECTION ARE VOID, INVALID OR UNENFORCEABLE, THE SAME SHALL NOT AFFECT ANY OTHER TERM OR PROVISION OF THIS AMENDMENT, AND ALL OTHER TERMS AND PROVISIONS OF THIS AMENDMENT SHALL BE UNAFFECTED BY THE SAME AND CONTINUE IN FULL FORCE AND EFFECT.

[Signatures on Next Page]





































Borrower:
ON DECK CAPITAL, INC.

By /s/ Kenneth A. Brause           
Title Chief Financial Officer         
Lender:
PACIFIC WESTERN BANK

By /s/ John Wroton                  
Title Senior Vice President         
Guarantor:
ODWS, LLC

By /s/ Kenneth A. Brause           
Title Officer                                    

 
Guarantor:
ODX, LLC

By /s/ Cory Kampfer                  
Title Officer                                    
 









Exhibit


 
Exhibit 10.23

AMENDMENT NO. 4 TO THE
CREDIT AGREEMENT

This AMENDMENT NO. 4 TO THE CREDIT AGREEMENT (this “Amendment”) dated as of November 19, 2018, is entered into by and among PRIME ONDECK RECEIVABLE TRUST II, LLC, a Delaware limited liability company (“Company”), the Lenders party hereto which constitute each affected Lender and CREDIT SUISSE AG, NEW YORK BRANCH as Administrative Agent for the Class A Lenders (in such capacity, the “Administrative Agent”).
RECITALS:
WHEREAS, Company, the Lenders party thereto from time to time, the Administrative Agent, and Wells Fargo Bank, N.A., as Paying Agent and as Collateral Agent for the Secured Parties, entered into a Credit Agreement, dated as of December 8, 2016 (as amended by that certain Amendment No. 1, dated as of September 25, 2017, that certain Amendment No. 2, dated as of June 5, 2018, that certain Amendment No. 3, dated as of October 5, 2018, and as further amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) pursuant to which the Lenders have made advances and other financial accommodations to Company. Capitalized terms not otherwise defined in this Amendment have the same meanings as specified in the Credit Agreement;
WHEREAS, Company, the Lenders party hereto and Administrative Agent, have agreed to amend the Credit Agreement as set forth herein subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1.    AMENDMENTS TO THE CREDIT AGREEMENT

The Credit Agreement is, effective as of the Amendment Effective Date and subject to the satisfaction of the conditions precedent set forth in Section 3.1 hereof, hereby amended as follows:

1.1    Section 1.1 of the Credit Agreement.

(a)The definition of “Commitment Termination Date” as set forth in Section 1.1 of the Credit Agreement is amended and restated as follows:

Commitment Termination Date” means the earliest to occur of (i) March 8, 2019; (ii) the date the Commitments are permanently reduced to zero pursuant to Section 2.9(a); and (iii) the date of the termination of the Commitments pursuant to Section 7.1.
SECTION 2.    REPRESENTATIONS AND WARRANTIES

In order to induce the Administrative Agent and the Lenders party hereto to enter into this Amendment, Company represents and warrants to the Administrative Agent and Lenders, on the Amendment Effective Date, that the following statements are true and correct, it being understood and agreed that the representations and warranties made on the Amendment Effective Date are deemed to be made concurrently with the consummation of the transactions contemplated hereby:





2.1    Due Authorization. The execution, delivery and performance of this Amendment have been duly authorized by all necessary action on the part of Company.

2.2    Binding Obligation. This Amendment has been duly executed and delivered by the Company and is the legally valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors’ rights generally or by equitable principles relating to enforceability.

2.3    Incorporation of Representations and Warranties from Credit Agreement. The representations and warranties contained in Section 4 of the Credit Agreement are true and correct in all material respects on and as of the Amendment Effective Date (as defined below) as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true and correct in all material respects on and as of such earlier date; provided that, in each case, such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof.

2.4    Absence of Default. No event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute a Default, an Event of Default or a Servicer Default.

SECTION 3.    MISCELLANEOUS

3.1    Conditions of Effectiveness. This Amendment shall become effective as of the date (such date, the “Amendment Effective Date”) on which the Administrative Agent has received counterparts of this Amendment executed by Company, the Administrative Agent and the Lenders party hereto.
 
3.2    Reference to and Effect on the Credit Agreement and the Other Credit Documents.

(a)On and after the Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in the Credit Documents and the Related Agreements to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment. This Amendment is hereby designated as a Credit Document for all purposes of the Credit Documents.

(b)Except as expressly set forth herein, no other amendments, changes or modifications to the Credit Agreement and each other Credit Document are intended or implied, and in all other respects the Credit Agreement and each other Credit Document are and shall continue to be in full force and effect and are hereby in all respects specifically ratified, restated and confirmed by all parties hereto as of the Amendment Effective Date and Company shall not be entitled to any other further amendment by virtue of the provisions of this Amendment or with respect to the subject matter of this Amendment. To the extent of conflict between the terms of this Amendment and the other Credit Documents, the terms of this Amendment shall control. The Credit Agreement and this Amendment shall be read and construed as one agreement.






(c)The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender, Administrative Agent or Agent under the Credit Agreement, nor constitute a waiver of any provision of the Credit Agreement.
    
3.3    Binding Effect. This Amendment shall be binding upon and inure to the benefit of each of the parties hereto and their respective successors and assigns.

3.4    Governing Law. This Amendment and the rights and obligations of the parties hereunder shall be governed by, and shall be construed and enforced in accordance with, the laws of the State of New York.

3.5    Execution in Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment by fax or other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Amendment.

3.6    Headings. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.

[Remainder of page intentionally left blank]






















IN WITNESS THEREOF, the parties hereto have caused this Amendment No. 4 to the Credit Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

PRIME ONDECK RECEIVABLE TRUST II, LLC,
as Company

By:     /s/ Kenneth A. Brause                        
Name: Kenneth A. Brause
Title: Chief Financial Officer

CREDIT SUISSE AG, NEW YORK BRANCH,
as Administrative Agent

By:     /s/ Patrick Duggan                        
Name: Patrick Duggan
Title: Vice President

By:     /s/ Erin McCutcheon                        
Name: Erin McCutcheon
Title: Director


CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH,
as a Class A Committed Lender in the Credit Suisse Lender Group

By:     /s/ Patrick Duggan                        
Name: Patrick Duggan
Title: Authorized Signatory

By:     /s/ Erin McCutcheon                        
Name: Erin McCutcheon
Title: Authorized Signatory

GIFS CAPITAL COMPANY, LLC,
as a Class A Conduit Lender in the Credit Suisse Lender Group

By:    /s/ R. Scott Chisholm                        
Name: R. Scott Chisholm
Title: Authorized Signatory




Exhibit


Exhibit 21.1

SUBSIDIARIES OF ON DECK CAPITAL, INC.

Name
 
Jurisdiction
On Deck Asset Company, LLC
 
Delaware
On Deck Capital Australia PTY LTD (1)
 
Australia
OnDeck Account Receivables Trust 2013-1 LLC
 
Delaware
Prime OnDeck Receivable Trust II, LLC  
 
Delaware
Receivable Assets of OnDeck, LLC
 
Delaware
OnDeck Asset Securitization Trust II LLC
 
Delaware
OnDeck Asset Funding I LLC
 
Delaware
OnDeck Asset Funding II LLC
 
Delaware
Small Business Asset Fund II LLC
 
Delaware
Loan Assets of OnDeck, LLC
 
Delaware
OnDeck Funding Trust No. 1
 
Australia
OnDeck Funding Trust No. 2
 
Australia

Except as noted, all subsidiaries are 100% owned.

(1) The Company has a 55% ownership interest in On Deck Capital Australia PTY LTD.



Exhibit


Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
1.
Registration Statement (Form S-8 No. 333-200998) of On Deck Capital, Inc.
2.
Registration Statement (Form S-8 No. 333-209938) of On Deck Capital, Inc.
3.
Registration Statement (Form S-8 No. 333-216801) of On Deck Capital, Inc.

of our report dated March 1, 2019, with respect to the consolidated financial statements of On Deck Capital, Inc. and subsidiaries, included in this Annual Report (Form 10-K) of On Deck Capital, Inc. for the year ended December 31, 2018.

/s/ Ernst & Young LLP
New York, New York
March 1, 2019




Exhibit


Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Noah Breslow, certify that:
 
1.
I have reviewed this Annual Report on Form 10-K of On Deck Capital, 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 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 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.







Date: March 1, 2019
 
/s/ Noah Breslow
 
Noah Breslow
Chief Executive Officer



Exhibit


Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kenneth A. Brause, certify that:
 
1.
I have reviewed this Annual Report on Form 10-K of On Deck Capital, 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 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 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.







Date: March 1, 2019
 
/s/ Kenneth A. Brause
 
Kenneth A. Brause
Chief Financial Officer



Exhibit


Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Noah Breslow, hereby certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as Chief Executive Officer of On Deck Capital, Inc. (the "Company"), that, to my knowledge, the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2018 as filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 1, 2019
 
/s/ Noah Breslow
 
Noah Breslow
Chief Executive Officer



Exhibit


Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Kenneth A. Brause, hereby certify, as of the date hereof, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in my capacity as Chief Financial Officer of On Deck Capital, Inc. (the "Company"), that, to my knowledge, the Annual Report of the Company on Form 10-K for the fiscal year ended December 31, 2018 as filed with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 1, 2019
 
/s/ Kenneth A. Brause
 
Kenneth A. Brause
Chief Financial Officer



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Attachment: XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT


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