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This is a confidential draft submission to the U.S. Securities and Exchange Commission on November 24, 2021 and is not being filed under the Securities Act of 1933, as amended.

Registration No. 333-          

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

PAGAYA TECHNOLOGIES LTD.

(Exact name of registrant as specified in its charter)

 

 

 

State of Israel   7389   Not applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)

Azrieli Sarona Bldg, 54th Floor

121 Derech Menachem Begin

Tel-Aviv 6701203, Israel

646-710-7714

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Pagaya US Holding Company LLC

90 Park Ave

New York, NY 10016

646-710-7714

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies of all correspondence to:

 

Jeffrey A. Brill
Maxim O. Mayer-Cesiano

Andrea L. Nicolás

B. Chase Wink
Skadden, Arps, Slate, Meagher & Flom LLP
One Manhattan West
New York, NY 10001
Tel: 212-735-3000

 

Aaron M. Lampert
Sharon Gazit
Goldfarb Seligman & Co.
98 Yigal Alon Street

Tel Aviv 6789141
Israel
Tel: 972-3-608-9999

 

Mark Brod

Jonathan Corsico

Simpson Thacher & Bartlett LLP

425 Lexington Avenue

New York, NY 10017

Tel: 212-455-2000

 

Ory Nacht

Michal Herzfeld

Herzog Fox & Neeman
6 Yitzhak Sadeh St.

Herzog Tower

Tel Aviv 6777506 Israel

Tel: 972-3-692-2020

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this registration statement provided that all other conditions to the proposed merger described herein have been satisfied or waived.

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act.

Emerging growth company  ☒

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, 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 7(a)(2)(B) of the Securities Act.  ☐


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CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of Securities to be Registered   Amount
to be
Registered(1)(2)
  Proposed
Maximum
Offering Price
per Security
  Proposed
Maximum
Aggregate
Offering Price
  Amount of
Registration
Fee(3)

Class A ordinary shares, no par value per share(4)

      $        (5)   $        (5)   $        

Warrants to purchase Class A ordinary shares, no par value per share(6)

      $        (7)   $        (7)   $        

Class A ordinary shares, no par value per share, issuable upon exercise of the warrants(8)

      $        (9)   $        (9)   $        

Total

      $—       $              $        

 

 

 

(1)

All securities being registered will be issued by Pagaya Technologies Ltd. (“Pagaya”), a company organized under the laws of the State of Israel, in connection with the Merger Agreement described in this registration statement and the proxy statement/prospectus included herein, which provides for, among other things, Pagaya to acquire EJF Acquisition Corp. (“EJFA”), a Cayman Islands exempted company through the merger of Rigel Merger Sub Inc. (the “Merger Sub”), a Cayman Islands exempted company and a direct, wholly-owned subsidiary of Pagaya, with and into EJFA, with EJFA surviving as a wholly-owned subsidiary of Pagaya (the “Merger”). Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (i) each unit of EJFA issued in the initial public offering of EJFA (“EJFA Units”) and consisting of one Class A ordinary share of EJFA, par value $0.0001 per share (each, an “EJFA Class A Ordinary Share”) and one-third of one public warrant of EJFA entitling the holder to purchase one EJFA Class A Ordinary Share per warrant (each, an “EJFA Public Warrant”) will be automatically separated into one EJFA Class A Ordinary Share and one-third of one EJFA Public Warrant; provided that no fractional EJFA Public Warrants will be issued in connection with the EJFA Unit separation such that if a holder of EJFA Units would be entitled to receive a fractional EJFA Public Warrant upon the EJFA Unit separation, then the number of EJFA Public Warrants to be issued to such holder upon the EJFA Unit separation will be rounded down to the nearest whole number of EJFA Public Warrants, (ii) each Class B ordinary share of EJFA, par value $0.0001 per share (each, an “EJFA Class B Ordinary Share”, and, together with the EJFA Class A Ordinary Shares, the “EJFA Ordinary Shares”), issued and outstanding immediately prior to the Effective Time (other than all EJFA Ordinary Shares that are owned by EJFA, Merger Sub, Pagaya or any of their respective subsidiaries immediately prior to the Effective Time (collectively, the “Excluded Shares”)), will be converted into the right to receive one Class A ordinary share of Pagaya, no par value (each, a “Pagaya Class A Ordinary Share”), which will carry voting rights in the form of one vote per share of Pagaya, (iii) each EJFA Class A Ordinary Share issued and outstanding immediately prior to the Effective Time (after giving effect to the EJFA Shareholder Redemption (as defined in the accompanying proxy statement/prospectus) and other than Excluded Shares) will be converted into the right to receive one Pagaya Class A Ordinary Share, and (iv) each EJFA Public Warrant and each private placement warrant of EJFA entitling the holder to purchase one EJFA Class A Ordinary Share per warrant (each, an “EJFA Private Placement Warrant” and, together with the EJFA Public Warrants, the “EJFA Warrants”) outstanding immediately prior to the Effective Time will be converted into a warrant to purchase one Pagaya Class A Ordinary Share. Prior to the Effective Time, subject to receiving the requisite approval of the shareholders of Pagaya (the “Pagaya Shareholders”), Pagaya intends to (i) convert the then outstanding preferred shares of Pagaya into Pagaya Ordinary Shares (as defined below) in accordance with Pagaya’s organizational documents, and (ii) effect a stock split of the Pagaya Ordinary Shares into a number of Pagaya Ordinary Shares calculated in accordance with the terms of the Merger Agreement such that each Pagaya Ordinary Share will have a value of $10.00 per share (with the Founders (as defined in the accompanying proxy statement/prospectus), in their capacity as Pagaya Shareholders, receiving Class B ordinary shares of Pagaya, no par value (“Pagaya Class B Ordinary Shares”, and together with Pagaya Class A Ordinary Shares, “Pagaya Ordinary Shares”), which will carry voting rights in the form of 10 votes per share of Pagaya and the Pagaya Shareholders other than the Founders receiving Pagaya Class A Ordinary Shares) in accordance with Pagaya’s organizational documents (as discussed in more detail in the accompanying proxy statement/prospectus).

(2)

Pursuant to Rule 416(a) of the Securities Act of 1933, as amended (the “Securities Act”), there are also being registered an indeterminable number of additional securities as may be issued to prevent dilution resulting from stock splits, share dividends or similar transactions.

(3)

Determined in accordance with Section 6(b) of the Securities Act at a rate equal to $92.70 per $1,000,000 of the proposed maximum aggregate offering price.

(4)

Represents Pagaya Class A Ordinary Shares issuable to the shareholders of EJFA (the “EJFA Shareholders”) in exchange for outstanding EJFA Ordinary Shares upon the Merger.

(5)

Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f)(1) of the Securities Act, based on the average of the high ($                ) and low ($    )prices of the EJFA Class A Ordinary Shares on The Nasdaq Capital Market (“Nasdaq”) on            , 2021.

(6)

Represents Pagaya Warrants, with each whole warrant entitling the holder to purchase Pagaya Class A Ordinary Share, to be issued in exchange for EJFA Public Warrants upon the Merger.

(7)

Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(f)(1) and 457(i) of the Securities Act, based on the average of the high ($                ) and low ($    ) prices of the EJFA Public Warrants on Nasdaq on             , 2021 (such date being within five business days of the date that this registration statement was first filed with the SEC).

(8)

Represents Pagaya Class A Ordinary Shares underlying Pagaya Warrants, to be issued in exchange for EJFA Public Warrants upon the Merger, to be issued at an exercise price of $11.50 per share, at any time commencing 30 days after the closing of the Merger.

(9)

No additional registration fee is payable pursuant to Rule 457(g).

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the SEC, acting pursuant to said Section 8(a), may determine.

 

 

 


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The information in this proxy statement/prospectus is not complete and may be changed. Pagaya may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission, of which this proxy statement/prospectus is a part, is effective. This proxy statement/prospectus is neither an offer to sell these securities, nor a solicitation of an offer to buy these securities, in any state or jurisdiction where the offer or sale is not permitted. Any representation to the contrary is a criminal offense.

 

This is a confidential draft submission to the U.S. Securities and Exchange Commission on November 24, 2021 and is not being filed under the Securities Act of 1933, as amended.

PRELIMINARY COPY — SUBJECT TO COMPLETION DATED November 24, 2021

PROXY STATEMENT/PROSPECTUS

The board of directors of EJF Acquisition Corp. (the “EJFA Board”), a Cayman Islands exempted company (“EJFA”), has unanimously approved the Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 15, 2021, by and among EJFA, Pagaya Technologies Ltd. (“Pagaya”), a company organized under the laws of the State of Israel, and Rigel Merger Sub Inc. (the “Merger Sub”), a Cayman Islands exempted company and wholly-owned subsidiary of Pagaya. Pursuant to the Merger Agreement, Merger Sub will merge with and into EJFA (the “Merger”), with EJFA surviving the Merger as a wholly-owned subsidiary of Pagaya. As a result of the Merger, and upon consummation of the Merger and the other transactions contemplated by the Merger Agreement (the “Transactions”), the shareholders of EJFA will become shareholders of Pagaya.

Pursuant to the Merger Agreement, at the effective time of the Merger (the “Effective Time”), (a) each Class B ordinary share of EJFA, par value $0.0001 per share (an “EJFA Class B Ordinary Share”), issued and outstanding immediately prior to the Effective Time, will be automatically converted into the right of the holder thereof to receive one Class A ordinary share of Pagaya (each, a “Pagaya Class A Ordinary Share”), after giving effect to the Capital Restructuring (as defined below), no par value (b) each Class A ordinary share of EJFA, par value $0.0001 per share (each, an “EJFA Class A Ordinary Share” and, together with the EJFA Class B Ordinary Shares, the “EJFA Ordinary Shares”), issued and outstanding immediately prior to the Effective Time, will be converted into the right of the holder thereof to receive one Pagaya Class A Ordinary Share after giving effect to the Capital Restructuring and (c) issued and outstanding warrants of EJFA sold to the public and to Wilson Boulevard LLC (the “Sponsor”), a Delaware limited liability company, in a private placement in connection with EJFA’s initial public offering will automatically and irrevocably be assumed by Pagaya and converted into a corresponding warrant exercisable for Pagaya Class A Ordinary Shares in accordance with the terms of the Amended and Restated Warrant Agreement (as defined in the Merger Agreement) to be entered into immediately prior to the Effective Time.

On the date (the “Closing Date”) of the consummation of the Merger (the “Closing”), immediately prior to the Stock Split (as defined below) and the Effective Time, each preferred share, with nominal value NIS 0.01, of Pagaya will be converted into ordinary shares, with no par value, of Pagaya (each, a “Pagaya Ordinary Share”) in accordance with Pagaya’s organizational documents (the “Conversion”). Immediately following the Conversion but prior to the consummation of the PIPE Investment (as defined below), Pagaya will convert each Pagaya Ordinary Share that is issued and outstanding immediately prior to the Effective Time (and any warrant, right or other security convertible into or exchangeable or exercisable therefor) into a number of Pagaya Ordinary Shares calculated in accordance with the terms of the Merger Agreement such that each Pagaya Ordinary Share will have a value of $10.00 per share (the “Stock Split”), with the three founders of Pagaya (the “Founders”), in their capacity as shareholders of Pagaya, each receiving Class B ordinary shares of Pagaya no par value (“Pagaya Class B Ordinary Shares”), which will carry voting rights in the form of 10 votes per share of Pagaya, and the other shareholders of Pagaya receiving Pagaya Class A Ordinary Shares, which will carry voting rights in the form of one vote per share of Pagaya, in accordance with Pagaya’s organizational documents (we refer to these adjustments to Pagaya’s share capital as the “Reclassification” and, together with the Conversion and the Stock Split, the “Capital Restructuring”).

Concurrently with the execution of the Merger Agreement, Pagaya and EJF Debt Opportunities Master Fund, LP (the “EJF Investor”) entered into the a subscription agreement (the “EJF Subscription Agreement”), pursuant to which, on the terms and subject to the conditions set forth in the EJF Subscription Agreement, the EJF Investor has agreed to purchase, and Pagaya has agreed to sell to it, an aggregate of up to 20 million Pagaya Class A Ordinary Shares, for a purchase price of $10.00 per share and at an aggregate purchase price of up to $200 million on the terms and subject to the conditions set forth therein (the “PIPE Investment”). The EJF Subscription Agreement contains customary representations and warranties of Pagaya, on the one hand, and the EJF Investor, on the other hand, and customary conditions to closing, including the consummation of the Transactions. Subsequently, Pagaya also entered into additional subscription agreements with other certain


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investors, pursuant to which, on the terms and subject to the conditions set forth in such subscription agreements, such investors have agreed to purchase, and Pagaya has agreed to sell to them,                Pagaya Class A Ordinary Shares at a purchase price of $10.00 per share,                 which shares reduced the foregoing commitment by the EJF Investor on a share-for-share basis.

This proxy statement/prospectus registers the issuance of Pagaya Class A Ordinary Shares to the shareholders of EJFA (the “EJFA Shareholders”) as described above, consisting of an aggregate of 35,937,500 Pagaya Class A Ordinary Shares (including 9,583,333 Pagaya Class A Ordinary Shares underlying the EJFA Public Warrants) and 9,583,333 Pagaya Warrants issued upon conversion of EJFA Public Warrants. We are not registering herein the issuance or resale of Pagaya Ordinary Shares issuable to pre-Closing Pagaya Shareholders or to the EJF Investor or the Pagaya Ordinary Shares underlying Pagaya Options or the issuance or resale of the Pagaya Warrants issued upon conversion of the EJFA Private Placement Warrants or warrants owned by pre-Closing Pagaya securityholders (or Pagaya Ordinary Shares underlying such warrants).

As a result of the Transactions (including adjustments to Pagaya’s preexisting capitalization), Pagaya will have two classes of ordinary shares outstanding: Pagaya Class A Ordinary Shares; and Pagaya Class B Ordinary Shares. The rights of the holders of Pagaya Class A Ordinary Shares and Pagaya Class B Ordinary Shares will be identical, except with respect to voting and conversion rights. Each Pagaya Class A Ordinary Share will be entitled to one vote per share. Each Pagaya Class B Ordinary Share will be entitled to 10 votes per share and will be convertible into one Pagaya Class A Ordinary Share. Holders of Pagaya Class A Ordinary Shares and Pagaya Class B Ordinary Shares will vote together as a single class on all matters (including the election of directors) submitted to a vote of Pagaya Shareholders except as otherwise provided in Pagaya’s Amended and Restated Articles of Association (the “Pagaya A&R Articles”), to be effective immediately prior to the Reclassification. The Pagaya A&R Articles require a separate vote of holders of Pagaya Class B Ordinary Shares for the reclassification of Pagaya Class A Ordinary Shares into shares having more than one vote, authorization or issuance of any additional class of Pagaya shares having the right to more than one vote per share, the issuance of any additional Pagaya Class B Ordinary Shares, a modification of the rights of the Pagaya Class B Ordinary Shares, or the subdivision, combination or reclassification of a class of Pagaya Ordinary Shares in a manner that is different or disproportionate to the subdivision, combination or reclassification of the other class of Pagaya Ordinary Shares.

Concurrently with the execution of the Merger Agreement, Pagaya, EJFA and the Sponsor entered into the Side Letter Agreement, which provides that, solely in the event the EJFA Transaction Costs exceed $45 million (the amount of such excess, the “Expenses Excess Amount”), a number of EJFA Class B Ordinary Shares equal to the quotient of (i) the Expenses Excess Amount divided by (ii) $10.00 (subject to equitable adjustment) will be forfeited for no consideration and cancelled by EJFA and no longer outstanding, except that the Sponsor may pay, in whole or in part, the EJFA Transaction Costs in cash prior to the Effective Time without further liability to EJFA, in which case the Expenses Excess Amount will be reduced on a dollar-for-dollar basis by the amount so paid by the Sponsor.

After giving effect to the Transactions, assuming no redemption of EJFA Ordinary Shares and assuming there is no Expenses Excess Amount, Pagaya Class A Ordinary Shares will collectively represent approximately 66% of the post-Closing combined company’s total issued and outstanding shares and 19% of the post-Closing combined company’s voting power attached to all of its issued and outstanding shares, and Pagaya Class B Ordinary Shares will collectively represent approximately 34% of the post-Closing combined company’s total issued and outstanding shares and 81% of its voting power attached to all of its issued and outstanding shares.

Proposals to approve the Merger Agreement and the other matters discussed in this proxy statement/prospectus will be presented at the extraordinary general meeting of EJFA Shareholders scheduled to be held at         a.m. Eastern Time, on        , 2022 at          and          or such other date, time and place to which such meeting may be adjourned.

Although Pagaya is not currently a public reporting company, following the effectiveness of the registration statement of which this proxy statement/prospectus is a part and the Closing, Pagaya will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Pagaya is applying to list the Pagaya Class A Ordinary Shares and Pagaya Warrants on The Nasdaq Capital Market (“Nasdaq”) under the proposed symbols “        ” and “        ,” respectively, to be effective at the Closing. It is a


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condition of the consummation of the Transactions that the Pagaya Class A Ordinary Shares are approved for listing on Nasdaq (or any other public stock market or exchange in the United States as may be agreed by Pagaya and EJFA), subject only to official notice of issuance thereof. While trading on Nasdaq is expected to begin on the first business day following the Closing Date, there can be no assurance that Pagaya’s securities will be listed on Nasdaq or that a viable and active trading market will develop. See “Risk Factors” beginning on page 26 for more information.

Pagaya expects to qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, and is therefore eligible to take advantage of certain reduced reporting requirements otherwise applicable to other public companies.

Pagaya also expects to qualify as a “foreign private issuer” as defined in the Exchange Act, and will be exempt from certain rules under the Exchange Act that impose certain disclosure obligations and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, Pagaya’s officers, directors and principal shareholders will be exempt from the reporting and “short-swing” profit recovery provisions under Section 16 of the Exchange Act. Moreover, Pagaya will not be required to file periodic reports and financial statements with the U.S. Securities and Exchange Commission as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.

This proxy statement/prospectus provides EJFA Shareholders with detailed information about the Merger and other matters to be considered at the extraordinary general meeting of EJFA. We encourage you to read this entire proxy statement/prospectus, including the Annexes and other documents referred to therein, carefully and in their entirety. You should also carefully consider the risk factors described in “Risk Factors” beginning on page 26 of this proxy statement/prospectus.

None of the U.S. Securities and Exchange Commission, the Israel Securities Authority or any state securities commission has approved or disapproved of the securities to be issued in connection with the Merger, or determined if this proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.


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1

From 2016 to 6/30/2021

2

Application evaluation refers to applications that Partners choose to process with the assistance of the Pagaya network, as of Q2 2021

3

Network Volume is defined as the gross dollar amount of assets that are originated by Partners with the assistance of Pagaya’s AI technology and are acquired by the Financing Vehicles


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NOTICE OF EXTRAORDINARY GENERAL MEETING OF SHAREHOLDERS

of EJF Acquisition Corp.

To Be Held on                  , 2022

TO THE SHAREHOLDERS OF EJF ACQUISITION CORP.:

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of shareholders of EJF Acquisition Corp. (“EJFA”), a Cayman Islands exempted company, will be held at            a.m. Eastern Time, on        , 2022 (the “extraordinary general meeting” or the “Special Meeting”) at          and          or such other date, time and place to which such meeting may be adjourned.

In light of ongoing developments related to the coronavirus (COVID-19) pandemic, after careful consideration, EJFA encourages its shareholders to attend the meeting virtually via live webcast in order to facilitate shareholder attendance and participation while safeguarding the health and safety of our shareholders, directors and management team. For the purposes of Cayman Islands law and the amended and restated memorandum and articles of association of EJFA (the “EJFA Memorandum and Articles of Association”), the physical location of the meeting shall be at             . You or your proxyholder will be able to attend and vote at the meeting online by visiting             and using a control number assigned to you. To register and receive access to the meeting, registered shareholders and beneficial shareholders (those holding shares through a stock brokerage account or by a bank or other holder of record) will need to follow the instructions applicable to them provided in the attached proxy statement/prospectus.

The extraordinary general meeting will be held in order to consider and vote on the following proposals:

 

1.

Proposal No. 1—The Business Combination Proposal—to consider and vote upon a proposal to approve and adopt by ordinary resolution the Agreement and Plan of Merger (the “Merger Agreement”), dated as of September 15, 2021, by and among EJFA, Pagaya Technologies Ltd. (“Pagaya”), a company organized under the laws of the State of Israel, and Rigel Merger Sub Inc. (“Merger Sub”), a Cayman Islands exempted company and wholly-owned subsidiary of Pagaya, a copy of which is attached to the accompanying proxy statement/prospectus as Annex A, and the transactions contemplated therein (the “Transactions”), whereby, among other things, Merger Sub, will merge with and into EJFA (the “Merger”), with EJFA surviving the Merger and becoming a wholly-owned subsidiary of Pagaya (the “Business Combination Proposal”), which will become the parent/public company following the Merger;

 

2.

Proposal No. 2—The Merger Proposal—to consider and vote upon a proposal to approve and authorize by special resolution the Merger and the Plan of Merger required by the Companies Act (as amended) of the Cayman Islands substantially in the form attached to the accompanying proxy statement/prospectus as Exhibit F to the Merger Agreement, a copy of which is attached as Annex A to this proxy statement/prospectus (the “Merger Proposal”); and

 

3.

Proposal No. 3—The Adjournment Proposal—to consider and vote upon a proposal to approve by ordinary resolution, if necessary, the adjournment of the meeting to a later date or dates to ensure that any required supplement or amendment to the accompanying proxy statement/prospectus is provided to shareholders, to permit further solicitation and votes of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of the Business Combination Proposal and the Merger Proposal (the “Adjournment Proposal”, and, together with the Business Combination Proposal and the Merger Proposal, the “Proposals” and each, a “Proposal”), or to seek withdrawals of redemption requests from shareholders.

Each of the Business Combination Proposal and the Merger Proposal is cross-conditioned on the approval and adoption of the other Proposal. The Adjournment Proposal is not conditioned on the approval of any other Proposals set forth in the accompanying proxy statement/prospectus and, to the extent that it is put to the Special Meeting, may be proposed as the first resolution at the Special Meeting.


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The items of business listed above and the full texts of the resolutions are more fully described in the accompanying proxy statement/prospectus. Whether or not you intend to attend the extraordinary general meeting, we urge you to read the attached proxy statement/prospectus in its entirety, including the annexes and accompanying financial statements, before voting. IN PARTICULAR, WE URGE YOU TO CAREFULLY READ THE SECTION IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS ENTITLED “RISK FACTORS.”

Board Recommendation

After careful consideration, the EJFA Board has determined that each Proposal is in the best interests of EJFA and unanimously recommends that you vote or give instruction to vote “FOR” each of the Proposals. When you consider the recommendations of the EJFA Board, you should keep in mind that EJFA’s directors and officers may have interests in the Transactions that conflict with, or are different from, your interests as an EJFA Shareholder. See “Proposal One—The Business Combination Proposal—Interests of Certain Persons in the Business Combination.”

Entitlement to Vote

Only holders of record of EJFA Ordinary Shares at the close of business on             , 2022 (the “Record Date”) are entitled to notice of the extraordinary general meeting and to vote and have their votes counted at the extraordinary general meeting and any adjournments or postponements of the extraordinary general meeting.

To ensure your representation at the extraordinary general meeting you are urged to complete, sign, date and return the enclosed proxy card as soon as possible. If you are a holder of record of EJFA Ordinary Shares on the Record Date, you may also cast your vote at the extraordinary general meeting. If your EJFA Ordinary Shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the extraordinary general meeting, obtain a proxy from your broker or bank.

Your vote is important regardless of the number of shares you own. Whether you plan to attend the extraordinary general meeting or not, please complete, sign, date and return the enclosed proxy card as soon as possible in the envelope provided. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that votes related to the shares you beneficially own are properly voted and counted. If you have any questions or need assistance voting your EJFA Ordinary Shares, please contact                 . Questions can also be sent by email to                 . This notice of extraordinary general meeting and the accompanying proxy statement/prospectus relating to the Transactions will be available at https://                .

Thank you for your participation. We look forward to your continued support.

By Order of the Board of Directors

Emanuel Friedman

Chairman of the Board of Directors

IF YOU RETURN YOUR SIGNED PROXY CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF EACH OF THE PROPOSALS.

Redemption Rights

ALL HOLDERS OF EJFA CLASS A ORDINARY SHARES (THE “EJFA PUBLIC SHAREHOLDERS”) ISSUED IN EJFA’S INITIAL PUBLIC OFFERING (THE “EJFA PUBLIC SHARES”) HAVE THE RIGHT TO HAVE THEIR EJFA PUBLIC SHARES REDEEMED FOR CASH IN CONNECTION WITH THE PROPOSED TRANSACTIONS. EJFA PUBLIC SHAREHOLDERS ARE NOT REQUIRED TO AFFIRMATIVELY VOTE FOR OR AGAINST THE PROPOSALS OR TO VOTE ON THE PROPOSALS AT ALL IN ORDER TO HAVE THEIR EJFA PUBLIC SHARES REDEEMED FOR


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CASH. TO EXERCISE REDEMPTION RIGHTS, THE EJFA PUBLIC SHAREHOLDERS MUST TENDER THEIR SHARES TO CONTINENTAL STOCK TRANSFER & TRUST COMPANY, EJFA’S TRANSFER AGENT, NO LATER THAN TWO BUSINESS DAYS PRIOR TO THE EXTRAORDINARY GENERAL MEETING. YOU MAY TENDER YOUR SHARES BY EITHER DELIVERING YOUR SHARE CERTIFICATE TO THE TRANSFER AGENT OR BY DELIVERING YOUR SHARES ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DEPOSIT WITHDRAWAL AT CUSTODIAN SYSTEM. IF THE TRANSACTIONS ARE NOT COMPLETED, THEN THESE SHARES WILL NOT BE REDEEMED FOR CASH. IF YOU HOLD THE SHARES IN STREET NAME, YOU WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT YOUR BANK OR BROKER TO WITHDRAW THE SHARES FROM YOUR ACCOUNT IN ORDER TO EXERCISE YOUR REDEMPTION RIGHTS. SEE “SPECIAL MEETING OF EJFA SHAREHOLDERS—REDEMPTION RIGHTS” FOR MORE SPECIFIC INSTRUCTIONS.


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ABOUT THIS PROXY STATEMENT/PROSPECTUS

     iii  

IMPORTANT INFORMATION ABOUT U.S. GAAP AND NON-U.S. GAAP FINANCIAL MEASURES

     iv  

INDUSTRY AND MARKET DATA

     v  

EXCHANGE RATE PRESENTATION

     vi  

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

     vii  

SELECTED DEFINITIONS

     viii  

QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS AND THE SPECIAL MEETING

     xv  

SUMMARY

     1  

SELECTED HISTORICAL FINANCIAL DATA OF PAGAYA

     17  

RISK FACTORS

     26  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS; MARKET, RANKING AND OTHER INDUSTRY DATA

     90  

PAGAYA’S BUSINESS

     92  

FAIRNESS OPINION OF DUFF & PHELPS

     104  

DESCRIPTION OF PRE-CLOSING TRANSACTIONS

     115  

SPECIAL MEETING OF EJFA SHAREHOLDERS

     116  

PROPOSAL ONE—THE BUSINESS COMBINATION PROPOSAL

     123  

PROPOSAL TWO—THE MERGER PROPOSAL

     142  

PROPOSAL THREE—THE ADJOURNMENT PROPOSAL

     143  

THE MERGER AGREEMENT

     144  

AGREEMENTS RELATING TO THE MERGER AGREEMENT

     162  

U.S. FEDERAL INCOME TAX CONSIDERATIONS

     167  

CERTAIN MATERIAL ISRAELI TAX CONSIDERATIONS

     176  

INFORMATION ABOUT THE COMPANIES

     182  

EJFA’S BUSINESS

     184  

EJFA’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     196  

PAGAYA’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     200  

UNAUDITED PROSPECTIVE FINANCIAL INFORMATION OF PAGAYA

     220  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     223  

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF JUNE  30, 2021

     227  

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2020

     228  

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2021

     229  

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     230  

DIRECTOR AND EXECUTIVE COMPENSATION

     237  

MANAGEMENT FOLLOWING THE MERGER

     249  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

     254  

DESCRIPTION OF PAGAYA SECURITIES

     260  

COMPARISON OF RIGHTS OF PAGAYA SHAREHOLDERS AND EJFA SHAREHOLDERS

     270  

DESCRIPTION OF PAGAYA WARRANTS

     278  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PAGAYA, EJFA AND THE POST-CLOSING COMBINED COMPANY

     283  

PRICE RANGE OF SECURITIES AND DIVIDENDS

     289  

SHAREHOLDER PROPOSALS AND NOMINATIONS ANNUAL AND EXTRAORDINARY MEETING SHAREHOLDER PROPOSALS

     291  

APPRAISAL RIGHTS

     292  

SHAREHOLDER COMMUNICATIONS

     293  

LEGAL MATTERS

     294  


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EXPERTS

     295  

DELIVERY OF DOCUMENTS TO SHAREHOLDERS

     296  

ENFORCEABILITY OF CIVIL LIABILITY

     297  

TRANSFER AGENT AND REGISTRAR

     299  

WHERE YOU CAN FIND MORE INFORMATION

     300  

INDEX TO FINANCIAL STATEMENTS

     F-1  

SIGNATURES

  

ANNEXES

A Agreement and Plan of Merger, dated as of September 15, 2021, by and among Pagaya Technologies Ltd., EJF Acquisition Corp. and Rigel Merger Sub Inc.

B Form of Memorandum of Association of EJF Acquisition Corp.

C Form of Amended and Restated Articles of Association of Pagaya Technologies Ltd.

D Subscription Agreement, dated as of September 15, 2021, between Pagaya Technologies Ltd. and EJFA Debt Opportunities Master Fund, LP.

E Side Letter Agreement, dated as of September 15, 2021, between Pagaya Technologies Ltd., EJF Acquisition Corp. and Wilson Boulevard LLC

F Pagaya Voting Agreement, dated as of September 15, 2021, by and among EJF Acquisition Corp., Pagaya Technologies Ltd., and certain of Pagaya Technologies Ltd.’s shareholders

G EJFA Voting Agreement, dated as of September 15, 2021, by and between Pagaya Technologies Ltd. and Wilson Boulevard LLC

H Form of Amended and Restated Registration Rights Agreement

I Form of 2022 Incentive Equity Plan & Sub-Plan for Israeli Persons

J Opinion of Duff & Phelps

 

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ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms a part of a registration statement on Form F-4 filed with the SEC by Pagaya, constitutes a prospectus of Pagaya under Section 5 of the Securities Act with respect to (a) Pagaya Class A Ordinary Shares to be issued to EJFA Shareholders in the Merger, (b) Pagaya Warrants to be issued to holders of the EJFA Public Warrants and (c) the Pagaya Class A Ordinary Shares issuable upon the exercise of the Pagaya Warrants issued to holders of the EJFA Public Warrants. This document also constitutes a proxy statement of EJFA under the Exchange Act, and the rules thereunder, and a notice of meeting with respect to the Special Meeting of EJFA Shareholders to consider and vote upon, among others, the proposals to approve and adopt the Merger Agreement, a copy of which is attached to this proxy statement/prospectus as Annex A, and the Transactions, including the Merger, and to adjourn the Special Meeting, if necessary, to permit further solicitation of proxies because there are not sufficient votes to adopt the Merger Agreement.

Unless otherwise indicated or the context otherwise requires, all references in this proxy statement/prospectus to “Pagaya” refer to Pagaya Technologies Ltd., together with its subsidiaries, and to “EJFA” refer to EJF Acquisition Corp.

 

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IMPORTANT INFORMATION ABOUT U.S. GAAP AND NON-U.S. GAAP FINANCIAL MEASURES

To evaluate the performance of its business, Pagaya relies on both its results of operations recorded in accordance with U.S. GAAP and certain non-U.S. GAAP financial measures, including Adjusted EBITDA. These measures, as defined below, are not defined or calculated under principles, standards or rules that comprise U.S. GAAP. Accordingly, the non-U.S. GAAP financial measures Pagaya uses and refers to should not be viewed as a substitute for Pagaya’s consolidated financial statements prepared and presented in accordance with U.S. GAAP or any other performance measure derived in accordance with U.S. GAAP, and we encourage you not to rely on any single financial measure to evaluate our business, financial condition or results of operations. Pagaya’s definition of Adjusted EBITDA (the net income (loss) attributable to Pagaya’s Shareholders excluding share-based compensation expense, interest expense, depreciation expense, change in fair value of warrant liability, warrant expense, non-recurring expenses associated with this transaction, and provision for income taxes) is specific to our business and you should not assume that it is comparable to similarly titled financial measures of other companies.

 

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INDUSTRY AND MARKET DATA

Unless otherwise indicated, information contained in this proxy statement/prospectus concerning Pagaya’s industry and the regions in which it operates, including Pagaya’s general expectations and market position, market opportunity, market share and other management estimates, is based on information obtained from various independent publicly available sources and reports provided to Pagaya. While Pagaya has compiled, extracted, and reproduced industry data from these sources, Pagaya has not independently verified the data. Similarly, internal surveys, industry forecasts and market research, which Pagaya believes to be reliable based upon its management’s knowledge of the industry, have not been independently verified. While Pagaya believes that the market data, industry forecasts and similar information included in this proxy statement/prospectus are generally reliable, such information is inherently imprecise and the accuracy and completeness of such information is not guaranteed. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements in this proxy statement/prospectus. In addition, assumptions and estimates of Pagaya’s future performance and growth objectives and the future performance of its industry and the markets in which it operates are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those discussed under the headings “Summary,” “Risk Factors,” “Cautionary Statement Regarding Forward-Looking Statements; Market, Ranking and Other Industry Data” and “Pagaya’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this proxy statement/prospectus.

 

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EXCHANGE RATE PRESENTATION

Certain amounts described herein have been expressed in U.S. Dollars for convenience and, when expressed in U.S. Dollars in the future, such amounts may be different from those set forth herein due to intervening exchange rate fluctuations.

 

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TRADEMARKS, TRADE NAMES AND SERVICE MARKS

We have proprietary rights to trademarks used in this proxy statement/prospectus that are important to our business, many of which are registered (or pending registration) under applicable intellectual property laws. This proxy statement/prospectus contains references to trademarks, trade names and service marks belonging to other entities. Solely for convenience, trademarks, trade names and service marks referred to in this proxy statement/prospectus may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that the applicable licensor will not assert, to the fullest extent under applicable law, its rights to these trademarks, trade names and service marks. Pagaya does not intend its use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of Pagaya by, any other companies.

 

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SELECTED DEFINITIONS

2021 Plan” refers to the 2021 Share Incentive Plan of Pagaya and the Stock Option Sub-Plan For United States Persons thereunder.

2022 Plan” refers to the 2022 Share Incentive Plan of Pagaya to be adopted pursuant to the Merger Agreement, substantially in the form as attached in Annex I.

Adjournment Proposal” refers to the proposal to adjourn the Special Meeting, if necessary, by an ordinary resolution requiring the affirmative vote of a majority of the votes cast by holders of outstanding EJFA Ordinary Shares present in person or by proxy at the Special Meeting and entitled to vote on the matter.

Aggregate EJFA Shareholder Redemption Payments Amount” refers to the aggregate amount of all payments required to be made by EJFA in connection with any EJFA Shareholder Redemption.

Asset Investor” refers to a third-party investor in a Financing Vehicle.

Business Combination Proposal” refers to the proposal to approve and adopt the Merger Agreement and the Transactions, by an ordinary resolution requiring the affirmative vote of a majority of the votes cast by holders of outstanding EJFA Ordinary Shares present in person or by proxy at the Special Meeting and entitled to vote on the matter.

Business Day” refers to any day other than a Saturday, a Sunday or other day on which commercial banks in New York, New York, Tel Aviv, Israel or the Cayman Islands are authorized or required by such jurisdictions’ laws to close.

Capital Restructuring” refers to, collectively, the Reclassification, the Preferred Share Conversion and the Stock Split.

Closing” refers to the consummation of the Merger.

Closing Date” refers to the date on which the Closing actually occurs.

Code” refers to the United States Internal Revenue Code of 1986, as amended.

Companies Act” refers to the Companies Act (As Revised) of the Cayman Islands.

Companies Law” refers to the Israeli Companies Law, 5759-1999, as amended, and the regulations promulgated thereunder.

Continental” or “EJFA Transfer Agent” refers to Continental Stock Transfer & Trust Company, the transfer agent, warrant agent and trustee of EJFA.

COVID-19 Measures” refers to any restriction, quarantine, “shelter in place,” “stay at home,” workforce reduction, school closure or in-person or other attendance modification or restriction, social distancing, shut down, closure, sequester, safety or similar requirement of law, order or regulation, directive, guidelines, suggestion or recommendation promulgated, ordered, made or threatened by any industry group, business or any governmental entity, including the Centers for Disease Control and Prevention and the World Health Organization, in response to COVID-19, including the Coronavirus Aid, Relief, and Economic Security Act, Pub.L. 116–136 (03/27/2020) (CARES Act).

Current Pagaya Articles” refers to the Amended and Restated Articles of Association of Pagaya, dated as of March 17, 2021.

 

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Effective Time” refers to the effective time of the Merger.

EJF Investor” refers to EJF Debt Opportunities Master Fund, LP, a Delaware limited liability company, an affiliate of EJFA.

EJFA” refers to EJF Acquisition Corp., a Cayman Islands exempted company.

EJFA Board” refers to the board of directors of EJFA.

EJFA Class A Ordinary Shares” refers to the class A ordinary shares, par value $0.0001 per share, of EJFA.

EJFA Class B Ordinary Shares” refers to the class B ordinary shares, par value $0.0001 per share, of EJFA.

EJFA IPO” refers to the initial public offering by EJFA, which closed on March 1, 2021.

EJFA Memorandum and Articles of Association” refers to the Amended and Restated Memorandum and Articles of Association of EJFA, as amended, restated, modified or supplemented from time to time.

EJFA Ordinary Shares” refers to the EJFA Class A Ordinary Shares and EJFA Class B Ordinary Shares.

EJFA Private Placement Warrants” refers to the 5,166,667 private placement warrants of EJFA entitling the holder to purchase one EJFA Class A Ordinary Share per warrant.

EJFA Public Shareholders” refers to the holders of the EJFA Class A Ordinary Shares included in the EJFA Units issued in the EJFA IPO.

EJFA Public Shares” refers to EJFA Class A Ordinary Shares sold as part of the units in the EJFA IPO (whether they were purchased in that offering or thereafter in the open market).

EJFA Public Warrants” refers to the 9,583,333 public warrants of EJFA entitling the holder to purchase one EJFA Class A Ordinary Share per warrant.

EJFA Shareholder Matters” refers to the (a) approval and adoption of the Merger Agreement and the Transactions, (b) approval of and authorization of the Merger, (c) if required, approval of the adjournment of the Special Meeting and (d) any other matters required to be approved by EJFA Shareholders by legal requirements.

EJFA Shareholder Proposals” refers to (a) the Business Combination Proposal, (b) the Merger Proposal and (c) the Adjournment Proposal.

EJFA Shareholder Redemption” refers to EJFA’s acquisition of EJFA Public Shares in connection with the Merger pursuant to the right of the holders of EJFA Public Shares to have their shares redeemed in accordance with the procedures set forth in this proxy statement/prospectus.

EJFA Shareholders” refers to, collectively, holders of EJFA Class A Ordinary Shares and holders of EJFA Class B Ordinary Shares.

EJF Subscription Agreement” refers to that certain Subscription Agreement, dated as of September 15, 2021, between Pagaya and the EJF Investor, providing for the purchase by the EJF Investor at the Closing of up to 20 million Pagaya Class A Ordinary Shares at a price per share of $10.00, for an aggregate purchase price of up to $200 million.

EJFA Transaction Costs” refers to (a) all fees, costs and expenses incurred by EJFA prior to the Closing and payable after June 30, 2021 in connection with the negotiation, preparation and execution of the Merger

 

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Agreement, the other transaction agreements and the consummation of the transactions contemplated thereby, (b) all fees, costs and expenses incurred by EJFA prior to the Closing and payable after June 30, 2021 in connection with the EJFA IPO, including any such amounts which are triggered by or become payable as a result of the Closing and (c) all costs, fees and expenses related to the EJFA director and officer tail policy, except the following fees, costs or expenses do not constitute “EJFA Transaction Costs”: (i) any amounts incurred at the request or direction of another party to the Merger Agreement; and (ii) any amounts incurred in connection with any actual or threatened legal proceeding.

EJFA Units” refers to the EJFA Units issued in the EJFA IPO, each consisting of one EJFA Class A Ordinary Share and one-third of one EJFA Public Warrant.

EJFA Unitholders” refers to the holders of EJFA Units.

EJFA Voting Agreement” refers to that certain EJFA Voting Agreement, dated as of September 15, 2021, by and between Pagaya and the Sponsor, in the form as attached in Annex G.

EJFA Warrantholders” refers to the holders of EJFA Public Warrants.

EJFA Warrants” refers to the EJFA Private Placement Warrants and the EJFA Public Warrants.

Exchange Act” refers to the Securities Exchange Act of 1934, as amended.

Excluded Shares” refers to all EJFA Ordinary Shares that are owned by EJFA, Merger Sub, Pagaya or any of their respective subsidiaries immediately prior to the Effective Time.

Financing Vehicles” refers to (i) funds managed or advised by Pagaya or one of its affiliates, (ii) securitization vehicles sponsored or administered by Pagaya or one of its affiliates and (iii) other similar vehicles.

HSR Act” refers to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

Investment Advisers Act” refers to the U.S. Investment Advisers Act of 1940, as amended, and the rules and regulations promulgated thereunder.

Israeli Securities Law” refers to the Israeli Securities Law, 5728-1968, as amended, and the regulations promulgated thereunder.

ITA” refers to the Israel Tax Authority.

ITO” refers to the Israeli Income Tax Ordinance [New Version], 5721-1961, and the regulations, rules and orders promulgated thereunder, as amended.

Lock-Up Shares” refers to (i) with respect to the Pagaya Equity Holders and their permitted transferees, the Pagaya Ordinary Shares held by such Pagaya Equity Holders as of immediately following the Stock Split and the Preferred Share Conversion, and (ii) with respect to the Sponsor and its permitted transferees, (A) the Pagaya Ordinary Shares issuable to the Sponsor and certain directors and advisors of EJFA and their permitted transferees as Merger Consideration (as defined in the Merger Agreement) under the Merger Agreement in respect of the 7,187,500 EJFA Class B Ordinary Shares that they hold, (B) the Pagaya Warrants issuable to the Sponsor as Merger Consideration in respect of the EJFA Private Placement Warrants, and (C) any Pagaya Ordinary Shares issuable to the Sponsor upon exercise of such Pagaya Warrants mentioned in the preceding Clause (B). In furtherance of the foregoing, Pagaya Ordinary Shares issued to any affiliate of the Sponsor in accordance with any subscription agreement between such affiliate and Pagaya are not Lock-Up Shares.

 

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Merger” refers to the merger of Merger Sub with and into EJFA, as contemplated by the Merger Agreement.

Merger Agreement” refers to that certain Agreement and Plan of Merger, dated as of September 15, 2021, by and among EJFA, Pagaya and Merger Sub, in the form as attached in Annex A.

Merger Proposal” refers to the proposal to approve and authorize the Merger, by a special resolution requiring the affirmative vote of at least two-thirds (2/3) of the votes cast by holders of outstanding EJFA Ordinary Shares present in person or by proxy at the Special Meeting and entitled to vote on the matter.

Merger Sub” refers to Rigel Merger Sub Inc., a Cayman Islands exempted company and a wholly-owned subsidiary of Pagaya.

Nasdaq” refers to The Nasdaq Capital Market.

Network Capital” refers to the total capital currently invested in assets originated by Partners with the assistance of our AI technology and network and acquired by a Financing Vehicle plus capital committed by Asset Investors that is available for a Financing Vehicle to acquire new assets.

Network Fee” refers to fees earned and collected (i) from Financing Vehicles upon the generation of Network Volume and (ii) related to the establishment and administration of certain Financing Vehicles.

Network Volume” refers to the gross dollar amount of assets that are originated by Partners with the assistance of Pagaya’s AI technology and are acquired by Financing Vehicles.

Pagaya” refers to Pagaya Technologies Ltd., a company organized under the laws of the State of Israel.

Pagaya A&R Articles” refers to the Amended and Restated Articles of Association of Pagaya, to be effective as of immediately prior to the Reclassification, attached as Annex C to this proxy statement/prospectus.

Pagaya Board” refers to the board of directors of Pagaya.

Pagaya Class A-1 Preferred Shares” refers to the Class A-1 preferred shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.

Pagaya Class A Ordinary Shares” refers to the Class A ordinary shares, no par value, of Pagaya, following the Capital Restructuring, which will carry voting rights in the form of one vote per share of Pagaya.

Pagaya Class A Preferred Shares” refers to the Class A Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.

Pagaya Class B Ordinary Shares” refers to the Class B Ordinary Shares, no par value, of Pagaya, following the Capital Restructuring, which will carry voting rights in the form of 10 votes per share of Pagaya.

Pagaya Class B Preferred Shares” refers to the Class B Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.

Pagaya Class C Preferred Shares” refers to the Class C Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.

Pagaya Class D Preferred Shares” refers to the Class D Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.

 

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Pagaya Class E Preferred Shares” refers to the Class E Preferred Shares, nominal value NIS 0.01 each, of Pagaya, prior to the Capital Restructuring.

Pagaya Equity Holders” refers to the shareholders of Pagaya as of immediately prior to the Effective Time.

Pagaya Option” refers to each outstanding and unexercised option to purchase Pagaya Ordinary Shares issued pursuant to the Pagaya Share Plans, whether or not then vested or fully exercisable.

Pagaya Ordinary Shares” refers to the ordinary shares, NIS 0.01 each, of Pagaya, prior to the Capital Restructuring, provided, however, that after the Preferred Share Conversion and Reclassification, every reference to Pagaya Ordinary Shares shall be to the Pagaya Class A Ordinary Shares and Pagaya Class B Ordinary Shares.

Pagaya Preferred Shares” refers to the Pagaya Class A Preferred Shares, Pagaya Class A-1 Preferred Shares, Pagaya Class B Preferred Shares, Pagaya Class C Preferred Shares, Pagaya Class D Preferred Shares and the Pagaya Class E Preferred Shares, prior to the Capital Restructuring.

Pagaya Share Plans” refers to Pagaya’s 2016 Equity Incentive Plan and the Stock Option Sub-Plan For United States Persons thereunder and Pagaya’s 2021 Share Incentive Plan and the Stock Option Sub-Plan For United States Persons thereunder, collectively.

Pagaya Shareholders” refers, prior to the Merger, to the shareholders of Pagaya and, after the Merger, to the shareholders of the post-Closing combined company.

Pagaya Shareholder Approval” refers to (a) with respect to the Merger, the affirmative vote or written consent of the Preferred Majority, (b) with respect to (i) the adoption of the Pagaya A&R Articles, (ii) the approval and adoption of the Merger Agreement and (iii) approval of the other transactions contemplated thereby, including the Capital Restructuring, the affirmative vote or written consent of each of (x) the Pagaya Shareholders by a shareholder resolution and (y) the Preferred Majority and (c) with respect to any other matters required by legal requirements, the affirmative vote or written consent of Pagaya Shareholders required by applicable legal requirements.

Pagaya Shareholder Matters” refers to (a) the Preferred Share Conversion, (b) the Merger, (c) the adoption of the Pagaya A&R Articles, (d) the approval and adoption of the Merger Agreement, (e) the other transactions contemplated thereby, including the Reclassification and Stock Split, and (f) any other matters required to be approved by Pagaya Shareholders by legal requirements.

Pagaya Voting Agreement” refers to that certain Company Voting Agreement, dated as of September 15, 2021, by and among EJFA and certain of the Pagaya Shareholders, in the form as attached in Annex F.

Pagaya Warrant” refers to each outstanding and unexercised warrant to purchase one Pagaya Class A Ordinary Share per warrant.

Partners” refers to financial institutions including, among others, banks, peer-to-peer lending networks, online marketplaces, non-bank finance companies, fintechs, financing intermediaries, consumer product companies, brokers, agents and credit unions that have entered into arrangements to utilize Pagaya’s AI technology and network to assist them in originating credit and other assets that may be acquired by a Financing Vehicle.

PCAOB” refers to the Public Company Accounting Oversight Board.

Permitted Class B Owner” refers to a Founder or any person or entity that, through contract, proxy or operation of law, has irrevocably delegated the sole and exclusive right to vote the Pagaya Class B Ordinary Shares held by such person or entity to a Founder.

PIPE Investment” refers to the investment by the EJF Investor pursuant to the EJF Subscription Agreement.

 

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PIPE Shares” refers to the 20 million Pagaya Class A Ordinary Shares issuable pursuant to the EJF Subscription Agreement.

Plan of Merger” refers to the plan of merger substantially in the form attached as Exhibit F to the Merger Agreement, which is attached as Annex A to this proxy statement/prospectus.

Preferred Majority” refers to the holders of a majority of the Pagaya Preferred Shares outstanding at a given time prior to the Capital Restructuring, voting together as a single class on an as-converted basis.

Preferred Share Conversion” refers to the conversion of the outstanding Pagaya Preferred Shares into Pagaya Ordinary Shares in accordance with the Merger Agreement.

Reclassification” refers to the reclassification of each Pagaya Ordinary Share that is outstanding immediately following the Preferred Share Conversion (and for the avoidance of doubt, any warrant, right or other security convertible into or exchangeable or exercisable therefor, including each Pagaya Ordinary Share underlying any Pagaya Option), into one Pagaya Class A Ordinary Share or Pagaya Class B Ordinary Share, as applicable, as set forth in the Merger Agreement.

Registration Rights Agreement” refers to the Amended and Restated Registration Rights Agreement to be entered into at Closing, by and among Pagaya, EJFA, the Sponsor and certain equityholders of Pagaya named therein, replacing EJFA’s and Pagaya’s existing registration rights agreements.

SEC” refers to the U.S. Securities and Exchange Commission.

Securities Act” refers to the U.S. Securities Act of 1933, as amended.

Side Letter Agreement” refers to that certain side letter agreement, dated September 15, 2021, between Pagaya, EJFA and the Sponsor, in the form as attached in Annex E.

Special Meeting” refers to the extraordinary general meeting of EJFA Shareholders to vote on the EJFA Shareholder Matters, to be convened on         at         Eastern Time at the offices of         located at         or at such other time, on such other date and at such other place to which the meeting may be adjourned and will be virtually accessible at        .

Split Factor” shall have the meaning ascribed to it in the Merger Agreement.

Sponsor” refers to Wilson Boulevard LLC, a Delaware limited liability company.

Stock Split” refers to the stock split of the Pagaya Ordinary Shares into a number of Pagaya Ordinary Shares calculated in accordance with the terms of the Merger Agreement such that each Pagaya Ordinary Share will have a value of $10.00 per share immediately following the Capital Restructuring on the basis of the Company Value (as defined in the Merger Agreement) set out in the Merger Agreement.

Transaction Agreements” refers to the Merger Agreement, the Registration Rights Agreement, the EJF Subscription Agreement, the Pagaya Voting Agreement, the EJFA Voting Agreement, the Side Letter Agreement, the confidentiality agreement between Pagaya and EJFA, the Pagaya A&R Articles and all the agreements documents, instruments and certificates entered into in connection with the Merger Agreement or therewith and any and all exhibits and schedules thereto.

Transactions” refers to the Merger and the other transactions contemplated by the Merger Agreement.

Treasury Regulations” refers to the regulations promulgated by the U.S. Department of the Treasury pursuant to and in respect of provisions of the Code.

 

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Trust Account” refers to the trust account established pursuant to a trust agreement with Continental, as trustee, in connection with the EJFA IPO.

Trust Agreement” refers to the Investment Management Trust Agreement, effective as of February 24, 2021, by and between EJFA and Continental.

United States” or “U.S.” refers to the United States of America, including the states, the District of Columbia and its territories and possessions.

U.S. Dollars” or “$” refers to U.S. dollars.

U.S. GAAP” refers to the U.S. generally accepted accounting principles.

U.S. Holder” refers to any beneficial owner of EJFA securities or Pagaya securities, as the case may be, that is, for U.S. federal income tax purposes:

 

   

an individual who is a citizen or resident of the United States;

 

   

a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

 

   

an estate whose income is subject to U.S. federal income taxation regardless of its source; or

 

   

a trust if (i) a court within the United States is able to exercise primary supervision over the trust’s administration and one or more U.S. persons have the authority to control all of the trust’s substantial decisions, or (ii) the trust has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

VWAP” refers to, on any trading day on or after the Closing Date, the volume weighted average of the trading prices of the Pagaya Class A Ordinary Shares trading during such day on the principal securities exchange or securities market on which Pagaya Class A Ordinary Shares are then traded or quoted for purchase and sale (as reported by Bloomberg L.P. or, if not reported therein, in another authoritative source selected by Pagaya), except if there occurs any change in the outstanding Pagaya Class A Ordinary Shares as a result of any reclassification, recapitalization, stock split or combination, exchange or readjustment of shares, or any stock dividend, the VWAP shall be equitably adjusted to reflect such change.

Warrant Agreement” refers to the Amended and Restated Warrant Agreement, to be entered into immediately prior to the Effective Time, by and among EJFA, Pagaya and Continental, as transfer agent.

 

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QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS AND

THE SPECIAL MEETING

The questions and answers below highlight only selected information set forth elsewhere in this proxy statement/prospectus and only briefly address some commonly asked questions about the Special Meeting and the proposals to be presented at the Special Meeting, including with respect to the Merger. The following questions and answers do not include all the information that may be important to EJFA Shareholders. EJFA Shareholders are urged to carefully read this entire proxy statement/prospectus, including the annexes and the other documents referred to herein, to fully understand the Merger and the voting procedures for the Special Meeting.

 

Q:

Why am I receiving this proxy statement/prospectus?

 

A:

EJFA and Pagaya have agreed to a merger and certain related transactions under the terms of the Merger Agreement that is described in this proxy statement/prospectus. A copy of the Merger Agreement is attached to this proxy statement/prospectus as Annex A and EJFA encourages the EJFA Shareholders to read the Merger Agreement in its entirety. EJFA Shareholders are being asked to consider and vote upon a proposal to approve and adopt the Merger Agreement and the Merger, with EJFA surviving the Merger as a wholly-owned subsidiary of Pagaya. See the section of this proxy statement/prospectus entitled “Proposal One—The Business Combination Proposal.

 

Q:

Are there any other matters being presented to EJFA Shareholders at the Special Meeting?

 

A:

In addition to voting on the Business Combination Proposal, the EJFA Shareholders will vote on the following proposals:

 

   

To approve and authorize the Merger. See the section of this proxy statement/prospectus entitled “Proposal Two—The Merger Proposal.

 

   

To consider and vote upon a proposal to adjourn the Special Meeting to a later date or dates, if necessary, if the parties are not able to consummate the Merger for any reason. See the section of this proxy statement/prospectus entitled “Proposal Three—The Adjournment Proposal.

EJFA will hold the Special Meeting of EJFA Shareholders to consider and vote upon these proposals. This proxy statement/prospectus contains important information about the Merger and the other matters to be acted upon at the Special Meeting. EJFA Shareholders should read this proxy statement/prospectus (including the annexes and the other documents referred to herein) carefully and in its entirety.

Your vote is important. Regardless of how many shares you own, you are encouraged to vote as soon as possible after carefully reviewing this proxy statement/prospectus.

 

Q:

Why is EJFA proposing the Merger?

 

A:

EJFA was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.

On March 1, 2021, EJFA completed (a) the EJFA IPO of 28,750,000 units at an offering price of $10.00 per unit, with each EJFA Unit consisting of EJFA Class A Ordinary Share and one-third of one EJFA Public Warrant, with each whole EJFA Public Warrant entitling the holder thereof to purchase one EJFA Class A Ordinary Share at an exercise price of $11.50 per share, subject to adjustments, and (b) a concurrent private placement of 5,166,667 warrants to the Sponsor. A total of $287,500,000 of the net proceeds from the EJFA IPO and the concurrent private placement of EJFA Private Placement Warrants were placed in the Trust Account, which was established for the benefit of the EJFA Public Shareholders. Since the EJFA IPO, EJFA’s activity has been limited to the evaluation of potential targets for its initial business combination.

Prior to reaching its decision to approve the business combination and the Merger, the EJFA Board consulted with EJFA’s management as well as its legal and financial advisors, reviewed various industry

 

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and financial data, valuation analyses and the results of management’s due diligence review of Pagaya. In considering the business combination, the EJFA Board determined that Pagaya satisfied the vast majority of the criteria identified in the prospectus for the EJFA IPO to be important factors in identifying and selecting an acquisition candidate and also considered any potentially relevant deterrent factors and concluded that the business combination with Pagaya is in the best interest of EJFA and the EJFA Shareholders. See the section of this proxy statement/prospectus entitled “Proposal OneThe Business Combination ProposalThe EJFA Board’s Reasons for the Merger and Recommendation of the EJFA Board” for a discussion of the factors considered by the EJFA Board in reaching its decision.

 

Q:

What will happen in the Merger?

 

A:

At the Closing, Merger Sub will merge with and into EJFA, with EJFA surviving as a wholly-owned subsidiary of Pagaya. In addition, at the Effective Time, (i) each EJFA Unit will be automatically separated into one EJFA Class A Ordinary Share and one-third of one EJFA Public Warrant; provided that no fractional EJFA Public Warrants will be issued in connection with the EJFA Unit separation such that if a holder of EJFA Units would be entitled to receive a fractional EJFA Public Warrant upon the EJFA Unit separation, then the number of EJFA Public Warrants to be issued to such holder upon the EJFA Unit separation will be rounded down to the nearest whole number of EJFA Public Warrants., (ii) each EJFA Class B Ordinary Share issued and outstanding immediately prior to the Effective Time (other than Excluded Shares) will be converted into the right to receive one Pagaya Class A Ordinary Share, (iii) each EJFA Class A Ordinary Share issued and outstanding immediately prior to the Effective Time (after giving effect to the EJFA Shareholder Redemption and other than Excluded Shares) will be converted into the right to receive one Pagaya Class A Ordinary Share and (iv) each EJFA Warrant outstanding immediately prior to the Effective Time will be converted into one Pagaya Warrant, as described in more detail in the section of this proxy statement/prospectus entitled “Proposal One—The Business Combination Proposal.

Prior to the Effective Time, Pagaya will consummate the PIPE Investment subject to the terms of the EJF Subscription Agreement in an aggregate amount of $200 million.

 

Q:

What other transactions will happen in connection with the Merger?

 

A:

Prior to the Effective Time, subject to receiving the Pagaya Shareholder Approval, Pagaya intends to (i) effect the Preferred Share Conversion, pursuant to which the then outstanding Pagaya Preferred Shares will convert into Pagaya Ordinary Shares in accordance with the Current Pagaya Articles, (ii) effect the Reclassification, pursuant to which Pagaya will reclassify (A) each Pagaya Ordinary Share that, immediately following the Preferred Share Conversion, is outstanding and held by any shareholder other than a Founder, as well as each Pagaya Ordinary Share underlying any Pagaya Options, into one Pagaya Class A Ordinary Share and (B) each Pagaya Ordinary Share that, immediately following the Preferred Share Conversion, is outstanding and held by a Founder, into one Pagaya Class B Ordinary Share, and (iii) effect the Stock Split, pursuant to which each Pagaya Ordinary Share will split into a number of Pagaya Ordinary Shares calculated in accordance with the terms of the Merger Agreement such that each Pagaya Ordinary Share will have a value of $10.00 per share immediately following such split, based on the Company Value.

 

Q:

What is the PIPE Investment?

 

A:

Concurrently with the execution of the Merger Agreement, Pagaya entered into the EJF Subscription Agreement with the EJF Investor, pursuant to which, on the terms and subject to the conditions set forth in the EJF Subscription Agreement, the EJF Investor has agreed to purchase, and Pagaya has agreed to sell to it, an aggregate of up to 20 million Pagaya Class A Ordinary Shares, for a purchase price of $10.00 per share and at an aggregate purchase price of up to $200 million. Subsequently, Pagaya also entered into additional subscription agreements with other certain investors, pursuant to which, on the terms and subject

 

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  to the conditions set forth in such subscription agreements, such investors have agreed to purchase, and Pagaya has agreed to sell to them, Pagaya Class A Ordinary Shares at a purchase price of $10.00 per share, of which              shares reduced the foregoing commitment by the EJF Investor on a share-for-share basis.

 

Q:

Did the EJFA Board obtain a third-party valuation or fairness opinion in determining whether or not to proceed with the Merger?

 

A:

EJFA retained Duff & Phelps as its financial advisor in connection with the Merger. In connection with this engagement, the EJFA Board requested that Duff & Phelps evaluate the fairness, from a financial point of view, of the consideration to be paid to the EJFA Shareholders (excluding the Sponsor, EJFA, Pagaya and each of their respective wholly-owned subsidiaries, and any other Pagaya Voting Agreement Signatories (as defined in the Merger Agreement)(collectively, the “Excluded Shareholders”)). Duff & Phelps delivered a written fairness opinion to the EJFA Board dated September 14, 2021, in which it concluded that, as of such date and based upon and subject to the assumptions made, scope of analysis considered, matters evaluated and other qualifications and limitations set forth therein, the consideration to be paid to the EJFA Shareholders was fair, from a financial point of view, to EJFA Shareholders (excluding the Excluded Shareholders). See the section of this proxy statement/prospectus entitled “Fairness Opinion of Duff & Phelps.

 

Q:

Do I have redemption rights?

 

A:

Holders of EJFA Public Shares may seek to have all or a portion of such shares redeemed for cash, regardless of whether they vote for or against the Business Combination Proposal; provided that such redemption shall be limited to an aggregate dollar amount that would allow EJFA to have net tangible assets in excess of $5,000,001. Any EJFA Public Shareholder holding EJFA Public Shares as of the Record Date may demand that EJFA redeem such shares into a full pro rata portion of the Trust Account (which was $                per share as of                , 2022, the Record Date), calculated as of two Business Days prior to the anticipated consummation of the Merger.

Notwithstanding the foregoing, an EJFA Public Shareholder, together with any affiliate of such EJFA Public Shareholder or any other person with whom such EJFA Public Shareholder is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from redeeming its EJFA Public Shares with respect to more than 15% of the EJFA Public Shares, without the consent of EJFA. Accordingly, if an EJFA Public Shareholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the EJFA Public Shares, then any such shares in excess of that 15% limit would not be redeemed for cash without the consent of EJFA.

 

Q:

How do I exercise my redemption rights?

 

A:

Holders of EJFA Public Shares as of the Record Date who wish to exercise their redemption rights are required to (i) submit their redemption request, which includes the name of the beneficial owner of the shares to be redeemed, in writing to Continental, EJFA’s transfer agent, and (ii) deliver their shares, either physically or electronically using DTC’s DWAC system, to Continental, EJFA’s transfer agent, no later than 5:00 p.m. Eastern Time on         (two Business Days prior to the Special Meeting). If a holder of EJFA Public Shares seeking redemption of EJFA Public Shares holds the shares in “street name,” meaning their EJFA Ordinary Shares are held of record by a broker, bank or other nominee, such EJFA Shareholder will have to coordinate with their broker, bank or other nominee to have the shares certificated or delivered electronically. Shares represented by certificates that have not been tendered (either physically or electronically) in accordance with these procedures will not be redeemed for cash. There is a nominal cost associated with this tendering process and the act of certificating the shares or delivering them through the DWAC system. If the Merger is not consummated this may result in an additional cost to shareholders for the return of their shares.

 

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Any request to have EJFA Public Shares redeemed may be made no later than two Business Days prior to the Special Meeting. If a holder of EJFA Public Shares delivers EJFA Public Shares for redemption and later decides prior to the Special Meeting not to elect redemption, such holder may request return of their shares without EJFA consent so long as the return is made prior to the redemption deadline. Any request for return of shares after the redemption deadline requires EJFA consent. Such a request must be made by contacting Continental, EJFA’s transfer agent, at the phone number or address set out elsewhere in this proxy statement/prospectus.

 

Q:

If I am an EJFA Warrantholder, can I exercise redemption rights with respect to my EJFA Public Warrants?

 

A:

No. The holders of EJFA Public Warrants have no redemption rights with respect to the EJFA Public Warrants.

If you are a holder of EJFA Public Shares (including through the ownership of EJFA Units) and you separate the EJFA Units into underlying EJFA Public Shares and EJFA Public Warrants and thereafter exercise your redemption rights, it will not result in the loss of any EJFA Public Warrants that you may hold (including those contained in any EJFA Units you hold). At the Effective Time, your EJFA Public Warrants will become Pagaya Warrants, exercisable commencing 30 days after the Effective Time.

 

Q:

If I am an EJFA Unitholder, can I exercise redemption rights with respect to my EJFA Public Warrants?

 

A:

No. Holders of outstanding EJFA Units must elect to separate the EJFA Units into the underlying EJFA Public Shares and EJFA Public Warrants prior to exercising redemption rights with respect to the EJFA Public Shares. If you hold your EJFA Units in an account at a brokerage firm, bank or other nominee, you must notify your broker or bank that you elect to separate the EJFA Units into the underlying EJFA Public Shares and EJFA Public Warrants, or if you hold EJFA Units registered in your own name, you must contact Continental, EJFA’s transfer agent, directly and instruct them to do so. If you fail to cause your EJFA Units to be separated and delivered to Continental, EJFA’s transfer agent, by             , New York City time, on             , 2022, you will not be able to exercise your redemption rights with respect to your EJFA Public Shares.

 

Q:

Do I have appraisal rights if I object to the Merger?

 

A:

The Companies Act prescribes when EJFA Shareholder appraisal rights will be available and sets the limitations on such rights. Where such rights are available, EJFA Shareholders are entitled to receive fair value for their shares. However, regardless of whether such rights are or are not available, EJFA Shareholders are still entitled to exercise the rights of redemption, as set out in the section of this proxy statement/prospectus entitled “Special Meeting of EJFA ShareholdersRedemption Rights”, and the EJFA Board is of the view that the redemption proceeds payable to EJFA Shareholders who exercise such redemption rights represents the fair value of those shares. See the section of this proxy statement/prospectus entitled “Appraisal Rights.”

 

Q:

What happens to the funds deposited in the Trust Account after consummation of the Merger?

 

A:

A total of $287,500,000 of the net proceeds from the EJFA IPO and the concurrent private placement of EJFA Private Placement Warrants was placed in the Trust Account immediately following the EJFA IPO. If the Merger is consummated, the funds in the Trust Account will be used (i) to pay, on a pro rata basis, holders of EJFA Public Shares the redemption price for EJFA Public Shares redeemed by the EJFA Public Shareholders who properly exercised redemption rights, (ii) to pay fees and expenses incurred in connection with the transactions contemplated by the Merger Agreement (including aggregate fees of approximately

 

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  $10.1 million to the underwriters of the EJFA IPO as deferred underwriting commissions) and (iii) to repay working capital loans made by the Sponsor, if any. As of the date of this proxy statement/prospectus, there are no outstanding working capital loans. Any funds remaining in the Trust Account after such payments will be released as directed by EJFA.

 

Q:

What happens if a substantial number of EJFA Public Shareholders vote in favor of the Business Combination Proposal and exercise their redemption rights?

 

A:

EJFA Public Shareholders may vote in favor of the Merger and still exercise their redemption rights, although they are not required to vote in any way to exercise such redemption rights. Accordingly, the Merger may be consummated even though the funds available from the Trust Account and the number of EJFA Public Shareholders are substantially reduced as a result of redemptions by EJFA Public Shareholders.

Pagaya’s obligation to consummate the transactions contemplated by the Merger Agreement is conditioned on the amount of “available cash” being at least $200 million. Under the Merger Agreement, “available cash” is defined as (a) an amount equal to the aggregate amount of cash contained in the Trust Account immediately prior to the Closing less the Aggregate EJFA Shareholder Redemption Payments Amount, plus (b) the proceeds actually paid to Pagaya upon consummation of the PIPE Investment (including any funds paid by the EJF Investor in its capacity as a backstop for defaulting PIPE investors, if any). The amount of the PIPE Investment is equal to $200 million, and therefore the “available cash” condition is expected to be satisfied even if there are significant numbers of EJFA Shareholder Redemptions provided that the PIPE Investment is consummated in accordance with the EJF Subscription Agreement. In addition, each of Pagaya’s and EJFA’s obligation to consummate the transactions contemplated by the Merger Agreement is conditioned on EJFA having at least $5,000,001 in net tangible assets after giving effect to the payment of amounts that EJFA will be required to pay to redeeming shareholders upon consummation of the Merger. To the extent that there are fewer EJFA Public Shares and EJFA Public Shareholders, the trading market for Pagaya Ordinary Shares may be less liquid than the market was for EJFA Public Shares prior to the Transactions and Pagaya may not be able to meet the listing standards of a national securities exchange. In addition, to the extent of any redemptions, fewer funds from the Trust Account would be available to Pagaya to be used in its business following the consummation of the Merger.

 

Q:

What happens if the Merger is not consummated?

 

A:

If EJFA does not complete the Merger with Pagaya for whatever reason, EJFA would search for another target business with which to complete an initial business combination. If EJFA does not complete the Merger with Pagaya or a business combination with another company by March 1, 2023 (or such later date as may be approved by EJFA Shareholders in an amendment to the EJFA Memorandum and Articles of Association), EJFA must redeem 100% of the outstanding EJFA Public Shares, at a per-share price, payable in cash, equal to an amount then held in the Trust Account (approximately $         as of         , 2022), less up to $100,000 of interest to pay dissolution expenses, divided by the number of outstanding EJFA Public Shares. The Sponsor and certain directors and advisors of EJFA have waived their rights to liquidating distributions from the Trust Account with respect to their EJFA Class B Ordinary Shares in the event EJFA fails to complete a business combination by March 1, 2023 (or such later date as may be approved by the EJFA Shareholders in an amendment to the EJFA Memorandum and Articles of Association), and, accordingly, their EJFA Class B Ordinary Shares will be worthless in such an event. Additionally, in the event of such liquidation, there will be no distribution with respect to the outstanding EJFA Warrants and the EJFA Warrants would expire worthless.

 

Q:

How do the Sponsor and EJFA’s directors and officers intend to vote on the proposals?

 

A:

The Sponsor beneficially owns and is entitled to vote an aggregate of approximately         %         of         the outstanding EJFA Ordinary Shares. Pursuant to the EJFA Voting Agreement, the Sponsor and the directors

 

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  and advisors and their permitted transferees of EJFA holding EJFA Class B Ordinary Shares have agreed to vote their EJFA Ordinary Shares in favor of the approval and adoption of the Merger Agreement and the transactions contemplated thereby, the approval and authorization of the Merger, if required, the approval of the adjournment of the EJFA Special Meeting, and any other matter reasonably necessary to the consummation of the transactions contemplated by the Merger Agreement and considered and voted upon by EJFA Shareholders. In addition to the EJFA Ordinary Shares held by the Sponsor and the directors and advisors of EJFA holding EJFA Class B Ordinary Shares and their permitted transferees, EJFA would need (i)        shares, or approximately        %,         of         the        EJFA Public Shares outstanding as of the Record Date to be voted in favor of the Business Combination Proposal and the Adjournment Proposal in order for such proposals to be approved and (ii)        shares,         or approximately        %, of the         EJFA Public Shares outstanding as of the Record Date to be voted in favor of the Merger Proposal in order for such proposal to be approved.

 

Q:

What interests do the Sponsor and the current officers and directors of EJFA have in the Merger?

 

A:

In considering the recommendation of the EJFA Board to vote in favor of the Merger, EJFA Shareholders should be aware that, aside from their interests as shareholders, the Sponsor and certain of EJFA’s officers and directors have interests in the Merger that are different from, or in addition to, those of other shareholders generally. The EJFA Board was aware of and considered these interests, among other matters, in evaluating the Merger, in recommending to EJFA Shareholders that they approve the Merger and in agreeing to vote their shares in favor of the Merger. EJFA Shareholders should take these interests into account in deciding whether to approve the Merger. See the section of this proxy statement/prospectus entitled “Proposal One—The Business Combination Proposal—Interests of Certain Persons in the Business Combination.

These interests include, among other things, the fact that:

 

   

If the Merger with Pagaya or another business combination is not consummated by March 1, 2023 (or such later date as may be approved by EJFA Shareholders in an amendment to the EJFA Memorandum and Articles of Association), EJFA will cease all operations except for the purpose of winding up, redeeming 100% of the outstanding EJFA Public Shares for cash and, subject to the approval of its remaining shareholders and the EJFA Board, dissolving and liquidating. On the other hand, if the Merger is consummated, each outstanding EJFA Ordinary Share will be converted into one Pagaya Class A Ordinary Share, subject to adjustment described herein.

 

   

If EJFA is unable to complete a business combination within the required time period, the Sponsor will be liable under certain circumstances described herein to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by EJFA for services rendered or contracted for or products sold to EJFA. If EJFA consummates a business combination, on the other hand, EJFA will be liable for all such claims.

 

   

The Sponsor and EJFA’s officers and directors and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on EJFA’s behalf, such as identifying and investigating possible business targets and business combinations. However, if EJFA fails to consummate a business combination within the required period, they will not have any claim against the Trust Account for reimbursement. Accordingly, EJFA may not be able to reimburse these expenses if the Merger or another business combination is not completed by March 1, 2023 (or such later date as may be approved by EJFA Shareholders in an amendment to the EJFA Memorandum and Articles of Association). As of the Record Date, the Sponsor and EJFA’s officers and directors and their affiliates had incurred approximately $                 of unpaid reimbursable expenses.

 

   

The Merger Agreement provides for the continued indemnification of EJFA’s current directors and officers and the continuation of directors and officers liability insurance covering EJFA’s current directors and officers.

 

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Subject to Pagaya’s consent in accordance with the Merger Agreement, the Sponsor and EJFA’s officers and directors (or their affiliates) may make loans from time to time to EJFA to fund certain capital requirements. Loans may be made after the date of this proxy statement/prospectus. If the Merger is not consummated, the loans will not be repaid and will be forgiven except to the extent there are funds available to EJFA outside of the Trust Account.

 

   

Emanuel Friedman will be a member of the Pagaya Board following the Closing and, therefore, in the future, Mr. Friedman will receive any cash fees, stock options or stock awards that the Pagaya Board determines to pay to its non-executive directors.

 

   

The EJF Investor will participate in the purchase of PIPE Shares from Pagaya at the Closing, and certain of EJFA’s directors and officers are affiliated with the EJF Investor. Duff & Phelps, a Kroll Business, rendered the Opinion (as defined below) to the EJFA Board, for which it will receive a fee from EJFA. A portion of such fee was payable upon delivery of the Opinion and a portion is payable upon and subject to the Closing.

 

   

Pagaya, EJFA and the Sponsor entered into the Side Letter Agreement, which provides that, solely in the event the EJFA Transaction Costs exceed the Expenses Excess Amount, a number of EJFA Class B Ordinary Shares will be forfeited for no consideration and cancelled by EJFA and no longer outstanding, except that the Sponsor may pay, in whole or in part, the EJFA Transaction Costs in cash prior to the Effective Time without further liability to EJFA, in which case the Expenses Excess Amount will be reduced on a dollar-for-dollar basis by the amount so paid by the Sponsor.

 

   

Given the difference in the purchase price the Sponsor paid for EJFA Class B Ordinary Shares ($0.003 per share) and EJFA Private Placement Warrants ($1.50 per Warrant) as compared to the purchase price of the Units sold in the EJFA IPO ($10.00 per Unit), the Sponsor may earn a positive return on its investment even if the EJFA Public Shareholders experience a negative rate of return following the completion of the business combination.

 

   

Certain directors and officers of EJFA, as well as certain partners and employees of EJF Capital, hold equity interests in the Sponsor, and thus have an interest in the business combination transaction that is not the same as the majority of EJFA Shareholders, who do not hold equity interests in the Sponsor.

 

   

In connection with the completion of the business combination, the Sponsor, EJFA, Pagaya and certain equityholders of Pagaya will enter into a new Registration Rights Agreement, which will, among other things, provide that the Sponsor and certain equity holders will have a demand right for Pagaya to conduct an underwritten offering of the Registrable Securities, provided that the total offering price of all securities proposed to be sold in such offering exceeds $75 million in the aggregate and subject to certain limitations.

 

Q:

When do you expect the Merger to be completed?

 

A:

It is currently anticipated that the Merger will be consummated in early 2022. The Closing is subject to the receipt of the requisite approval of the EJFA Shareholders described in this proxy statement/prospectus. The Closing is also subject to other customary closing conditions, including the receipt of the requisite approval by the Pagaya Shareholders. For a description of the conditions for the completion of the Merger, see the section of this proxy statement/prospectus entitled “The Merger Agreement—Conditions to Closing.

 

Q:

Who will solicit and pay the cost of soliciting proxies?

 

A:

EJFA has engaged a professional proxy solicitation firm,                         , to assist in soliciting proxies for the Special Meeting. EJFA has agreed to pay              a fee of $                , plus disbursements. EJFA will reimburse              for reasonable out-of-pocket expenses and will indemnify              and its affiliates against certain claims, liabilities, losses, damages and expenses. EJFA will also reimburse banks, brokers and other nominees representing beneficial owners of EJFA Class A Ordinary Shares for their expenses in

 

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  forwarding soliciting materials to beneficial owners of EJFA Class A Ordinary Shares and in obtaining voting instructions from those beneficial owners. EJFA’s management team may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

Q:

What do I need to do now?

 

A:

EJFA urges you to carefully read and consider the information contained in this proxy statement/prospectus, including the annexes, and to consider how the Merger will affect you as an EJFA Shareholder and/or EJFA Warrantholder. EJFA Shareholders should then vote as soon as possible in accordance with the instructions provided in this proxy statement/prospectus and on the enclosed proxy card.

 

Q:

When and where will the Special Meeting take place?

 

A:

The Special Meeting will be held on                , 2022 at                 Eastern Time at the offices of                  located at                  or at such other time, on such other date and at such other place to which the meeting may be adjourned, and is virtually accessible at                 . You may attend and vote at the Special Meeting webcast by visiting                  and entering the control number found on your proxy card, voting instruction form or notice you previously received.

 

Q:

How can I vote my shares at the Special Meeting?

 

A:

EJFA Ordinary Shares held directly in your name as the shareholder of record of such shares as of the close of business on                , 2022, the Record Date, may be voted electronically at the Special Meeting. If you choose to attend the Special Meeting, you will need to visit                 , and enter the control number found on your proxy card, voting instruction form or notice you previously received. You may vote during the Special Meeting by following the instructions available on the meeting website during the meeting. If you are a beneficial owner of EJFA Ordinary Shares but not the shareholder of record of such shares, you will also need to obtain a legal proxy for the meeting provided by your bank, broker, or other nominee. Please note that if your EJFA Ordinary Shares are held in “street name” by a broker, bank or other nominee and you wish to vote at the Special Meeting, you will not be permitted to vote electronically at the Special Meeting unless you first obtain a legal proxy issued in your name from the record owner. To request a legal proxy, please contact your broker, bank or other nominee holder of record. It is suggested you do so in a timely manner to ensure receipt of your legal proxy prior to the Special Meeting.

 

Q:

How can I vote my shares without attending the Special Meeting?

 

A:

If you are a shareholder of record of EJFA Ordinary Shares as of the close of business on             , 2022, the Record Date, you can vote by proxy by mail by following the instructions provided in the enclosed proxy card. Please note that if you hold such shares in “street name”, you should contact your broker, bank or other nominee to ensure that votes related to the shares you beneficially own are properly counted. In this regard, you must provide the broker, bank or other nominee with instructions on how to vote your shares, or otherwise follow the instructions provided by your bank, brokerage firm or other nominee.

 

Q:

What happens if I sell my EJFA Ordinary Shares before the Special Meeting?

 

A:

The Record Date for the Special Meeting is earlier than the date of the Special Meeting and earlier than the date the Merger is expected to be completed. If you transfer your EJFA Ordinary Shares after the applicable Record Date, but before the Special Meeting date, unless you grant a proxy to the transferee, you will retain your right to vote at the Special Meeting, but you will not be entitled to receive any portion of the Merger Consideration (as defined in the Merger Agreement) unless you hold EJFA Ordinary Shares immediately prior to the Effective Time.

 

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Q:

If my shares are held in “street name,” will my bank, broker or other nominee automatically vote my shares for me?

 

A:

Your bank, broker or other nominee can vote your EJFA Ordinary Shares without receiving your instructions on “routine” proposals only. Your bank, broker or other nominee cannot vote your shares with respect to “non-routine” proposals unless you provide instructions on how to vote in accordance with the information and procedures provided to you by your broker, bank or other nominee.

None of the proposals expected to be voted on at the Special Meeting are routine proposals. Accordingly, your bank, broker or other nominee cannot vote your EJFA Ordinary Shares with respect to these proposals unless you provide voting instructions.

 

Q:

May I change my vote after I have mailed my signed proxy card?

 

A:

Yes. If you are an EJFA Shareholder of record of EJFA Ordinary Shares as of the close of business on the Record Date, you can change or revoke your proxy before              on              in one of the following ways:

 

   

submit a new proxy card bearing a later date;

 

   

give written notice of your revocation to EJFA’s Corporate Secretary, which notice must be received by EJFA’s Corporate Secretary prior to the vote at the Special Meeting; or

 

   

vote electronically at the Special Meeting by visiting              and entering the control number found on your proxy card, voting instruction form or notice you previously received. Please note that your attendance at the Special Meeting will not alone serve to revoke your proxy.

If you hold your shares in “street name,” you should contact your bank, broker or other nominee to change your instructions on how to vote. If you hold your EJFA Ordinary Shares in “street name” and wish to virtually attend the Special Meeting and vote through the web portal, you must obtain a legal proxy from your bank, broker or other nominee.

 

Q:

What constitutes a quorum for the Special Meeting?

 

A:

A quorum is the minimum number of EJFA Ordinary Shares that must be present to hold a valid meeting. The presence, in person or by proxy, of a majority of the paid up voting share capital of EJFA entitled to vote at the Special Meeting constitutes a quorum at the Special Meeting.

Broker non-votes (to the extent that the EJFA Shareholders have given the bank, broker or other nominee voting instructions on at least one proposal in this proxy statement/prospectus) will count as present for the purposes of establishing a quorum. As of the Record Date,              EJFA Ordinary Shares would be required to achieve a quorum.

 

Q:

What shareholder vote thresholds are required for the approval of each proposal brought before the Special Meeting?

 

A:

Vote thresholds are as follows:

 

   

Business Combination Proposal — The approval of the Business Combination Proposal will require an ordinary resolution under Cayman Islands law, being the affirmative vote of the holders of a majority of EJFA Ordinary Shares who, being present and entitled to vote at the Special Meeting, vote at the Special Meeting. Abstentions and broker non-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at Special Meeting, and otherwise will have no effect on a particular proposal.

 

   

Merger Proposal — The authorization of the Plan of Merger will require a special resolution under Cayman Islands law, being the affirmative vote of the holders of at least two thirds of EJFA Ordinary

 

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Shares who, being present and entitled to vote at the Special Meeting, vote at the Special Meeting. Abstentions and broker non-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the Special Meeting, and otherwise will have no effect on a particular proposal.

 

   

Adjournment Proposal — The approval of the Adjournment Proposal will require an ordinary resolution under Cayman Islands law, being the affirmative vote of the holders of a majority of EJFA Ordinary Shares who, being present and entitled to vote at the Special Meeting, vote at the Special Meeting. Abstentions and broker non-votes, while considered present for the purposes of establishing a quorum, will not count as votes cast at the Special Meeting, and otherwise will have no effect on a particular proposal.

 

Q:

Are the proposals conditioned on one another?

 

A:

The Merger is conditioned on the approval of each of the proposals described in this proxy statement/prospectus (other than the Adjournment Proposal). The Business Combination Proposal and the Merger Proposal are cross-conditioned on the approval of each other, while the Adjournment Proposal is not conditioned on the approval of any other proposal.

 

Q:

What will be the relative equity stakes of EJFA Shareholders, the Sponsor, the EJF Investor and existing Pagaya Shareholders in Pagaya upon completion of the Merger?

 

A:

Upon consummation of the Merger, Pagaya will become a new public company and EJFA will become a wholly-owned subsidiary of Pagaya. The former securityholders of EJFA will become securityholders of Pagaya.

Upon consummation of the Merger, the post-Closing share ownership of Pagaya is expected to be as follows:

 

     Pagaya
Ordinary
Shares (%)
 

EJFA Shareholders

             %  

Sponsor

             %  

Pagaya Shareholders

             %  

EJF Investor

             %  

Total

     100%  

These relative percentages assume that none of the EJFA Shareholders exercise their redemption rights. These percentages do not account for the outstanding options and warrants issued by Pagaya or the Pagaya Warrants that will be issued upon conversion of the EJFA Public Warrants and EJFA Private Placement Warrants. If any of the EJFA Shareholders exercise such EJFA Shareholder’s redemption rights, the percentage ownership of the EJFA Shareholders will be lower and the percentage ownership of all other holders will be higher.

 

Q:

What are the material differences in the rights of shareholders as a result of the dual class structure?

 

A:

The Pagaya Class B Ordinary Shares will have 10 votes per share, while the Pagaya Class A Ordinary Shares will have one vote per share.

Pagaya Class B Ordinary Shares are expected to be issued to, and registered in the name of, (i) Gal Krubiner, Yahav Yulzari and Avital Pardo (each a “Founder” and, collectively, the “Founders”) and (ii) any Permitted Class B Owner (as defined in the Pagaya A&R Articles).

 

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All outstanding Pagaya Class B Ordinary Shares owned by a Founder and by any Permitted Class B Owners affiliated with such Founder shall automatically convert into an equal number of Pagaya Class A Ordinary Shares on the date of the earliest to occur of (i), (ii) or (iii) below:

 

  (i)

(1) the earliest to occur of (a) such Founder’s employment or engagement as an officer of Pagaya being terminated not for Cause (as defined in the Pagaya A&R Articles), (b) such Founder’s resigning as an officer of Pagaya, (c) death or permanent disability of such Founder, except, in such event, such Founder’s Pagaya Class B Ordinary Shares shall be transferred automatically to the other Founders, pro rata to their holdings, if the other Founders continue to hold Pagaya Class B Ordinary Shares at such time, or (d) the appointment of a receiver, trustee or similar official in bankruptcy or similar proceeding with respect to a Founder or its Pagaya Class B Ordinary Shares; and (2) such Founder no longer serves as a member of the Pagaya Board;

 

  (ii)

90 days following the date on which such Founder first receives notice that his employment as an officer of Pagaya is terminated for Cause, except that if, prior to the expiration of such 90 day period, (a) the Pagaya Board repeals its determination that such Founder was terminated for Cause or determines that the Cause had been cured, then the provisions of clause (i) above shall apply, or (b) such Founder commences legal proceedings with the competent judicial forum to determine that such determination by the Pagaya Board of termination for Cause was improper or incorrect, then such Founder shall retain its Pagaya Class B Ordinary Shares until the earlier of (y) the issuance of a final unappealable judgment confirming the determination of the Pagaya Board, or a judgment which execution had not been stayed pending an appeal, and (z) the abandonment of such proceedings or their dismissal or denial by a ruling of the relevant judicial forum on any grounds, substantive or procedural, and regardless of whether or not the Pagaya Board’s determination regarding the termination for Cause is confirmed as part of such ruling, provided the basis for Cause shall be deemed to not be curable, and such conversion shall be effective immediately upon written notice by Pagaya to such Founder; or

 

  (iii)

the earlier to occur of (1) such time as the Founders and the Permitted Class B Owners first collectively hold less than 10% of the total issued and outstanding ordinary share capital of Pagaya, and (2) the fifteenth anniversary of the Closing Date.

Additionally, any Pagaya Class B Ordinary Shares that are transferred to any person or entity other than a Permitted Class B Owner shall automatically upon such transfer convert into an equal number of Pagaya Class A Ordinary Shares.

Although no single holder will control a majority of voting power, the holders of the Pagaya Class B Ordinary Shares will collectively have up to     % of the voting power of Pagaya following the Merger (under the no redemption scenario) and will collectively be able to control matters submitted to its shareholders for approval, including the election of directors, amendments of its organizational documents and any merger, consolidation, sale of all or substantially all of its assets and other major corporate transactions.

 

Q:

What happens if I fail to take any action with respect to the Special Meeting?

 

A:

If you fail to take any action with respect to the meeting and the Merger is approved by the EJFA Shareholders and consummated, you will become a shareholder or warrantholder of Pagaya as long as you hold EJFA Ordinary Shares, EJFA Public Warrants or EJFA Private Placement Warrants, as applicable, immediately prior to the Effective Time.

If you fail to take any action with respect to the Special Meeting and the Merger is not approved, you will continue to be a shareholder and/or warrantholder of EJFA, as applicable, and EJFA will continue to search for another target business with which to complete an initial business combination. If EJFA does not complete an initial business combination by March 1, 2023 (or such later date as may be approved by EJFA Shareholders in an amendment to the EJFA Memorandum and Articles of Association), EJFA must redeem

 

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100% of the outstanding EJFA Public Shares, at a per-share price, payable in cash, equal to an amount then held in the Trust Account, less up to $100,000 of interest to pay dissolution expenses, divided by the number of outstanding EJFA Public Shares.

 

Q:

What should I do with my share and/or warrant certificates?

 

A:

EJFA Warrantholders and those EJFA Shareholders who do not elect to have their EJFA Ordinary Shares redeemed for a pro rata share of the Trust Account should wait for instructions from the EJFA Transfer Agent regarding what to do with their certificates. EJFA Shareholders who exercise their redemption rights must deliver their share certificates to EJFA’s transfer agent (either physically or electronically) no later than two Business Days prior to the Special Meeting as described above.

Upon consummation of the Transactions, the EJFA Public Warrants, by their terms, will entitle holders to purchase shares of Pagaya. Therefore, EJFA Warrantholders need not deliver their EJFA Public Warrants to EJFA or Pagaya at that time.

 

Q:

What should I do if I receive more than one set of voting materials?

 

A:

EJFA Shareholders may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your EJFA Ordinary Shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please complete, sign, date and return each proxy card and voting instruction card that you receive in order to cast a vote with respect to all of your EJFA Ordinary Shares.

 

Q:

What are the U.S. federal income tax consequences of the Merger to U.S. Holders of EJFA Ordinary Shares and/or EJFA Public Warrants?

 

A:

As described in the section of this proxy statement/prospectus entitled “U.S. Federal Income Tax Considerations—Effects of the Merger—Characterization of the Merger as a reorganization under section 368(a) of the Code,” significant uncertainty exists as to the qualification of the Merger as a tax-free reorganization within the meaning of Section 368(a) of the Code to U.S. Holders (as defined herein) of EJFA Ordinary Shares and EJFA Public Warrants. If, as of the Closing Date, any requirement for Section 368(a) of the Code is not met, then such U.S. Holder will recognize gain or loss in an amount equal to the difference, if any, between the fair market value (as of the Closing Date) of the securities received, over such U.S. Holder’s aggregate tax basis in the securities surrendered by such U.S. Holder in the Merger. Even if the requirements under Section 368(a) of the Code are satisfied, U.S. Holders may be required to recognize gain (but not loss) under the Passive Foreign Investment Company (“PFIC”) rules, as described in more detail below under “Certain Material U.S. Tax Consideration—Ownership and disposition of Pagaya securities—Passive foreign investment company considerations.

 

Q:

Under Israeli law, what are the material Israeli income tax consequences of the Merger for EJFA Shareholders?

 

A:

The Merger is a taxable event in Israel. The EJFA Shareholders and EJFA Warrantholders that are not residents of Israel should, under certain conditions, be exempt from Israeli tax while those that are Israeli residents may be taxed on any capital gains resulting from the exchange of their EJFA Class A Ordinary Shares, EJFA Class B Ordinary Shares or EJFA Public Warrants. Pagaya, the Merger Sub, their respective affiliates, and any other person making a payment under the Merger Agreement (including the issuance of shares as consideration under the Merger Agreement) is required to deduct and withhold tax from the Merger Consideration in accordance with applicable legal requirements. Pagaya has applied for a tax ruling

 

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  from the ITA exempting Pagaya, the Merger Sub and their respective agents from any obligation to withhold Israeli tax from the Merger Consideration payable or otherwise deliverable to shareholders and warrant holders of EJFA, and deferring the taxable event to the time of the sale of the shares or warrants. In case such tax ruling is not timely obtained or does not cover all EJFA Shareholders and EJFA Warrantholders, according to the Merger Agreement, any EJFA Shareholder that owns at least 5% of EJFA Ordinary Shares or is a resident of Israel will be subject to tax withholding in Israel, unless an exemption certificate from the ITA is provided by such shareholder.

No assurance can be given that the tax ruling will be obtained or that the ITA will exempt Pagaya, Merger Sub and their respective agents from any obligation to withhold Israeli tax. In the event that such tax ruling is not obtained prior to the payment of the Merger Consideration, Israeli tax withholding may be required with respect to payments made to certain shareholders who do not obtain an exemption certificate from the ITA, by that time. The tax consequences of the Merger are complex and will depend on your particular circumstances. For a more detailed discussion, see the section titled “Certain Material Israeli Tax Considerations.

 

Q:

Under Israeli law, what are the material Israeli income tax consequences of the other transactions that will happen in connection with the Merger?

 

A:

Each of the Preferred Share Conversion and Reclassification (including reclassifying Pagaya Ordinary Shares into Pagaya Class B Ordinary Shares) may be treated as a taxable event in Israel for some or all of the Pagaya Shareholders. Furthermore, the reclassification of the ordinary shares underlying the Pagaya Options into Pagaya Class A Ordinary Shares may cause the holders of such options to lose their eligibility for a reduced tax rate under the ITO and the Pagaya Share Plans with respect to such options. However, Pagaya has applied for a tax ruling from the ITA exempting the Pagaya Shareholders from such Israeli tax and preventing the option holders from losing their tax benefits.

No assurance can be given that the tax ruling will be obtained or that the ITA will not classify the Merger, the Preferred Share Conversion or the Reclassification as taxable events. The tax consequences of the Merger and the other transactions that will happen in connection with the Merger are complex and will depend upon, among other things, your particular circumstances. For a more detailed discussion, see the section titled “Certain Material Israeli Tax Considerations.

 

Q:

What are the U.S. federal income tax consequences of exercising my redemption rights?

 

A:

The U.S. federal income tax consequences of exercising your redemption rights are complex and depend on your particular facts and circumstances. For a discussion of the U.S. federal income tax considerations of exercising your redemption rights, see the section of this proxy statement/prospectus entitled “U.S. Federal Income Tax Considerations—Exercise of redemption rights.” If you are a U.S. Holder of EJFA Ordinary Shares contemplating to exercise of your redemption rights, you are urged to consult your tax advisor to determine the tax consequences thereof.

 

Q:

Who can help answer my questions?

 

A:

If you have questions about the Merger or if you need additional copies of this proxy statement/prospectus or the enclosed proxy card, you should contact:

Tel:                 

Attn:                 

Email:                 

or the proxy solicitor at:                 

 

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You may also obtain additional information about EJFA from documents filed with the SEC by following the instructions in the section of this proxy statement/prospectus entitled “Where You Can Find More Information.” If you are a holder of EJFA Public Shares and you intend to seek redemption of your shares, you will need to deliver your shares (either physically or electronically) to the EJFA Transfer Agent at the address below at least two Business Days prior to the vote at the Special Meeting. If you have questions regarding the certification of your position or delivery of your shares, please contact:

Continental Stock Transfer & Trust Company

1 State Street, 30th Floor

New York, New York 10004

Email: cstmail@contintentalstock.com

Tel: (212) 509-4000

 

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SUMMARY

This summary highlights selected information from this proxy statement/prospectus and does not contain all of the information that is important to you. You should carefully read the entire proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus, including the annexes and exhibits, to fully understand the Merger Agreement, the Transactions, including the Merger, and the other matters being considered at the Special Meeting. For additional information, see the section of this proxy statement/prospectus entitled “Where You Can Find More Information.” Each item in this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail.

Information about the companies (page 182)

Pagaya Technologies Ltd.

Pagaya makes life-changing financial products and services available to more people.

Pagaya has built, and is continuing to scale, a leading artificial intelligence (“AI”) and data network for the benefit of financial services providers, their customers, and asset investors. Financial services providers integrated in Pagaya’s network, which are referred to as Pagaya’s “Partners,” range from high-growth financial technology companies to incumbent financial institutions, auto dealers and brokers. Partners utilize Pagaya’s network to extend financial products to their customers, in turn helping those customers fulfill their financial needs and dreams. These assets originated by Partners with the assistance of Pagaya’s AI technology are acquired by Financing Vehicles.

In recent years, investments in digitization have improved the front-end delivery of financial products, upgrading customer experience and convenience. Notwithstanding these advances, Pagaya believes underlying approaches to the determination of credit fitness for financial products are often outdated and overly manual. In Pagaya’s experience, providers of financial services tend to utilize a limited number of factors to make decisions, operate with siloed technology infrastructure and have data limited to their own experience. As a result, Pagaya believes financial services providers approve a smaller proportion of their application volume than is possible with the benefit of modern technology, such as Pagaya’s AI technology and network.

Pagaya is a technology company that deploys sophisticated data science, machine learning and AI technology to drive better results. Partners utilize Pagaya’s centralized AI and data network to evaluate their customers’ applications in real time. Pagaya believes this solution measures risk and predicts behavior more accurately than legacy approaches, and Pagaya’s performance continuously improves as more information flows through its network. Further, Partners integrate seamlessly through Application Programming Interfaces (“APIs”), providing them with access to Pagaya’s proprietary technology with minimal latency and no significant upfront investment.

Pagaya was founded in 2016 and is organized under the laws of the State of Israel. The mailing address of Pagaya’s principal executive office is Azrieli Sarona Bldg, 54th Floor, 121 Derech Menachem Begin, Tel-Aviv, 6701203, Israel and its phone number is (646) 710-7714.

EJFA

EJFA is a blank check company incorporated on December 22, 2020 as a Cayman Islands exempted company and incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses.

On March 1, 2021, EJFA consummated its initial public offering of 28,750,000 EJFA Units, which includes the exercise by the underwriters of their over-allotment option in the amount of 3,750,000 EJFA Units, at a price of

 

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$10.00 per EJFA Unit, generating aggregate gross proceeds of $287,500,000. Each EJFA Unit consists of one EJFA Class A Ordinary Share, and one-third of one EJFA Public Warrant. The EJFA Units sold in the EJFA IPO were registered under the Securities Act on a registration statement on Form S-1 (No. 333-252892), which the SEC declared effective on February 9, 2021. Simultaneously with the closing of the EJFA IPO, EJFA consummated the sale of 5,166,667 EJFA Private Placement Warrants to the Sponsor at a price of $1.50 per EJFA Private Placement Warrant, generating total proceeds of $7,750,000. Each EJFA Warrant entitles the holder to purchase one EJFA Class A Ordinary Share at an exercise price of $11.50 per EJFA Class A Ordinary Share, subject to adjustment.

The EJFA Units, EJFA Class A Ordinary Shares and EJFA Warrants are listed on Nasdaq under the symbols EJFAU, EJFA and EJFAW, respectively.

The mailing address of EJFA’s principal executive office is 2107 Wilson Boulevard, Suite 410, Arlington, Virginia 22201, and its telephone number is (703) 879-3292. After the consummation of the transactions, EJFA’s principal executive office will be that of Pagaya.

The Merger Agreement (page 144)

The following summary of the Merger Agreement is qualified in its entirety by reference to the complete text of the Merger Agreement, a copy of which is attached as Annex A hereto.

Expected pro forma ownership

It is anticipated that, upon completion of the Transactions, the Pagaya Ordinary Shares issued to the EJFA Shareholders, including the Sponsor, as Merger Consideration will represent an ownership interest (excluding EJFA warrants, Pagaya options and warrants outstanding) in Pagaya of approximately 8.0% and 4.0%, assuming the no redemption scenario and the maximum redemption scenario, respectively (representing approximately 2.0% and 1.0% of the voting power of the Pagaya Ordinary Shares under the no redemption and the maximum redemption scenario, respectively). Pagaya Ordinary Shares held by Pagaya Shareholders immediately prior to the Effective Time (but after giving effect to the Stock Split) will represent an ownership interest in Pagaya of approximately 92.0% and 96.0%, assuming the no redemption scenario and the maximum redemption scenario, respectively (representing approximately 98.0% and 99.0% of the voting power of the Pagaya Ordinary Shares under the no redemption and the maximum redemption scenario, respectively). These percentages include the Pagaya Ordinary Shares that will be held by the Sponsor and certain directors and advisors of EJFA and their permitted transferees but that will be subject to price-based transfer restrictions. These percentages do not account for the outstanding Pagaya Option, Pagaya Warrants, or EJFA Warrants. See the section of this proxy statement/prospectus entitled “Proposal One—The Business Combination Proposal—Pro Forma Capitalization” for further information.

The Merger

At the Closing, Merger Sub will merge with and into EJFA, with EJFA surviving as a wholly-owned subsidiary of Pagaya. In addition, at the Effective Time, (i) each EJFA Unit will be automatically separated and become one EJFA Class A Ordinary Share and one-third of one EJFA Public Warrant, (ii) each EJFA Class B Ordinary Share issued and outstanding immediately prior to the Effective Time (other than Excluded Shares) will be converted into the right to receive one Pagaya Class A Ordinary Share, (iii) each EJFA Class A Ordinary Share issued and outstanding immediately prior to the effective time (after giving effect any EJFA Shareholder Redemption and other than Excluded Shares) will be converted into the right to receive one Pagaya Class A Ordinary Share, and (iv) each EJFA Warrant outstanding immediately prior to the effective time will be converted into one Pagaya Warrant.

 

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Pre-Closing Capital Restructuring

Prior to the Effective Time, subject to receiving the Pagaya Shareholder Approval, Pagaya intends to (i) effect the Preferred Share Conversion, pursuant to which Pagaya will convert the then issued and outstanding Pagaya Preferred Shares into Pagaya Ordinary Shares in accordance with Pagaya’s organizational documents, (ii) adopt the Pagaya A&R Articles, (iii) effect the Stock Split, pursuant to which Pagaya Ordinary Shares will split into such number of Pagaya Ordinary Shares calculated in accordance with the terms of the Merger Agreement such that each Pagaya Ordinary Share will have a value of $10.00 per share, and (iv) effect the Reclassification, pursuant to which the Founders (in their capacity as shareholders of Pagaya) will receive Pagaya Class B Ordinary Shares, no par value, which will carry voting rights in the form of 10 votes per share of Pagaya and the other pre-Closing Pagaya Shareholders will receive Pagaya Class A Ordinary Shares, no par value, which will carry voting rights in the form of one vote per share of Pagaya, in accordance with the organizational documents of Pagaya.

The EJFA Board’s Reasons for the Transactions (page 133)

The EJFA Board, in evaluating the Transactions, consulted with EJFA’s management and financial and legal advisors. In reaching its unanimous resolution (i) that the Merger Agreement and the transactions contemplated thereby are advisable and in the best interests of EJFA and its shareholders and (ii) to recommend that the shareholders adopt the Merger Agreement and approve the Merger and the Transactions, the EJFA Board considered a range of factors, including, but not limited to, the factors discussed below. In light of the number and wide variety of factors considered in connection with its evaluation of the Transactions, the EJFA Board did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors that it considered in reaching its determination and supporting its decision. The EJFA Board viewed its decision as being based on all of the information available and the factors presented to and considered by it. In addition, individual directors may have given different weight to different factors. This explanation of EJFA’s reasons for the Transactions and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements; Market, Ranking and Other Industry Data.”

The EJFA Board considered a number of factors pertaining to the Transactions as generally supporting its decision to enter into the Merger Agreement and the Transactions, including, but not limited to, the following material factors:

 

   

Business Model. Pagaya is a financial technology company that the EJFA Board considered to be well-positioned to reshape the lending marketplace by using machine learning, big data analytics, and sophisticated AI-driven credit and analysis technology.

 

   

Competitive Landscape. Pagaya is an early mover in using machine learning and other sophisticated data analysis techniques to assist its Partners in credit decisions and therefore enjoys a competitive advantage. Pagaya’s proprietary AI solutions and Partner relationships provide a strong differentiating factor from other competitors.

 

   

Technology and AI. Pagaya’s business is driven by its proprietary AI and deep bench of data scientists. Pagaya has a highly accomplished technology and data team with a track record of innovation likely to further drive Pagaya’s success.

 

   

Pagaya Management Team. Led by its Co-Founder and Chief Executive Officer Gal Krubiner, Co-Founder and Chief Technology Officer Avital Pardo, Co-Founder and Chief Revenue Officer Yahav Yulzari, and Chief Financial Officer Michael Kurlander, Pagaya has built a strong management team with extensive experience in the fintech space.

 

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Pagaya’s Business Performance. Pagaya has quickly achieved scale with its products and continues to demonstrate impressive growth. This is particularly impressive, given that Pagaya’s business was founded only four years ago.

 

   

EJFA and Pagaya Combination Benefits. Pagaya’s potential public company status following the consummation of the Transactions, combined with the capital to be provided from the PIPE, is expected to provide Pagaya with substantial support for further scaling its network. EJFA’s leadership in the finance space will help Pagaya further grow and identify attractive partnerships.

 

   

Financial Performance and Valuation. EJFA has evaluated the performance of Pagaya and believes the valuation in the Transactions is attractive, including as the valuation is compared to competitor firms.

 

   

Due Diligence. EJFA conducted due diligence examinations of Pagaya, including financial, accounting, tax, legal (including corporate governance, indebtedness, real property, intellectual property, executive compensation and labor, anti-trust/regulatory, litigation and asset management), industry, data science/artificial intelligence, management background and technical due diligence.

 

   

Lock-Up. Following the Closing, all shares of the post-Closing combined company issued to the pre-Closing Pagaya Shareholders (including those issued to the Founders) will be subject to a lock-up period of between 90 days and 12 months depending, among other things, upon whether the shares of the post-Closing combined entity trade for over $12.50 for any 20 trading days within a 30 consecutive trading day period on the Nasdaq.

 

   

Fairness Opinion. The fairness opinion delivered by Duff & Phelps to the EJFA Board to the effect that, as of September 14, 2021 and based upon and subject to the assumptions made, scope of analysis considered, matters evaluated and other qualifications and limitations set forth therein, the Merger Consideration to be paid to the EJFA Shareholders (excluding the Excluded Shareholders) pursuant to the Transactions was fair, from a financial point of view, to such EJFA Shareholders.

 

   

Other Alternatives. The EJFA Board believes, after a thorough review of other business combination opportunities reasonably available to EJFA, that the proposed Transactions represent the best potential business combination for EJFA that is currently available in the market.

The EJFA Board also considered a variety of uncertainties and risks and other potentially negative factors concerning the Transactions, including, but not limited to, the following:

 

   

Lack of Operating History. Pagaya was founded only four years ago. Thus, although it has shown impressive performance over that period, Pagaya does not have a long and proven operating history. In particular, Pagaya has not operated its business during a credit downturn.

 

   

Valuation Depends on Future Performance. The valuation of Pagaya agreed to in the Transactions depends in large part on Pagaya’s performance in calendar 2021, 2022 and 2023. Although the EJFA Board believes that this valuation is fair, and received the Opinion from Duff & Phelps confirming, as of September 14, 2021 and based upon and subject to the assumptions made, scope of analysis considered, matters evaluated and other qualifications and limitations set forth therein, the same, there is risk that, if Pagaya does not perform as expected in 2021 and 2022, the valuation agreed to by the EJFA Board will be too high.

 

   

Public Company Readiness. While EJFA believes Pagaya has a strong management team, the management team has limited experience managing a public company. Additionally, management and Pagaya’s infrastructure will need to mature quickly to support Pagaya as a public company.

 

   

Execution of Growth Plan. Pagaya has a strong pipeline with large regional and money center banks, but slower sales conversion could delay the continued strong growth rate.

 

   

Access to Funding. Pagaya has secured diversified funding access with multiple Financing Vehicles, but these sources need to expand materially in the future to allow Pagaya to execute on its aggressive growth strategy across asset classes and with larger partners.

 

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Consumer Credit and Macroeconomic Conditions. Consumer credit performance has received a boost in the last 18 months, with extended government support in the form of credits and unemployment payments, but performance in the coming years is dependent on a robust post-COVID-19 recovery.

 

   

Limitations of Due Diligence. Although EJFA conducted due diligence on Pagaya, the scope of its review was limited by the time available, the materials provided by Pagaya and the inherent uncertainties in any due diligence process. Accordingly, there can be no assurance that EJFA discovered all material issues that may be present with regard to Pagaya’s business, or that factors outside of EJFA’s or Pagaya’s control will not later arise.

 

   

Difficulty in Protecting, Maintaining and Enforcing Intellectual Property and other Proprietary Rights. Pagaya relies on AI and other proprietary data analysis techniques to assist its Partners in making credit decisions. This technology is core to Pagaya’s business. Pagaya may be unable to sufficiently, and it may be difficult and costly to, obtain, maintain, protect, or enforce its intellectual property and other proprietary rights effectively. As such, it is possible that competitors could develop similar or superior technology, or key personnel at Pagaya could leave the business and use their personal knowledge in a competitive fashion.

 

   

Changes in Regulations. EJFA has conducted diligence into Pagaya’s operations based on the current regulatory landscape, but legislation and regulations that affect Pagaya’s core business may change.

 

   

Closing Conditions. The fact that the completion of the Transactions is conditioned on the satisfaction of certain closing conditions that are not within EJFA’s control.

 

   

Liquidation of EJFA. The risks and costs to EJFA if the Transactions are not completed, including the risk of diverting management focus and resources from other business combination opportunities.

 

   

Litigation: The possibility of litigation challenging the business combination or that an adverse judgment granting permanent injunctive relief could indefinitely enjoin consummation of the Merger.

 

   

Fees and Expenses: The fees and expenses associated with completing the business combination.

 

   

Additional Risks and Uncertainties. EJFA also considered other risks of the type and nature described under the section entitled “Risk Factors.”

The EJFA Board concluded that the potential benefits that it expected EJFA and its shareholders to achieve as a result of the Merger outweighed the potentially negative factors associated with the Transactions. Accordingly, the EJFA Board unanimously determined that the Merger Agreement and the Transactions were advisable, fair to and in the best interests of EJFA and its shareholders.

Interests of certain persons in the Business Combination (page 137)

In considering the recommendation of the EJFA Board to vote in favor of approval of the Business Combination Proposal, shareholders should keep in mind that the Sponsor and EJFA’s directors and executive officers have interests in such proposals that are different from, or in addition to, those of EJFA Shareholders generally. In particular:

 

   

If the Merger with Pagaya or another business combination is not consummated by March 1, 2023 (or such later date as may be approved by EJFA’s shareholders in an amendment to the EJFA Memorandum and Articles of Association), EJFA will cease all operations except for the purpose of winding up, redeeming 100% of the outstanding EJFA Public Shares for cash and, subject to the approval of its remaining shareholders and the EJFA Board, dissolving and liquidating. On the other hand, if the Merger is consummated, each outstanding EJFA Ordinary Share will be converted into one Pagaya Class A Ordinary Share, subject to adjustment described herein.

 

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If EJFA is unable to complete a business combination within the required time period, the Sponsor will be liable under certain circumstances described herein to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors or other entities that are owed money by EJFA for services rendered or contracted for or products sold to EJFA. If EJFA consummates a business combination, on the other hand, EJFA will be liable for all such claims.

 

   

The Sponsor and EJFA’s officers and directors and their affiliates are entitled to reimbursement of out-of-pocket expenses incurred by them in connection with certain activities on EJFA’s behalf, such as identifying and investigating possible business targets and business combinations. However, if EJFA fails to consummate a business combination within the required period, they will not have any claim against the Trust Account for reimbursement. Accordingly, EJFA may not be able to reimburse these expenses if the Merger or another business combination is not completed by March 1, 2023 (or such later date as may be approved by EJFA Shareholders in an amendment to the EJFA Memorandum and Articles of Association). As of the Record Date, the Sponsor and EJFA’s officers and directors and their affiliates had incurred approximately $         of unpaid reimbursable expenses.

 

   

The Merger Agreement provides for the continued indemnification of EJFA’s current directors and officers and the continuation of directors and officers liability insurance covering EJFA’s current directors and officers.

 

   

Subject to Pagaya’s consent in accordance with the Merger Agreement, the Sponsor and EJFA’s officers and directors (or their affiliates) may make loans from time to time to EJFA to fund certain capital requirements. Loans may be made after the date of this proxy statement/prospectus. If the Merger is not consummated, the loans will not be repaid and will be forgiven except to the extent there are funds available to EJFA outside of the Trust Account.

 

   

Emanuel Friedman will be a member of the Pagaya Board following the Closing and, therefore, in the future Mr. Friedman will receive any cash fees, stock options or stock awards that the Pagaya Board determines to pay to its non-executive directors.

 

   

The EJF Investor will participate in the purchase of PIPE Shares from Pagaya at the closing of the Transactions, and certain of EJFA’s directors and officers are affiliated with the EJF Investor. Duff & Phelps, a Kroll Business, rendered the Opinion to the EJFA Board, for which it will receive a fee from EJFA. A portion of such fee was payable upon delivery of the Opinion and a portion is payable upon and subject to the Closing.

 

   

Pagaya, EJFA and the Sponsor entered into the Side Letter Agreement, which provides that, solely in the event the EJFA Transaction Costs exceed the Expenses Excess Amount, a number of EJFA Class B Ordinary Shares will be forfeited for no consideration and cancelled by EJFA and no longer outstanding, except that the Sponsor may pay, in whole or in part, the EJFA Transaction Costs in cash prior to the Effective Time without further liability to EJFA, in which case the Expenses Excess Amount will be reduced on a dollar-for-dollar basis by the amount so paid by the Sponsor.

 

   

Given the difference in the purchase price the Sponsor paid for EJFA Class B Ordinary Shares ($0.003 per share) and EJFA Private Placement Warrants ($1.50 per Warrant) as compared to the purchase price of the Units sold in the EJFA IPO ($10.00 per Unit), the Sponsor may earn a positive return on its investment even if the EJFA Public Shareholders experience a negative rate of return following the completion of the business combination.

 

   

Certain directors and officers of EJFA, as well as certain partners and employees of EJF Capital, hold equity interests in the Sponsor, and thus have an interest in the business combination transaction that is not the same as the majority of EJFA Shareholders, who do not hold equity interests in the Sponsor.

 

   

In connection with the completion of the business combination, the Sponsor, EJFA, Pagaya and certain equityholders of Pagaya will enter into a new Registration Rights Agreement, which will, among other

 

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things, provide that the Sponsor and certain equity holders will have a demand right for Pagaya to conduct an underwritten offering of the Registrable Securities, provided that the total offering price of all securities proposed to be sold in such offering exceeds $75 million in the aggregate and subject to certain limitations.

These financial interests of the officers and directors may have influenced their decision to approve the Merger. You should consider these interests when evaluating the Transactions and the recommendation of the proposal to vote in favor of the Business Combination Proposal to be presented to EJFA Shareholders.

Agreements relating to the Merger Agreement (page 162)

In connection with the Merger, certain related agreements have been, or will be entered into on or prior to the Closing Date, including:

EJF Subscription Agreement

In connection with the execution of the Merger Agreement, Pagaya and the EJF Investor entered into the EJF Subscription Agreement, pursuant to which the EJF Investor committed to purchase, in the aggregate, up to 20 million Pagaya Class A Ordinary Shares at $10.00 per share for an aggregate commitment amount of up to $200 million. The obligation of the parties to consummate the PIPE Investment under the EJF Subscription Agreement is conditioned upon, among other things, the conditions to the Closing having been satisfied. Subsequently, Pagaya also entered into additional subscription agreements with other certain investors, pursuant to which, on the terms and subject to the conditions set forth in such subscription agreements, such investors have agreed to purchase, and Pagaya has agreed to sell to them,                Pagaya Class A Ordinary Shares at a purchase price of $10.00 per share, of which shares reduced the foregoing commitment by the EJF Investor on a share-for-share basis. The closing of the PIPE Investment is expected to occur substantially concurrently with the Closing.

Side Letter Agreement

Concurrently with the execution of the Merger Agreement, Pagaya, EJFA and the Sponsor entered into the Side Letter Agreement, which provides that, solely in the event the EJFA Transaction Costs exceed $45 million, a number of EJFA Class B Ordinary Shares equal to the quotient of (i) the Expenses Excess Amount divided by (ii) $10.00 (subject to equitable adjustment) will be forfeited for no consideration and cancelled by EJFA and no longer outstanding, except that the Sponsor may pay, in whole or in part, EJFA Transaction Costs in cash prior to the Effective Time without further liability to EJFA, in which case the Expenses Excess Amount will be reduced on a dollar-for-dollar basis by the amount so paid by the Sponsor.

Lockup Arrangements

The Merger Agreement contemplates that Pagaya will adopt the Pagaya A&R Articles, to be effective immediately prior to the Reclassification. The Pagaya A&R Articles contemplate certain lock-up arrangements to become effective as of the Effective Time. Pursuant to such lock-up arrangements, Pagaya Equity Holders, the Sponsor and the directors and advisors of EJFA holding EJFA Class B Ordinary Shares and their permitted transferees will not directly or indirectly transfer their Lock-Up Shares during their applicable lock-up period described below, subject to certain exceptions, terms and conditions set forth in the Pagaya A&R Articles.

Following the Closing, (i) the Lock-Up Shares held by Pagaya Equity Holders and their permitted transferees may not be transferred (except to a permitted transferee and subject to certain exceptions) until (a) with respect to 50% of the Pagaya Ordinary Shares held by each such Pagaya Equity Holder (or their permitted transferee) on the Closing Date, on the earlier of (1) the date that is six months following the Closing Date and (2) the date on

 

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which the VWAP equals or exceeds $12.50 for any 20 trading days within any 30 consecutive trading day period commencing on the Closing Date, and (b) with respect to the remaining 50% of the Pagaya Ordinary Shares held by such Pagaya Equity Holder on the Closing Date, on the earlier of (1) the date that is 12 months following the Closing Date and (2) the date on which the VWAP equals or exceeds $12.50 for any 20 trading days within any 30 consecutive trading day period commencing on the Closing Date and (ii) the Lock-Up Shares held by the Sponsor and its permitted transferees may not be transferred (except to a permitted transferee and subject to certain exceptions) until the earlier of (a) the date that is 12 months following the Closing Date and (b) the date on which the VWAP equals or exceeds $12.50 for any 20 trading days within any 30 consecutive trading day period, except the lock-up restrictions will not be lifted pursuant to (i)(a)(2) above prior to the date that is 90 days following the Closing Date and will not be lifted pursuant to (i)(b)(2) or (ii)(b) above prior to the date that is 180 days following the Closing Date.

Pagaya Voting Agreement

Concurrently with the execution of the Merger Agreement, EJFA and certain of the Pagaya Shareholders entered into the Pagaya Voting Agreement, pursuant to which each of those Pagaya Shareholders have agreed to, among other things, at any Pagaya Shareholders meeting at which the matters described in (iv) and (v) below are considered, (i) appear or otherwise cause Pagaya securities that are held by such Pagaya Shareholders and related to which such Pagaya Shareholders are entitled to vote (collectively, the “Pagaya Voting Shares”) to be counted as present at such meeting for the purpose of establishing a quorum; (ii) vote or cause to be voted the Pagaya Voting Shares; (iii) execute a written consent or consents if Pagaya Shareholders are requested to vote their shares through the execution of an action by written consent; (iv) vote all Pagaya Voting Shares in favor of the Pagaya Shareholder Matters, and any other matter reasonably necessary to the consummation of the Transactions and considered and voted upon by the Pagaya Equity Holders; and (v) vote all Pagaya Voting Shares against (A) any proposal or offer from any person (other than EJFA or any of its affiliates) concerning (1) a merger, consolidation, liquidation, recapitalization, share exchange or other business combination transaction involving Pagaya, (2) the issuance or acquisition of shares or other equity securities of Pagaya, or (3) the sale, lease, exchange or other disposition of any significant portion of Pagaya’s properties or assets; (B) any action, proposal, transaction or agreement that could reasonably be expected to result in a breach of any covenant or obligation of Pagaya set forth in the Merger Agreement or any other transaction agreement, or in any representation or warranty of Pagaya set forth in the Merger Agreement or any other transaction agreement becoming inaccurate; and (C) any action, proposal, transaction or agreement that could reasonably be expected to impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Transactions or the fulfillment of Pagaya’s conditions under the Merger Agreement or any other transaction agreement or change in any manner the voting rights of any class of shares of Pagaya (including any amendments to Pagaya’s governing documents), except as contemplated by the Pagaya Voting Agreement. In addition, the Pagaya Shareholders party to the Pagaya Voting Agreement agreed not to transfer, directly or indirectly, any of their Pagaya Voting Shares until the earlier of the Effective Time and the date on which the Merger Agreement is terminated in accordance with its terms, subject to certain exceptions.

EJFA Voting Agreement

Concurrently with the execution of the Merger Agreement, Pagaya and the Sponsor entered into the EJFA Voting Agreement, pursuant to which the Sponsor and the directors and advisors of EJFA holding EJFA Class B Ordinary Shares and their permitted transferees have agreed to, among other things, at any meeting of EJFA Shareholders at which the matters described in (iv) and (v) below are considered, (i) appear or otherwise cause EJFA securities that are held by the Sponsor or such directors or advisors of EJFA and related to which such EJFA Shareholders are entitled to vote (collectively, the “EJFA Voting Shares”) to be counted as present at the Special Meeting for the purpose of establishing a quorum; (ii) vote or cause to be voted the EJFA Voting Shares, (iii) execute a written consent or consents if EJFA Shareholders are requested to vote their shares through the

 

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execution of an action by written consent; (iv) vote all EJFA Voting Shares in favor of the EJFA Shareholder Proposals, including the EJFA Shareholder Matters, and any other matter reasonably necessary to the consummation of the Transactions and considered and voted upon by equityholders of EJFA; and (v) vote all EJFA Voting Shares against (A) any proposal or offer from any person (other than Pagaya or any of its affiliates) concerning (1) a merger, consolidation, liquidation, recapitalization, share exchange or other business combination transaction involving EJFA, (2) the issuance or acquisition of shares or other equity securities of EJFA, or (3) the sale, lease, exchange or other disposition of any significant portion of EJFA’s properties or assets; (B) any action, proposal, transaction or agreement that could reasonably be expected to result in a breach of any covenant or obligation of EJFA set forth in the Merger Agreement or any other transaction agreement, or in any representation or warranty of EJFA set forth in the Merger Agreement or any other transaction agreement becoming inaccurate; and (C) any action, proposal, transaction or agreement that could reasonably be expected to impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Transactions or the fulfillment of EJFA’s conditions under the Merger Agreement or any other transaction agreement or change in any manner the voting rights of any class of shares of EJFA (including any amendments to EJFA’s governing documents), except as contemplated by the EJFA Voting Agreement. In addition, the Sponsor and the directors and advisors of EJFA holding EJFA Class B Ordinary Shares and their permitted transferees have agreed not to transfer, directly or indirectly, any of their EJFA Voting Shares until the earlier of the Effective Time and the date on which the Merger Agreement is terminated in accordance with its terms, subject to certain exceptions.

Registration Rights Agreement

The Merger Agreement contemplates that, at the Effective Time, each of Pagaya, the Sponsor and certain Pagaya Shareholders (the Sponsor and such Pagaya Shareholders, collectively, the “Shareholder Parties” and each a “Shareholder Party”) as of immediately prior to the merger will enter into the Registration Rights Agreement, pursuant to which Pagaya will agree to file a registration statement, by no later than 30 days following the Closing Date, to register the resale of the Pagaya Class A Ordinary Shares, including such shares issuable upon the exercise of warrants, held by Shareholder Parties as of the Closing Date (the “Registrable Securities”). The Registration Rights Agreement provides the Shareholder Parties with a demand right for Pagaya to conduct an underwritten offering of the Registrable Securities, provided that the total offering price of all securities proposed to be sold in such offering exceeds $75 million in the aggregate and subject to certain limitations.

In connection with the execution of the Registration Rights Agreement, the Registration and Shareholder Rights Agreement, dated February 24, 2021, by and between the Sponsor and EJFA and the Registration Rights Agreement, dated March 17, 2021, by and between Pagaya and certain Pagaya Shareholders, will automatically terminate and be of no further force and effect as of the Closing Date. The Registration Rights Agreement will terminate on the earliest of (a) the tenth anniversary of the date of the Registration Rights Agreement, (b) any acquisition of Pagaya after the Merger, as a result of which the Registrable Securities are converted into the right to receive consideration consisting solely of cash or other property other than securities listed on a national securities exchange registered under Section 6 of the Exchange Act or (c) with respect to any Shareholder Party, on the date that such Shareholder Party no longer holds any Registrable Securities.

Certain Material U.S. and Israeli Tax Considerations (page 167)

As described in the section of this proxy statement/prospectus entitled “U.S. Federal Income Tax Considerations” significant uncertainty exists as to the tax-free treatment of the Merger to U.S. Holders of EJFA Ordinary Shares and EJFA Public Warrants for U.S. federal income tax purposes.

For a description of Israeli tax consequences of the ownership and disposition of Pagaya Ordinary Shares and/or Pagaya Warrants, please see the information set forth in “Certain Material Israeli tax considerations.

 

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Holders of EJFA Ordinary Shares and EJFA Public Warrants should read carefully the information included under the sections of this proxy statement/prospectus entitled “U.S. Federal Income Tax Considerations” and “Certain Material Israeli Tax Considerations” for a more detailed discussion of U.S. federal tax considerations of the Merger, including the receipt of cash pursuant to the exercise of redemption rights, and the U.S. federal and Israeli tax considerations of the ownership and disposition of Pagaya Ordinary Shares and Pagaya Warrants after the Merger. Holders of EJFA Ordinary Shares and EJFA Public Warrants should consult their own tax advisors to determine the tax consequences to them (including the application and effect of any state, local or other income and other tax laws) of the Merger, and prospective holders of Pagaya Ordinary Shares and Pagaya Warrants should consult their own tax advisors to determine the tax consequences (including the application and effect of any state, local or other income and other tax laws) of any acquisition, holding, redemption and disposal of Pagaya Ordinary Shares or any acquisition, holding, exercise or disposal of Pagaya Warrants.

Redemption rights (page 118)

Holders of EJFA Public Shares may seek to redeem all or a portion of their shares for cash if the merger is consummated. Any holder of EJFA Public Shares may demand that EJFA redeem such shares for a full pro rata portion of the Trust Account), calculated as of two (2) Business Days prior to the anticipated consummation of the Merger. If an EJFA Shareholder properly seeks redemption as described in this section and the Merger is consummated, EJFA will redeem these shares for a pro rata portion of funds deposited in the Trust Account and the holder will no longer own these shares following the Merger. Holders will be entitled to receive cash for these shares only if they properly demand redemption no later than two (2) Business Days before the Special Meeting by delivering your share certificate (if any) and other redemption forms (either physically or electronically) to Continental Stock Transfer & Trust Company, EJFA’s transfer agent, prior to the vote at the Special Meeting, and the Merger is consummated.

Any request to redeem such shares, once made, may be withdrawn at any time prior to the Special Meeting. Furthermore, if a holder of EJFA Public Shares delivered its share certificate and other redemption forms in connection with an election of its redemption and subsequently decides prior to the applicable date not to elect to exercise such rights, it may simply request that the transfer agent return the certificate (physically or electronically).

Notwithstanding the foregoing, a holder of EJFA Public Shares, together with any affiliate of his or any other person with whom he is acting in concert or as a “group” (as defined in Section 13(d)(3) of the Exchange Act), will be restricted from seeking redemption rights with respect to more than 15% of the EJFA Public Shares. Accordingly, all EJFA Public Shares in excess of 15% held by an EJFA Public Shareholder, together with any affiliate of such holder or any other person with whom such holder is acting in concert or as a “group,” will not be redeemed for cash.

Holders of EJFA Class B Ordinary Shares will not have redemption rights with respect to such shares.

Appraisal rights (page 291)

The Companies Act prescribes when EJFA Shareholder appraisal rights will be available and sets the limitations on such rights. Where such rights are available, EJFA Shareholders are entitled to receive fair value for their shares. However, regardless of whether such rights are or are not available, EJFA Shareholders are still entitled to exercise the rights of redemption, as set out in the section of this proxy statement/prospectus entitled “Special Meeting of EJFA Shareholders–Redemption Rights”, and the EJFA Board is of the view that the redemption proceeds payable to EJFA Shareholders who exercise such redemption rights represents the fair value of those shares. See the section of this proxy statement/prospectus entitled “Appraisal Rights.

 

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Voting power; Record Date (page 283)

EJFA Shareholders will be entitled to vote or direct votes to be cast at the Special Meeting if they owned EJFA Ordinary Shares at the close of business on             , which is the Record Date for the Special Meeting. EJFA Shareholders will have one vote for each EJFA Ordinary Share owned at the close of business on the Record Date. If your shares are held in “street name” or are in a margin or similar account, you should contact your broker, bank or nominee to ensure that votes related to the shares you beneficially own are properly counted. Neither the EJFA Public Warrants nor the EJFA Private Placement Warrants have voting rights. On the Record Date, there were             EJFA Ordinary Shares outstanding, of which             were EJFA Public Shares. EJFA Public Warrants do not have voting rights. On the Record Date, there were             EJFA Ordinary Shares outstanding, of which             were EJFA Public Shares with the rest being held by the Sponsor and the directors and advisors of EJFA holding EJFA Class B Ordinary Shares and their permitted transferees.

Proposal One – The Business Combination Proposal (page 123)

The EJFA Shareholders will consider and vote upon a proposal to approve and adopt the Merger Agreement, a copy of which is attached to this proxy statement/prospectus as Annex A, and the Transactions, whereby, among other things, Merger Sub will be merged with and into EJFA, with EJFA surviving the Merger as a wholly-owned subsidiary of Pagaya.

Proposal Two – The Merger Proposal (page 142)

The EJFA Shareholders will consider and vote upon a proposal to approve and authorize the Plan of Merger substantially in the form attached as Exhibit F to the Merger Agreement, which is attached as Annex A to this proxy statement/prospectus.

Proposal Three – The Adjournment Proposal (page 143)

The EJFA Shareholders will consider and vote upon a proposal to approve the adjournment of the Special Meeting to a later date or dates, if required, if the parties are not able to consummate the Transactions.

Recommendations to EJFA Shareholders (page 116)

The EJFA Board has determined that each of the Business Combination Proposal, the Merger Proposal and the Adjournment Proposal is fair to and in the best interests of EJFA and its shareholders and recommends that EJFA Shareholders vote “FOR” the Business Combination Proposal, “FOR” the Merger Proposal and “FOR” the Adjournment Proposal, if presented. When you consider the recommendations of the EJFA Board, you should keep in mind that EJFA’s directors and officers may have interests in the Merger that conflict with, or are different from, your interests as an EJFA Shareholder. See the section of this proxy statement/prospectus entitled “Proposal One—The Business Combination Proposal—Interests of Certain Persons in the Business Combination.”

Comparison of rights of Pagaya Shareholders and EJFA Shareholders (page 270)

If the Transactions are successfully completed, EJFA Shareholders will become holders of Pagaya Ordinary Shares, and their rights as shareholders will be governed by Pagaya’s organizational documents and the laws of the State of Israel, which contain important differences from EJFA’s organizational documents and the corporate laws of the Cayman Islands. For more information, please see the section of this proxy statement/prospectus entitled “Comparison of Rights of Pagaya Shareholders and EJFA Shareholders.

 

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Emerging growth company (page F-68)

Each of EJFA and Pagaya is, and consequently, following the Merger, the post-Closing combined company is expected to be, an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, the post-Closing combined company is expected to be eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other 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 of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in their periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. If some investors find the post-Closing combined company’s securities less attractive as a result, there may be a less active trading market for the post-Closing combined company’s securities and the prices of the post-Closing combined company’s securities may be more volatile.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The post-Closing combined company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the post-Closing combined company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the post-Closing combined company’s financial statements with certain other public companies difficult or impossible because of the potential differences in accounting standards used.

The post-Closing combined company will remain an emerging growth company until the earlier of: (i) the last day of the fiscal year (a) following the fifth anniversary of the closing of the post-Closing combined company’s initial public offering, (b) in which Pagaya has annual total gross revenue of at least $1.07 billion, or (c) in which the post-Closing combined company is deemed to be a large accelerated filer, which means the market value of the post-Closing combined company’s ordinary equity that is held by non-affiliates exceeds $700 million as of the last business day of the second fiscal quarter of such fiscal year; and (ii) the date on which the post-Closing combined company has issued more than $1 billion in non-convertible debt securities during the prior three-year period. References herein to “emerging growth company” have the meaning associated with it in the JOBS Act.

Foreign private issuer (page 251)

Pagaya expects to be a “foreign private issuer” under SEC rules following the consummation of the Merger. Consequently, Pagaya is expected to be subject to the reporting requirements under the Exchange Act applicable to foreign private issuers. As a result, Pagaya will not be required to file its annual report on 20-F until 120 days after the end of each fiscal year and Pagaya will furnish reports on Form 6-K to the SEC regarding certain information required to be publicly disclosed by Pagaya in Israel or that is distributed or required to be distributed by Pagaya to its shareholders. Based on its foreign private issuer status, Pagaya will not be required to (i) file periodic reports and financial statements with the SEC as frequently or as promptly as a U.S. company whose securities are registered under the Exchange Act, (ii) comply with Regulation FD, which addresses certain restrictions on the selective disclosure of material information or (iii) comply with SEC rules relating to proxy solicitation in connection with shareholder meetings and presentation of shareholder proposals. In addition, among other matters, based on its foreign private issuer status, Pagaya officers, directors and principal

 

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shareholders will be exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of Pagaya Ordinary Shares.

Regulatory matters (page 139)

The completion of the Transactions is not subject to any U.S. federal or state regulatory requirement or approval, other than with respect to U.S. federal securities laws, the filing of required notifications and the expiration or termination of the required waiting periods under the HSR Act (which waiting period expired on November 12, 2021) and filings with the Registrar of Companies in the Cayman Islands necessary to effectuate the Merger.

Anticipated accounting treatment of the Merger (page 225)

The Merger will be treated as follows:

 

   

The exchange of shares held by Pagaya Shareholders will be accounted for as a recapitalization in accordance with U.S. GAAP. The Merger is not within the scope of ASC 805 since EJFA does not meet the definition of a business in accordance with ASC 805. Any difference between the fair value of Pagaya Ordinary Shares issued and the fair value of EJFA’s identifiable net assets will to be recorded as additional paid-in capital. For purposes of the unaudited pro forma condensed combined financial information, it is assumed that the fair value of each individual Pagaya Ordinary Share issued to EJFA Shareholders is equal to the fair value of each individual Pagaya Shareholder resulting from the $8.5 billion enterprise value assigned to Pagaya in the Merger Agreement.

 

   

The PIPE Investment will result in the issuance of Pagaya Class A Ordinary Shares, leading to an increase in Pagaya Ordinary Shares, par value and additional paid-in capital.

Proxy solicitation (page 119)

Proxies may be solicited by mail, telephone or in person. EJFA has engaged             to assist in the solicitation of proxies.

If an EJFA Shareholder grants a proxy, it may still vote its shares in person if it revokes its proxy before the extraordinary general meeting. An EJFA Shareholder also may change its vote by submitting a later-dated proxy as described in the section entitled “Questions and Answers about the Transactions and the Special Meeting—Q: May I change my vote after I have mailed my signed proxy card?

Sources and uses for the business combination (page 214)

The following table summarizes the estimated sources and uses for funding the Merger and the Transactions (all amounts in millions). These figures assume that no EJFA Public Shareholders exercise their redemption rights in connection with the Merger and the Transactions. If the actual facts are different from these assumptions, the below figures will be different.

 

Sources

         

Uses

      

Trust Account(1)

   $ 287.5     

Estimated fees, issuance and other expenses(3)

   $ 90.0  

PIPE Investment proceeds(2)

   $ 200.0     

Net cash to Pagaya balance sheet

   $ 397.5  
  

 

 

       

 

 

 

Total sources:

   $ 487.5     

Total uses:

   $ 487.5  
  

 

 

       

 

 

 

 

(1)

Cash available in the Trust Account excludes amounts in excess of $10.00 per share and estimated interest earned by the Closing Date and remaining operating cash, if any. In the case of maximum redemption, all

 

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  funds in the Trust Account will be utilized to fund such redemption and there will be no remaining balance.
(2)

Assumes the issuance of 20,000,000 shares of Pagaya Class A Ordinary Shares at $10.00 per share for aggregate gross proceeds of $200.0 million in connection with the PIPE Investment.

(3)

Represents an estimate of Transaction expenses. Actual amount may vary and may include expenses unknown at this time.

Risk Factors (page 26)

Pagaya’s business and investment in Pagaya Ordinary Shares are subject to numerous risks and uncertainties, including those highlighted in the section of this proxy statement/prospectus entitled “Risk Factors.” Some of those risks include:

 

   

We are a rapidly growing company with a relatively limited operating history, which may result in increased risks, uncertainties, expenses and difficulties, and it may be difficult to evaluate our future prospects.

 

   

Our revenue growth rate and financial performance in recent periods may not be indicative of future performance and such growth may slow over time. In addition, the historical returns attributable to the Financing Vehicles should not be indicative of the future results of the Financing Vehicles and poor performance of the Financing Vehicles would cause a decline in our revenue, income and cash flow.

 

   

If we fail to effectively manage our growth, our business, financial condition, and results of operations could be adversely affected.

 

   

Our business and the performance of Financing Vehicles may be adversely affected by economic conditions and other factors that we cannot control. These factors include interest rates, unemployment levels, conditions in the housing market, immigration policies, government shutdowns, trade wars and delays in tax refunds, as well as events such as natural disasters, acts of war, terrorism, catastrophes, and pandemics, including the ongoing COVID-19 pandemic.

 

   

We are heavily dependent on our AI technology. If we are unable to continue to improve our AI technology or if our AI technology does not operate as we expect, contains errors or is otherwise ineffective, we could improperly evaluate products, not be able to process the volume we have historically, and our growth prospects, business, financial condition and results of operations could be adversely affected.

 

   

We rely on our Partners to originate loans and other financial products facilitated with the assistance of our AI technology. Currently, a limited number of Partners account for a substantial portion of the total number of financial products facilitated with the assistance of our AI technology and, ultimately, our revenue.

 

   

If we are unable to both retain existing Partners and attract and onboard new Partners, our business, financial condition and results of operations could be adversely affected.

 

   

Our ability to raise capital from Asset Investors is a vital component of the products we offer to Partners. If we are unable to raise capital from Asset Investors at competitive rates, it would materially reduce our revenue and cash flow and adversely affect our financial condition.

 

   

The fees paid to us by Financing Vehicles comprise a key portion of our revenues, and a reduction in these revenues could have an adverse effect on our results of operations.

 

   

If we are unable to develop and maintain a diverse and robust funding component of our network, our growth prospects, business, financial condition and results of operations could be adversely affected. In addition, certain Financing Vehicles have redemption features and a substantial withdrawal of capital by one or more Asset Investors may have an adverse effect on the Financing Vehicles’ performance.

 

   

Our AI technology has not yet been extensively tested during different economic conditions, including down-cycles. We continue to build and refine our AI technology to offer new products and services as we

 

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expand into new markets, such as real estate and insurance, and if our AI technology does not perform as well in these new markets as it has in our existing business and we are unable to manage the related risks and effectively execute our growth strategy as we enter into these new lines of business, our growth prospects, business, financial condition and results of operations could be adversely affected.

 

   

The industry in which we operate is highly competitive, and if we fail to compete effectively, we could experience price reductions, reduced margins or loss of revenues.

 

   

A significant portion of our current revenues are derived from Financing Vehicles that acquire consumer credit assets and related products, and as a result, we are particularly susceptible to fluctuations in consumer credit activity and the capital markets.

 

   

If we are unable to manage the risks associated with fraudulent activity, our brand and reputation, business, financial condition, and results of operations could be adversely affected and we could face material legal, regulatory and financial exposure (including fines and other penalties).

 

   

We are subject to risks related to our dependency on our Founders, key personnel, employees and independent contractors, including highly-skilled technical experts, as well as attracting, retaining and developing human capital in a highly competitive market.

 

   

We may need to raise additional funds in the future that may be unavailable on acceptable terms, or at all. As a result, we may be unable to meet our future capital requirements, which could limit our ability to grow and jeopardize our ability to continue our business.

 

   

Our risk management policies and procedures, and those of our third-party vendors upon which we rely, may not be fully effective in identifying or mitigating risk exposure.

 

   

We may be unable to sufficiently, and it may be difficult and costly to, obtain, maintain, protect, or enforce our intellectual property and other proprietary rights.

 

   

Our proprietary AI technology relies in part on the use of our Partners’ borrower data and third-party data, and if we lose the ability to use such data, or if such data contains gaps or inaccuracies, our business could be adversely affected.

 

   

Cyberattacks and security breaches of our technology, or those impacting our users or third parties, could adversely impact our brand and reputation and our business, operating results and financial condition.

 

   

The dual class structure of Pagaya Ordinary Shares has the effect of concentrating voting power with certain shareholders—in particular, our Founders—which will effectively eliminate your ability to influence the outcome of many important determinations and transactions, including a change in control.

 

   

Litigation, regulatory actions, consumer complaints and compliance issues could subject us to significant fines, penalties, judgments, remediation costs and/or requirements resulting in increased expenses. If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, and our ability to complete the merger and conduct business could be materially adversely affected.

 

   

As the political and regulatory framework for AI technology and machine learning evolves, our business, financial condition and results of operations may be adversely affected.

 

   

If obligations by one or more Partners that utilize our network were subject to successful challenge that the Partner was not the “true lender,” such obligations may be unenforceable, subject to rescission or otherwise impaired, we or other program participants may be subject to penalties, and/or our commercial relationships may suffer, each of which would adversely affect our business, financial condition and results of operations.

 

   

If loans originated by our Partners were found to violate the laws of one or more states, whether at origination or after sale by our Partner, assets acquired, directly or indirectly, by Financing Vehicles may be

 

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unenforceable or otherwise impaired, we (or Financing Vehicles) may be subject to, among other things, fines and penalties, and/or our commercial relationships may suffer, each of which would adversely affect our business and results of operations.

 

   

Conditions in Israel and relations between Israel and other countries could adversely affect our business.

 

   

Our management team has limited experience managing a public company.

 

   

The unaudited pro forma financial information included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” may not be representative of our results if the Merger is completed. Additionally, the projections and forecasts presented in this proxy statement/prospectus may not be an indication of the actual results of the Transaction or Pagaya’s future results.

 

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SELECTED HISTORICAL FINANCIAL DATA OF PAGAYA

The following summary consolidated statement of operations data for the years ended December 31, 2020 and 2019, and consolidated balance sheet data as of December 21, 2020 and 2019, have been derived from our audited consolidated financial statements and related notes included elsewhere in this proxy statement / prospectus. The summary condensed consolidated statement of operations data for the six months ended June 30, 2021 and 2020, and the consolidated balance sheet data as of June 30, 2021, have been derived from our unaudited condensed consolidated financial statements and related notes thereto appearing elsewhere in the proxy statement / prospectus.

The unaudited condensed consolidated financial statements of Pagaya have been prepared on the same basis as Pagaya’s audited consolidated financial statements and, in the opinion of Pagaya’s management, reflect all adjustments, which consist only of normal recurring adjustments, necessary for the fair representation of those unaudited condensed consolidated financial statements. Pagaya’s historical results are not necessarily indicative of the results that may be expected in the future and the results for the six months ended June 30, 2021 are not necessarily indicative of the results to be expected for the full year or any other period.

 

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You should read the consolidated financial data below in conjunction with the selected title “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this proxy statement / prospectus. Our historical results are not necessarily indicative of the results to be expected for any other period in the future.

 

Consolidated Statements of Operations Data    Year Ended December 31,     Six Months Ended June 30,  
(In thousands, except share and per share data)    2020     2019     2021     2020  
     (In thousands, except share and per share data)  

Revenue and Other Income

   $ 99,010     $ 36,141     $ 183,268     $ 26,257  

Costs and Operating Expenses (1)

     77,757       40,045       201,696       23,568  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income (Loss)

     21,253       (3,904     (18,428     2,689  

Other expense, net

     (55     (124     (18,771     (51
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (Loss) Before Income Taxes

     21,198       (4,028     (37,199     2,638  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

     1,276       172       7,793       113  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) and Comprehensive Income (Loss)

     19,922       (4,200     (44,992     2,525  

Net Income and Comprehensive Income Attributable to Noncontrolling Interests

     5,452       1,420       7,546       2,353  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss) and Comprehensive Income (Loss) Attributable to Pagaya Technologies Ltd. shareholders

   $ 14,470     $ (5,620   $ (52,538   $ 172  
  

 

 

   

 

 

   

 

 

   

 

 

 

Per share data:

        

Net Income (Loss) and Comprehensive Income (Loss) Attributable to Pagaya Technologies Ltd. Shareholders

   $ 14,470     $ (5,620   $ (52,538   $ 172  

Less: Undistributed earnings allocated to participating securities

     (9,558     (2,748     (8,559     (1,903

Less: Deemed dividend distribution

     —         —         (23,612     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Pagaya Technologies Ltd. ordinary shareholders—basic

   $ 4,912     $ (8,368   $ (84,709   $ (1,731
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares outstanding—basic

     1,022,959       1,017,033       1,036,688       1,026,122  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to Pagaya Technologies Ltd. ordinary shareholders—basic

   $ 4.80     $ (8.23   $ 81.71     $ (1.69
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to Pagaya Technologies Ltd. ordinary shareholders—diluted

   $ 4,608     $ (8,580   $ (84,709   $ (1,731
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average ordinary shares outstanding—diluted

     1,107,349       1,023,029       1,036,688       1,026,122  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to Pagaya Technologies Ltd. ordinary shareholders—diluted

   $ 4.16     $ (8.39   $ (81.71   $ (1.69
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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(1) 

Amount includes share-based compensation expense as follows:

 

     Year Ended
December 31,
     Six Months Ended
June 30,
 
     2020      2019      2021      2020  

Research and Development

   $ 89      $ 37      $ 25,074      $ 30  

Selling and Marketing

     4        —          16,779        1  

General and Administrative

     63        37        17,264        19  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total share-based Compensation

   $ 156      $ 74      $ 59,117      $ 50  
  

 

 

    

 

 

    

 

 

    

 

 

 

In connection with a secondary sale of Pagaya Ordinary Shares and Pagaya Preferred Shares, share-based compensation for the six months ended June 30, 2021 included $56.8 million of expense related to the amount paid in excess of the estimated fair value of Pagaya Ordinary Shares as of the date of the Transactions. See note 11 to our condensed consolidated financial statements included elsewhere in this proxy statement/prospectus for further details.

 

Consolidated Balance Sheet Data    As of December 31,      As of June 30,  
(in thousands)    2020      2019      2021      2020  

Total assets

   $ 204,272      $ 58,626      $ 495,558      $ 122,456  

Total liabilities

     10,146        1,638        43,374        5,083  

Redeemable convertible preferred shares

     105,981        43,613        278,608        91,759  

Total Pagaya’s shareholders’ equity (deficit)

     3,200        (11,426      30,665        (11,204

Non-Controlling interests

     84,945        24,801        142,911        36,818  

Total shareholders’ equity

     88,145        13,375        173,576        25,614  

 

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SELECTED HISTORICAL FINANCIAL DATA OF EJFA

Selected Historical Financial Data of EJFA

The following selected historical financial information of EJFA set forth below should be read in conjunction with the section of this proxy statement/prospectus entitled “EJFA’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” and EJFA’s historical audited and unaudited financial statements and the related notes thereto included elsewhere in this proxy statement/prospectus.

EJFA’s statements of operations for the nine-month period ended September 30, 2021 and for the period from December 22, 2020 (inception) through December 31, 2020, and its balance sheets as of September 30, 2021 and as of December 31, 2020, in each case as set forth below, are derived from EJFA’s unaudited condensed statements of operations for the three and nine months ended September 30, 2021 and unaudited condensed balance sheet as of September 30, 2021 and EJFA’s audited statements of operations for the period from December 22, 2020 (inception) through December 31, 2020 and audited balance sheet as of December 31, 2020, which are included elsewhere in this proxy statement / prospectus.

EJFA’s historical results are not necessarily indicative of the results that may be expected in the future and the results for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the full year or any other period.

 

     For the nine months
ended September 30,
2021
     For the period from
December 22, 2020
(inception) through
December 31, 2020
 

Statement of Operations:

     

Net loss

   $ (5,028,520    $ (3,537

Weighted average ordinary shares subject to possible redemption outstanding, basic and diluted

     22,431,319        —    

Basic and diluted net loss per ordinary share subject to possible redemption

   $ (0.17      —    

Weighted average non-redeemable ordinary shares outstanding, basic and diluted

     6,981,456        6,250,000  

Basic and diluted net loss per non-redeemable ordinary share

   $ (0.17    $ (0.00
     As of September 30,
2021
     As of December 31,
2020
 

Balance Sheet:

     

Total assets

   $ 288,553,896      $ 276,751  

Total liabilities

   $ 36,724,020      $ 255,288  

Ordinary shares subject to possible redemption, 28,750,000 and no shares at redemption value as of September 30, 2021 and December 31, 2020, respectively

   $ 287,500,000        —    

Total shareholders’ equity

   $ (35,670,124    $ 21,463  

 

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SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The following selected unaudited pro forma condensed combined financial information (the “Summary Pro Forma Information”) presents the pro forma effects of the Merger, the PIPE Investment, and the Transactions, as described in Note 1 to the accompanying notes to the unaudited pro forma condensed combined financial statements:

The Merger is expected to be accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under the guidance in ASC 805, EJFA is expected to be treated as the “acquired” company for financial reporting purposes. Accordingly, the Merger will be accounted for as a reverse recapitalization, with no goodwill or other intangible assets are recorded.

The Summary unaudited pro forma condensed combined balance sheet data as of June 30, 2021, combines the historical condensed consolidated balance sheet of Pagaya as of June 30, 2021 with the historical condensed consolidated balance sheet of EJFA as of September 30, 2021 on a pro forma basis as if the Merger, the PIPE Investment and the Transactions had been consummated on June 30, 2021.

The Summary unaudited pro forma condensed combined statements of operations data for the six months ended June 30, 2021 combines the historical condensed statement of operations and comprehensive loss of Pagaya for the six months ended June 30, 2021, and the historical condensed consolidated statement of operations of EJFA for the six months ended September 30, 2021, on a pro forma basis as if the Merger, the PIPE Investment and the Transactions had been consummated on January 1, 2020.

The Summary unaudited pro forma condensed combined statements of operations data for the year ended December 31, 2020 combines the historical statement of operations of EJFA for the period from December 22, 2020 (inception) through December 31, 2020, and the historical consolidated statement of operations of Pagaya for the year ended December 31, 2020, on a pro forma basis as if the Merger, the PIPE Investment and the Transactions had been consummated on January 1, 2020.

The Summary Pro Forma Information has been derived from, and should be read in conjunction with, the more detailed unaudited pro forma condensed combined financial information of the post-Closing combined company appearing elsewhere in this proxy statement/prospectus and the accompanying notes to the unaudited pro forma condensed combined financial information.

The Summary Pro Forma information is based upon, and should be read in conjunction with, the historical financial statements and related notes of EJFA and Pagaya for the applicable periods included in this proxy statement/prospectus.

The Summary Pro Forma Information has been presented for informational purposes only and is not necessarily indicative of what the post-Closing combined company’s financial position or results of operations actually would have been had the Merger, the PIPE Investment and the Transactions contemplated had been consummated as of the dates indicated. In addition, the Summary Pro Forma Information does not purport to project the future financial position or operating results of the post-Closing combined company.

The Summary Pro Forma Information is presented in two scenarios: (1) assuming no redemptions, and (2) assuming maximum redemptions. The no redemptions scenario assumes that no EJFA Public Shareholders elect to redeem their right with respect to their EJFA Public Shares for a pro rata share of the funds in the Trust Account, and thus the full amount held in the Trust Account as of Closing is available for the Merger. The

 

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maximum redemptions scenario assumes that EJFA Public Shareholders holding 28.8 million EJFA Public Shares will exercise their redemption rights for their pro rata share of the funds in the Trust Account. In both scenarios, the amount of cash available is sufficient to satisfy the minimum cash condition.

Selected Unaudited Pro Forma Condensed Combined Financial Information

(in thousands, except share and per share data)

 

     Pro Forma
Combined
(Assuming No
Redemptions)
     Pro Forma
Combined
(Assuming
Maximum
Redemptions)
 

Balance Sheet Data as of June 30, 2021

     

Total assets

   $ 893,022      $ 605,522  

Total liabilities

   $ 68,921      $ 68,921  

Total stockholders’ equity

   $ 824,101      $ 536,601  

Selected Unaudited Pro Forma Condensed Combined Statement of Operations Data For the Six Months Ended June 30, 2021

     

Total revenue and other income

   $ 183,268      $ 183,268  

Net loss

   $ (60,495    $ (60,495

Net loss attributable to Class A and Class B ordinary shareholders—basic and diluted

   $ (44,865    $ (44,865

Weighted-average Class A and Class B ordinary shares outstanding—basic and diluted

     950,522,006        921,772,006  

Net loss per share attributable to Class A and Class B ordinary shareholders—basic and diluted

   $ (0.05    $ (0.05

For the Year Ended December 31, 2020

     

Total revenue and other income

   $ 99,010      $ 99,010  

Net loss

   $ (82,789    $ (82,789

Net loss attributable to Class A and Class B ordinary shareholders—basic and diluted

   $ (88,241    $ (88,241

Weighted-average Class A and Class B ordinary shares outstanding—basic and diluted

     950,522,006        921,772,006  

Net loss per share attributable to Class A and Class B ordinary shareholders—basic and diluted

   $ (0.09    $ (0.10

 

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UNAUDITED HISTORICAL COMPARATIVE AND PRO FORMA COMBINED PER

SHARE DATA OF EJFA AND PAGAYA

Comparative Per Share Data of EJFA

The following table sets forth the closing market prices per share of the EJFA Units, EJFA Public Shares and EJFA Public Warrants as reported by Nasdaq on September 14, 2021, the last trading day before the Merger was publicly announced, and on November 23, 2021, the last practicable trading day before the date of this proxy statement/prospectus.

 

Trading Date    EJFA
Units
(EJFAU)
     EJFA
Public
Shares
(EJFA)
     EJFA
Public
Warrants
(EJFAW)
 

September 14, 2021

   $ 9.85      $ 9.69      $ 0.61  

November 23, 2021

   $ 10.57      $ 9.96      $ 1.60  

The market prices of our securities could change significantly. Because the consideration payable in the Merger pursuant to the Merger Agreement will not be adjusted for changes in the market prices of the EJFA Public Shares, the value of the consideration may vary significantly from the value implied by the market prices of EJFA Public Shares on the date of the Merger Agreement, the date of this proxy statement/prospectus, and the date on which EJFA Shareholders vote on the approval of the Merger Agreement. EJFA Public Shareholders are urged to obtain current market quotations for EJFA Public Shares and EJFA Units before making their decision with respect to the approval of the Merger Agreement.

Comparative Per Share Data of Pagaya

Historical market price information regarding Pagaya is not provided because there is no public market for Pagaya Ordinary Shares.

Comparative Historical and Pro Forma Per Share Data

The following table sets forth summary historical comparative share information for EJFA and Pagaya and unaudited pro forma condensed combined per share information after giving effect to the Merger, assuming two redemption scenarios as follows: (1) assuming no redemptions, and (2) assuming maximum redemptions.

The no redemptions scenario assumes that no EJFA Public Shareholder elects to redeem their EJFA Public Shares for a pro rata share of the funds in the Trust Account, and thus the full amount held in the Trust Account as of Closing is available for the Merger. The maximum redemptions scenario assumes that all EJFA Public Shareholders holding an aggregate of 28.8 million EJFA Public Shares will exercise their redemption right for their pro rata share of the funds in the Trust Account. In both scenarios, the amount of cash available is sufficient to satisfy the minimum cash condition in the Merger Agreement.

The pro forma book value information reflects the Merger as if it had occurred on June 30, 2021. The weighted average shares outstanding and net earnings (loss) per share information for the six months ended June 30, 2021 and for the year ended December 31, 2020 reflect the Merger as if it had occurred on January 1, 2020.

This information is only a summary and should be read in conjunction with the historical financial statements of EJFA and Pagaya and related notes included elsewhere in this proxy statement/prospectus. The unaudited pro

 

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forma combined per share information of EJFA and Pagaya is derived from, and should be read in conjunction with, the unaudited pro forma condensed combined financial statements and related notes included elsewhere in this proxy statement/prospectus.

The unaudited pro forma condensed combined net loss per share information below does not purport to represent the income (loss) per share which would have occurred had the companies been combined during the periods presented, nor the income (loss) per share for any future date or period. The unaudited pro forma condensed combined book value per share information below does not purport to represent what the value of the Pagaya Shares and EJFA Shares would have been had the companies been combined during the periods presented.

 

                 Pro Forma Combined     Pagaya Equivalent Pro
Forma Per Share Data(3)
 
     Pagaya
(Historical)
    EJFA
(Historical)
    Assuming No
Redemptions
    Assuming
Maximum
Redemptions
    Assuming
No
Redemptions
    Assuming
Maximum
Redemptions
 

As of and for the six months ended June 30, 2021 (2)

            

Book value per share (1)

   $ 29.58     $ (0.99   $ 0.72     $ 0.43     $ 133.92     $ 79.82  

Net loss attributable to ordinary shareholders—basic and diluted

   $ (84,709          

Weighted-average ordinary shares outstanding—basic and diluted

     1,036,688            

Net loss per share attributable to ordinary shareholders—basic and diluted

   $ (81.71          

Weighted-average non-redeemable ordinary shares outstanding—basic and diluted

       28,750,000          

Basic and diluted net loss per non-redeemable ordinary share

     $ (0.34        

Weighted average ordinary shares subject to possible redemption outstanding—basic and diluted

       7,187,500          

Basic and diluted net loss per ordinary share subject to possible redemption

     $ (0.34        

Net loss attributable to Class A and Class B ordinary shareholders—basic and diluted

       $ (44,865   $ (44,865    

Weighted-average Class A and Class B ordinary shares outstanding—basic and diluted

         950,522,006       921,772,006      

Net loss per share attributable to Class A and Class B ordinary shareholders—basic and diluted

       $ (0.05   $ (0.05   $ (8.82   $ (9.10

 

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                  Pro Forma Combined     Pagaya Equivalent Pro
Forma Per Share Data(3)
 
     Pagaya
(Historical)
     EJFA
(Historical)
    Assuming No
Redemptions
    Assuming
Maximum
Redemptions
    Assuming
No
Redemptions
    Assuming
Maximum
Redemptions
 

As of and for the year ended December 31, 2020

             

Net income attributable to ordinary shareholders—basic

   $ 4,912             

Weighted-average ordinary shares outstanding—basic

     1,022,959             

Net income per share attributable to ordinary shareholders—basic

   $ 4.80             

Net income attributable to ordinary shareholders— diluted

   $ 4,608             

Weighted-average ordinary shares outstanding—diluted

     1,107,349             

Net income per share attributable to ordinary shareholders— diluted

   $ 4.16             

Basic and diluted weighted average Class B shares outstanding

        6,250,000          

Basic and diluted net loss per share

      $ (0.00        

Net loss attributable to Class A and Class B ordinary shareholders—basic and diluted

        $ (88,241   $ (88,241    

Weighted-average Class A and Class B ordinary shares outstanding—basic and diluted

          950,522,006       921,772,006      

Net loss per share attributable to Class A and Class B ordinary shareholders—basic and diluted

        $ (0.09   $ (0.10   $ (17.35   $ (17.89

 

(1)

Book value per share = Total equity divided by total ordinary shares outstanding on an as-converted basis.

(2)

EJFA’s unaudited pro forma condensed combined statement of operations for the six months ended September 30, 2021 have been derived by subtracting its unaudited results of operations for the three months ended March 31, 2021 from its unaudited results of operations for the nine months ended September 30, 2021. See Note 3 in the “Unaudited Pro Forma Condensed Combined Financial Information.”

(3)

The equivalent per share data for Pagaya is calculated by multiplying the combined pro forma per share data by the Per Share Merger Consideration set forth in the Merger Agreement.

 

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RISK FACTORS

In addition to the other information contained in this proxy statement/prospectus, including the matters addressed under the heading “Cautionary Statement Regarding Forward-Looking Statements; Market, Ranking and Other Industry Data,” you should carefully consider the following risk factors in deciding how to vote on the proposals presented in this proxy statement/prospectus. Certain factors may have a material adverse effect on our business, financial conditions and results of operations. The risks and uncertainties described below disclose both material and other risks and uncertainties, and are not intended to be exhaustive and are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe to be immaterial also may materially adversely affect our business, financial condition, results of operations and cash flows in future periods or are not identified because they are generally common to businesses. If any of these risks occurs, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the trading price of Pagaya Ordinary Shares following the Merger could decline, and you could lose part or all of your investment.

Unless otherwise noted or the context otherwise requires, all references in this section to the “Company,” “we,” “us” or “our” refer to the business of Pagaya and its subsidiaries prior to the consummation of the Merger, which will continue to be the business of Pagaya and its subsidiaries following the consummation of the Merger, when it will become a public company.

Risks Related to the Operations of Our Business

We are a rapidly growing company with a relatively limited operating history, which may result in increased risks, uncertainties, expenses and difficulties, and it may be difficult to evaluate our future prospects.

We were founded in 2016 and have experienced rapid growth in recent years in the markets we serve and we plan to continue to expand into new markets. Our limited operating history may make it difficult to make accurate predictions about our future performance. Assessing our business and future prospects may also be difficult because of the risks and difficulties we face. These risks and difficulties include our ability to:

 

   

maintain and increase the volume of financial products facilitated with the assistance of our AI technology;

 

   

enter into new and maintain existing relationships with Partners;

 

   

maintain cost-effective access to capital and a diversified asset funding strategy;

 

   

expand the use and applicability of our AI technology;

 

   

improve the effectiveness and predictiveness of our AI technology;

 

   

successfully build our brand and protect our reputation from negative publicity;

 

   

successfully adjust our proprietary AI technology, products and services in a timely manner in response to changing macroeconomic conditions, including consumer credit performance and fluctuations in the credit markets;

 

   

successfully compete with companies that are currently in, or may in the future enter, the business of providing technological services to enhance the access to credit for customers and funding services;

 

   

enter into new markets and introduce new products and services;

 

   

comply with and successfully adapt to complex and evolving legal and regulatory environments in our existing markets and ones we may enter in the future;

 

   

effectively secure and maintain the confidentiality of the information received, accessed, stored, provided and used across our systems;

 

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successfully obtain and maintain funding and liquidity to support continued growth and general corporate purposes;

 

   

attract, integrate and retain qualified employees and independent contractors; and

 

   

effectively manage, scale and expand the capabilities of our teams, outsourcing relationships, third-party service providers, operating infrastructure and other business operations.

If we are not able to timely and effectively address these risks and difficulties as well as those described elsewhere in this “Risk Factors” section, our business and results of operations may be harmed.

Our revenue growth rate and financial performance in recent periods may not be indicative of future performance and such growth may slow over time. In addition, the historical returns attributable to the Financing Vehicles should not be indicative of the future results of the Financing Vehicles and poor performance of the Financing Vehicles would cause a decline in our revenue, income and cash flow.

We have grown rapidly over the last several years, and our recent revenue growth rate and financial performance may not be indicative of our future performance. Our Revenue and other income was $36.1 million and $99.0 million in 2019 and 2020, respectively, representing a 174% growth rate and $26.3 million and $183.3 million in the six months ended June 30, 2020 and 2021, respectively, representing a 597% growth rate. Our revenue for any previous quarterly or annual period may not be a reliable indicator of our revenue or revenue growth in future periods. As our business grows, our revenue growth rates may slow, or our revenue may decline, in future periods for a number of reasons, which may include slowing demand for our AI technology offerings, products and services, increasing competition, a decrease in our ability to access capital or the growth of our overall network, increasing regulatory costs and challenges, adverse changes in the macroeconomic environment and consumers’ ability to service their debt and our failure to capitalize on growth opportunities. Further, we believe our growth over the last several years has been driven in large part by the expansion across similar consumer credit assets, which will slow as we enter all consumer credit markets. In addition, we believe this growth has been driven in part by the transformative shift by consumers to e-commerce and the acceptance of online networks and digital solutions for the use of and access to financial products that we expect may slow down over time, and as a result, our financial performance may be adversely affected.

In addition, the historical and potential future returns of the Financing Vehicles are not directly linked to returns on Pagaya Ordinary Shares. Therefore, any positive performance of the Financing Vehicles will not necessarily result in positive returns on an investment in Pagaya Ordinary Shares. However, poor performance of the Financing Vehicles would cause a decline in our revenue, income and cash flow from such Financing Vehicles, and would likely negatively affect our ability to raise additional capital for the same or future Financing Vehicles, and would therefore have a negative effect on our performance and, in all likelihood, the returns on an investment in Pagaya Ordinary Shares. Moreover, we could experience losses on our investments of our own principal as a result of poor investment performance by the Financing Vehicles. The future rate of return for any current or future Financing Vehicles may vary considerably from the historical rate of return generated by any particular Financing Vehicle, or for the Financing Vehicles as a whole. Poor performance of the Financing Vehicles could make it more difficult for us to raise new capital. Asset Investors might decline to invest in future Financing Vehicles we raise, and Asset Investors in existing Financing Vehicles might withdraw their investments, as a result of poor performance of the Financing Vehicles in which they are invested. Accordingly, poor performance may deter future investment in Financing Vehicles and thereby decrease the capital invested in the Financing Vehicles and, ultimately, our fee revenue, income and cash flow.

If we fail to effectively manage our growth, our business, financial condition, and results of operations could be adversely affected.

Over the last several years, we have experienced rapid growth in our business and number of employees and independent contractors, and we expect to continue to experience growth in the future. This rapid growth has

 

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placed, and may continue to place, significant demands on our management, processes, systems and operational, technological and financial resources. Our ability to manage our growth effectively, integrate new employees, independent contractors and technologies into our existing business and attract new Partners and maintain relationships with existing Partners will require us to continue to retain, attract, train, motivate and manage employees and independent contractors and expand our operational, technological and financial infrastructure. From time to time, we rely on temporary independent contractor programs for various aspects of our business. Failure to effectively implement and manage such programs could result in misclassification or other employment-related claims or inquiries by governmental agencies. Continued growth could strain our ability to develop and improve our operational, technological, financial and management controls, reporting systems and procedures, recruit, train and retain highly skilled personnel and maintain Partner and their customers’ satisfaction. Any of the foregoing factors could negatively affect our business, financial condition and results of operations.

Our business and the performance of Financing Vehicles may be adversely affected by economic conditions and other factors that we cannot control. These factors include interest rates, unemployment levels, conditions in the housing market, immigration policies, government shutdowns, trade wars and delays in tax refunds, as well as events such as natural disasters, acts of war, terrorism, catastrophes, and pandemics, including the ongoing COVID-19 pandemic.

Uncertainty and negative trends in general economic conditions, including significant tightening of credit markets, historically have created a difficult operating environment for our industry. Many factors, including factors that are beyond our control, may impact our results of operations or financial condition and our overall success by affecting our access to capital. Challenges our Partners may face with low demand for their financial products or willingness or capacity of their customers to make payment on obligations, or the returns on other assets, may affect the success of the Financing Vehicles. These factors include interest rates, unemployment levels, conditions in the housing market, immigration policies, government shutdowns, trade wars and delays in tax refunds, as well as events such as natural disasters, acts of war, terrorism, catastrophes and pandemics.

The global spread and unprecedented impact of COVID-19 has resulted in significant disruption and has created additional risks to us and our Partners’ businesses, the industry and the economy. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic. Since that time, COVID-19 has resulted in various federal and state governments imposing numerous restrictions at different times, including travel bans and restrictions, quarantines, stay-at-home orders, social distancing requirements and mandatory closure of “non-essential” businesses, as well as legislative and regulatory changes to laws or policies related to loan deferment, forbearance, or forgiveness.

In response to the economic impacts of COVID-19, governments around the world, including in the United States, provided significant fiscal and monetary stimuli, which have had the effect, among other things, of supporting overall levels of employment, consumer spending and savings levels, and the ability of consumers to service their debt. As these stimulus programs are wound down or withdrawn, economic conditions and consumer credit performance could be adversely affected, which may reduce the demand for and pricing of consumer credit assets and negatively impact our growth, revenues and profitability.

If there is an economic downturn that affects our current and prospective Partners and their customers, Asset Investors or the performance of the Financing Vehicles, or if we are unable to address and mitigate the risks associated with any of the foregoing, our business, financial condition and results of operations could be adversely affected. Additionally, our AI technology has not been extensively tested during economic downturns. For more information, see “Risk Factors—Our AI technology has not yet been extensively tested during different economic conditions, including down-cycles. We continue to build and refine our AI technology to offer new products and services as we expand into new markets, such as real estate and insurance, and if our AI technology does not perform as well in these new markets as it has in our existing business and we are unable to manage the related risks and effectively execute our growth strategy as we enter into these new lines of business, our growth prospects, business, financial condition and results of operations could be adversely affected.

 

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We are heavily dependent on our AI technology. If we are unable to continue to improve our AI technology or if our AI technology does not operate as we expect, contains errors or is otherwise ineffective, our network may improperly evaluate products not be able to process the volume we have historically, and our growth prospects, business, financial condition and results of operations could be adversely affected.

Our ability to enable our Partners to increase the number of loans and other financial products that they originate with the assistance of our AI technology will depend in large part on our ability to effectively evaluate the creditworthiness and likelihood of default of our Partners’ customers and, based on that evaluation, help our Partners offer competitively-priced loans and other financial products as well as obtain higher approval rates. Further, our overall operating efficiency and margins will depend in large part on our AI technology’s ability to effectively evaluate the creditworthiness, likelihood of default and credit asset pricing for our Partners’ customers, which will affect our Partners’ business volume. We utilize the data gathered from various sources in our automated credit analysis process. The data that we gather is evaluated and curated by our AI technology. The ongoing development, maintenance and operation of our AI technology is expensive and complex, and may involve unforeseen difficulties including material performance problems, and undetected defects or errors, for example, with new capabilities incorporating AI. We may encounter technical obstacles, and it is possible that we may discover additional problems that prevent our AI technology from operating properly. If our AI technology fails to adequately predict the creditworthiness of Partners’ applicants or customers, or to properly place loans and other financial products for acquisition by Financing Vehicles due to the design of our models or programming or other errors or failures, other characteristics of our AI or for any other reasons, or any of the other components of the automated credit analysis process fails, our Partners may experience higher than forecasted loan and other losses that will in turn negatively impact the performance of the Financing Vehicles that acquire our Partners’ assets. Additionally, errors or inaccuracies in our AI technology could result in exposure to the credit risk of loans and other financial products originated by Partners, whether it be exposure for us, Partners or Asset Investors, which may result in higher than expected losses or lower than desired returns of such loans and financial products.

Any of the foregoing could result in our Partners experiencing sub-optimally priced assets, incorrect approvals or denials of transactions, or higher than expected losses, or could require remediation and/or result in our Partners’ dissatisfaction with us, which in turn could adversely affect our ability to attract new Partners or cause our Partners to terminate their agreements with us and decrease our Partners’ financial product volume, and could also negatively impact the performance of Financing Vehicles and our ability to continue to create new Financing Vehicles, and our business, financial condition and results of operations may be adversely affected.

We rely on our Partners to originate loans and other financial products facilitated with the assistance of our AI technology. Currently, a limited number of Partners account for a substantial portion of the total number of financial products facilitated with the assistance of our AI technology and, ultimately, our revenue. If these Partners were to cease or limit operations with us, our business, financial condition and results of operations could be adversely affected.

Currently, a majority of the loans and other financial products that are facilitated with the assistance of our AI technology result from transactions with a small number of Partners who operate in the financial technology space. These Partners, taken together, originate substantially all of the loans and other financial products facilitated with the assistance of our AI technology. The fees we receive when these loans and other financial products are acquired from these Partners by Financing Vehicles account for substantially all of our revenue.

We have entered into several types of agreements with each of our Partners. Our commercial arrangements with these Partners are nonexclusive and are based on the type of asset class. For example, we enter into purchase agreements with our Partners, which provide the Financing Vehicles with the opportunity to acquire assets by the Partner assisted by our AI technology, that have a typical duration of one to three years with the option to extend for additional periods. The Financing Vehicles are not required to acquire specific types or amounts of assets from our Partners under such agreements. In addition, there are servicing agreements with our Partners covering the assets originated by such Partners that typically last for the life of the asset. As it relates to any specific asset,

 

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these servicing agreements require us to continue to use the Partner that originated the asset for the life of such asset. In addition, even during the term of our arrangement, our Partner could choose to reduce the volume of loans or other financial products facilitated with the assistance of our AI or increase the volume that it chooses to fund and retain on its own balance sheet. We or any of our Partners may terminate our arrangement for various reasons, which may include material breaches and change in control, subject to payment of a termination fee in some cases, and Partners could decide to stop working with us, have disputes with us, ask to modify their commercial or legal terms in a manner disadvantageous to us or enter into exclusive or more favorable relationships with our competitors. In addition, capital and leverage requirements applicable to our Partners that are banks or other financial institutions subject to such requirements could result in decreased demand for our products. Further, our Partners’ respective regulators may require that they terminate or otherwise limit their business with us, or impose regulatory pressure limiting their ability to do business with us. We are a service provider to Partners, some of which are considered banks under the Federal Deposit Insurance Corporation (“FDIC”), and as such, we are subject to audit by such Partners in accordance with FDIC guidance related to management of vendors. We are also subject to the examination and enforcement authority of the FDIC under the Bank Service Company Act. If any of our Partners were to stop working with us, suspend, limit or cease their operations or otherwise terminate or modify adversely to us their relationship with us, the number of financial products originated by our Partners with the assistance of our AI technology could decrease, and our revenue and revenue growth rates and our business, financial condition and results of operations could be adversely affected.

If we are unable to both retain existing Partners and attract and onboard new Partners, our business, financial condition and results of operations could be adversely affected.

Substantially all of our revenue is generated through fees we receive when the loans and other financial products originated by our Partners with the assistance of our AI technology are acquired by Financing Vehicles. Currently, we have a small number of Partners that operate in the financial technology space who originate most of these loans and other financial products. To continue to expand our market share in existing markets and grow into new markets we will need to attract and onboard new Partners on attractive commercial terms and also maintain and grow those relationships. We have both lead generation programs and referral programs to identify and develop new Partners but these programs may not succeed in the near term or may cease to be effective over time. If we are not successful in attracting and onboarding new Partners, our business, financial condition and results of operations could be adversely affected.

Our ability to raise capital from Asset Investors is a vital component of the products we offer to Partners. If we are unable to raise capital from Asset Investors at competitive rates, it would materially reduce our revenue and cash flow and adversely affect our financial condition.

We have relied upon the securitization market and committed asset-backed facilities to provide a significant portion of the funding component of our product. The ability of the Financing Vehicles to provide funding at competitive rates is essential to our business. An inability to access the securitization market or a significant reduction in liquidity in the secondary market for securitization transactions could have an adverse impact on the funding component of our product, financial position and results of operations.

Our ability to raise capital from Asset Investors for Financing Vehicles depends on a number of factors, including certain factors that are outside our control. Certain factors, such as the performance of the equity and bond markets and the asset allocation rules or investment policies to which such Asset Investors are then subject, could inhibit or restrict the ability of Asset Investors to make investments in Financing Vehicles or the asset classes in which Financing Vehicles invest.

Our ability to raise new Financing Vehicles could similarly be hampered if the appeal of those investments in the market were to decline. For example, there is a risk that the properties that we have invested in have some undiscovered flaw, or would otherwise require additional expenditures to make them rentable in excess of the expected amount, which could result in greater total renovation costs and a loss of revenue. Further, an

 

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investment in a share, unit, membership interest or limited partner interest in a Financing Vehicle is more illiquid, and the returns on such investment may be more volatile than an investment in securities for which there is a more active and transparent market. In periods of positive markets and low volatility, for example, investors may favor passive investment strategies such as index funds over our actively managed investment vehicles. Alternative investments could also fall into disfavor as a result of concerns about liquidity and short-term performance.

In connection with raising new Financing Vehicles or making further investments in existing Financing Vehicles, we may negotiate terms for such Financing Vehicles with existing and potential Asset Investors. The outcome of such negotiations could result in our agreement to terms that are materially less favorable to us than for prior Financing Vehicles or as compared to Financing Vehicles of our competitors, including with respect to fees and/or incentive fees, which could have an adverse impact on our revenues. Such terms could also restrict our ability to raise Financing Vehicles with investment objectives or strategies that compete with existing Financing Vehicles, add additional expenses and obligations for us or increase our potential liabilities, all of which could ultimately reduce our revenues. In addition, certain investors, including sovereign wealth funds and public pension funds, have demonstrated an increased preference for alternatives to the traditional financing vehicle structure. Such alternatives may not be as profitable for us as the traditional fund structure, and such a trend could have a material impact on the cost of our operations or profitability if we were to implement these alternative investment structures. In addition, certain investors, including public pension funds, have publicly criticized certain fee and expense structures, including Network Fees and transaction and advisory fees. Although we have no obligation to modify any of our fees with respect to our existing, we may experience pressure to do so in Financing Vehicles.

The fees paid to us by Financing Vehicles comprise a key portion of our revenues, and a reduction in these revenues could have an adverse effect on our results of operations. If we are unable to raise new and successor Financing Vehicles, the growth of the assets of such Financing Vehicles and related fees generated, our ability to deploy capital into investments and the potential for increasing our performance income would slow or decrease, all of which would materially reduce our revenues and cash flows and adversely affect our financial condition.

A key portion of our revenue from Financing Vehicles in any given period is dependent on the size of the assets of such Financing Vehicles in such period and fee rates charged. We may not be successful in producing investment returns and prioritizing services that will allow us to maintain our current fee structure, to maintain or grow the assets of such Financing Vehicles, or to generate performance income. A decline in the size or pace of growth of assets of Financing Vehicles or applicable fee rates will reduce our revenues. A decline in the size or pace of growth of the assets of Financing Vehicles or applicable fee rates may result from a range of factors, including:

 

   

Volatile economic and market conditions, which could cause Asset Investors to delay making new commitments to alternative Financing Vehicles or limit the ability of our existing Financing Vehicles to deploy capital;

 

   

Competition may make fundraising and the deployment of capital more difficult, thereby limiting our ability to grow or maintain the assets of such Financing Vehicles;

 

   

Changes in our strategy or the terms of our Network Fees; and

 

   

Poor performance of one or more of the Financing Vehicles, either relative to market benchmarks or in absolute terms, or compared to our competitors, may cause Asset Investors to regard the Financing Vehicles less favorably than those of our competitors, thereby adversely affecting our ability to raise more capital for existing Financing Vehicles or new or successor Financing Vehicles.

 

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If we are unable to develop and maintain a diverse and robust funding component of our network, our growth prospects, business, financial condition and results of operations could be adversely affected. In addition, certain Financing Vehicles have redemption features and a substantial withdrawal of capital by one or more Asset Investors may have an adverse effect on the Financing Vehicles’ performance.

Our business depends on sourcing and maintaining diverse and robust funding to enable loans and other financial products from our Partners to be acquired by a Financing Vehicle. The number of Asset Investors in new markets where a long-term track record of performance has not been developed is often very concentrated. Even for more mature markets, although the participating Asset Investors are often more diverse, only a limited number have committed or guaranteed their participation in existing Financing Vehicles. Were the availability of this funding to decrease, our ability to generate Network Volume and revenue will be adversely effected. Further, we have significant concentration in Asset Investors. Four of the largest Asset Investors together contributed approximately 49% of Network Capital during the six months ended June 30, 2021, compared to approximately 81% during the 12 months ended December 31, 2020. New capital from Asset Investors may be unavailable on reasonable terms or at all beyond the current maturity dates of Financing Vehicles.

Further, events of default or breaches of financial, performance or other covenants, or worse than expected performance of certain pools of obligations underpinning Financing Vehicles, could reduce the likelihood of affiliates sponsoring, managing or administering Financing Vehicles that acquire assets from our Partners. The performance of such assets is dependent on a number of factors, including the predictiveness of our AI technology and social and economic conditions. The availability and capacity of certain Asset Investors to participate in Financing Vehicles that acquire assets from our Partners also depend on many factors that are outside of our control, such as credit market volatility, politics and regulatory reforms. In the event of a sudden or unexpected disruption of Asset Investors’ participation in Financing Vehicles that acquire assets from our Partners, our network may not be able to maintain the necessary levels of funding to retain current volume of acquisition by Financing Vehicles of loans and other financial products originated by our Partners without incurring substantially higher funding costs, which could adversely affect our business, financial condition and results of operations.

A substantial withdrawal of capital by one or more Asset Investors in any Financing Vehicle with redemption features may have an adverse effect on such Financing Vehicle’s performance. The adviser to such Financing Vehicle may find it difficult under such circumstances to adjust its asset allocation to the reduced amount of assets of such Financing Vehicle. Moreover, in order to provide sufficient funds to pay withdrawal amounts, the Financing Vehicles might be required to liquidate positions at an inopportune time or at prices that the adviser believes do not reflect the true value of such investments and that would adversely affect the applicable Asset Investors, or the adviser may not be able to liquidate such positions at all or it may determine it would be inappropriate to do so. If such withdrawals of capital were to continue over a protracted period of time, these issues may be magnified such that similar assets sold at subsequent withdrawal dates might receive even less favorable liquidation values. Withdrawals of capital through redemption may also make it more difficult for such Financing Vehicles to generate the same level of profits operating on a smaller capital base and may trigger defaults or termination events under one or more loans, credit facilities or other financing arrangements.

Our AI technology has not yet been extensively tested during different economic conditions, including down-cycles. We continue to build and refine our AI technology to offer new products and services as we expand into new markets, such as real estate and insurance, and if our AI technology does not perform as well in these new markets as it has in our existing business and we are unable to manage the related risks and effectively execute our growth strategy as we enter into these new lines of business, our growth prospects, business, financial condition and results of operations could be adversely affected.

We continue to build and refine our AI technology to offer new products and services in new markets. We have added one new market per year since 2018 and recently entered the real estate market. We expect to continue to expand our offering to other markets. There are substantial risks and uncertainties associated with these efforts. We may invest significant time and resources to develop and market new lines of business and/or products and

 

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services and we may not achieve the return on our investment that we expect. Initial timetables for the introduction and development of new lines of business or new products or services may not be achieved and price and profitability targets may not prove feasible. Further, we may not be able to develop, commercially market and achieve market acceptance of any new products and services. In addition, our investment of resources to develop new products and services may either be insufficient or result in expenses that are excessive in light of the revenue actually derived from these new products and services. If the profile of consumers using any new products and services is different from that of those currently served by our Partners’ existing financial products, our AI technology may not be able to accurately evaluate the credit risk of such customers, and the affiliates sponsoring, managing or administering Financing Vehicles that are acquiring our Partners’ financial products may in turn experience higher levels of delinquencies or defaults. Failure to accurately predict demand or growth with respect to our new products and services could have an adverse impact on our reputation and business, and there is always a risk that new products and services will be unprofitable, increase our costs, decrease operating margins or take longer than anticipated to achieve target margins. In addition, any new products or services may raise new and potentially complex regulatory compliance obligations, which would increase our costs and may cause us to change our business in unexpected ways. Further, our development efforts with respect to these initiatives could distract management from current operations and divert capital and other resources from our existing business.

Furthermore, our AI technology may not perform as well in the real estate asset market and non-consumer credit asset markets as it has in the consumer markets. For example, the use of our AI technology to evaluate and facilitate the acquisition, renovation, lease and eventual realization of real estate assets is significantly different than its application toward the evaluation and origination of loans and financial products, due to the special characteristics of the real estate market and the inherent uniqueness of these assets. The purchase price, renovation time and costs, attainable rent and appreciation potential of real estate assets are affected by numerous parameters that are often specific to each asset, and attempting to predict them through AI-based, big-data analytics is prone to error. While we have adapted and calibrated our AI technology to account for such parameters and their irregularity among individual assets, it may not be able to accurately predict the creditworthiness of each such asset and the outcome of its purchase, renovation, lease or future realization. In addition, while we believe our AI technology will accurately evaluate risk in the non-consumer credit asset markets, our AI technology has not been extensively tested in these markets. If our AI technology is unable to accurately evaluate risk in these markets, our Partners and Financing Vehicles through which Asset Investors invest may experience greater than expected losses on such loans and other financial products, which would harm our reputation and erode the trust we have built with our Partners and Asset Investors. Any of these factors could adversely affect our business, financial condition and results of operations.

We may also have difficulty with securing the adequate participation of Asset Investors for Financing Vehicles investing in any such new financial products and services by our Partners, and if we are unable to do so, our ability to develop and grow these new offerings and services will be impaired. If we are unable to effectively manage the foregoing risks, our growth prospects, business, financial condition and results of operations could be adversely affected. For example, in real estate investments, the yields available from properties depend on the amount of revenue generated and expenses incurred. If certain properties do not generate sufficient revenues to meet their acquisition and operating expenses, a Financing Vehicle’s cash flow and ability to pay distributions to its Asset Investors will be adversely affected.

Further, if we do not successfully manage the regulatory, business and market risks associated with our expansion into new markets and new products and effectively execute our growth strategy in these new lines of business, our growth prospects, business, financial condition and results of operations could be adversely affected. For example, the insurance markets are highly competitive and regulated. We are considered a managing general agent in the insurance business and are subject to the regulations governing managing general agents, including various licensing requirements. Accordingly, we may have a license revoked or be unable to obtain new licenses and therefore be precluded or temporarily suspended from carrying on or developing some or

 

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all of our activities in the insurance business or otherwise be fined or penalized in a given jurisdiction where we are operating in the insurance business.

In addition, Partners in our network recently began analyzing auto loans with the assistance of our AI technology to assist with their origination process for auto loans and acquisition by Financing Vehicles. We are continuing to invest in developing AI technology to support the origination of new financial products by our Partners and service offerings, such as credit cards, mortgages, student loans, point-of-sale loans and the acquisition of such financial products by Financing Vehicles. New initiatives are inherently risky, as each involves unproven business strategies, addressing and complying with new regulatory requirements, industry expertise and new financial products and services with which we, and in some cases our Partners, have limited or no prior development or operating experience.

The industry in which we operate is highly competitive, and if we fail to compete effectively, we could experience price reductions, reduced margins or loss of revenues.

We operate in a highly competitive and dynamic industry. Our AI technology faces competition from a variety of players, including those that enable transactions and commerce via digital payments. Our primary competition consists of: other sources of consumer credit, including banks, non-bank lenders and other fintech networks, as well as a variety of technology companies that seek to help financial service providers with the digital transformation of their businesses and various “second-look” financing providers that offer lenders revenue when they approve applications that had otherwise been turned down. We expect competition to intensify in the future, both as emerging technologies continue to enter the marketplace and as large financial incumbents increasingly seek to innovate the services that they offer to compete with our network. Technological advances and the continued growth of e-commerce activities have increased consumers’ accessibility to more credit products and services and led to the expansion of competition in digital payment options that diminished the need for regular consumer credit such as pay-over-time solutions.

Some of our competitors are substantially larger than we are, which gives those competitors advantages we do not have, such as more diversified products, a broader Partner and investor base, the ability to reach more Partners and Asset Investors, the ability to cross-sell their financial products and cross-subsidize their offerings through their other business lines, operational efficiencies more versatile technology networks, broad-based local distribution capabilities and lower-cost funding. In addition, because many of our competitors are large financial institutions that fund themselves through low-cost insured deposits and originate and own the assets they produce, they have certain revenue and funding opportunities unavailable to us. Our competitors may also have longer operating histories, more extensive and broader consumer and merchant relationships, and greater brand recognition and brand loyalty than we have. For example, more established companies that possess large, existing Partner and investor bases, substantial financial resources, larger marketing teams and established distribution channels could enter the market.

Increased competition could result in the need for us to alter the pricing and terms we offer to our Partners. If we are unable to successfully compete, the demand for our AI technology and products could stagnate or substantially decline, and we could fail to retain or grow the number of Partners using our network, which would reduce the attractiveness of our network to Partners, and which would materially and adversely affect our business, results of operations, financial condition and future prospects.

Substantially all of our revenue is derived from a limited variety of consumer assets purchased exclusively in the United States, which is a highly competitive and saturated market, and we do not know how well our AI technology may perform in other markets.

While we are constantly expanding the types of products and services facilitated through our AI technology, the vast majority of our revenue is generated from a limited variety of consumer credit assets products that are currently originated by Partners exclusively in the United States, specifically personal consumer loans and auto

 

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loans. The market for these loans is characterized by a large number of operators offering unsecured short-term lending programs, including our Partners, and also by certain behavioral patterns that our AI technology is able to identify and factor, as well as a complex regulatory landscape. However, in order to continue growing, we may need to expand to markets abroad, which are less competitive and saturated than the United States, but which may also differ significantly from it in many facets, including cultural and social norms and economic preferences, and with which our AI technology has not yet coped. If we are unable to configure our AI technology and Financing Vehicles to cater to other markets outside the United States, our business, financial condition and results of operations could be adversely affected.

A significant portion of our current revenues are derived from Financing Vehicles that acquire consumer credit assets and related products, and as a result, we are particularly susceptible to fluctuations in consumer credit activity and the capital markets.

Currently, the majority of our Partners’ asset originations facilitated with the assistance of our AI technology are unsecured personal loans. The market for unsecured personal loans has grown rapidly in recent years, and it is unclear to what extent such market will continue to grow, if at all. A wide variety of factors could impact the market for unsecured personal loans, including macroeconomic conditions, competition, regulatory developments and changes in consumer credit activity. For example, FICO has recently changed its methodology in calculating credit scores in a manner that potentially penalizes borrowers who take out personal loans to pay off or consolidate credit card debt. This change could negatively affect the overall demand for unsecured personal loans. The personal lending market has also benefitted from historically low interest rates, as our Partners’ customers are attracted to relatively low borrowing costs. Our success will depend, in part, on the continued growth of the unsecured personal loan market, and if such market does not further grow or grows more slowly than we expect, our business, financial condition and results of operations could be adversely affected.

In addition, our Partners may, in the future, seek partnerships with competitors that are able to help them offer them a broader array of credit products, such as secured loans. Over time, in order to preserve and expand our relationships with our existing Partners, and enter into relationships with new Partners, it may become increasingly important for us to expand our offerings and be able to help our Partners offer a wider variety of products and services. We also may be susceptible to competitors that choose to offer higher yields to Asset Investors or offer to pay higher prices for loans and other financial products acquired from our Partners. Competitors may elect to provide these incentives, even if they expect such pricing practices to lead to losses for them. Such practices by competitors could negatively affect the overall demand for personal loans facilitated with the assistance of our AI technology and, therefore, our business, financial condition and results of operations.

Further, the personal loans that are acquired from our Partners into Financing Vehicles are, for the most part, unsecured, and there is a risk that our Partners’ customers will not prioritize repayment of such loans, particularly in any economic downcycle. For example, if our Partners’ customers incur secured debt, such as a mortgage, a home equity line of credit or an auto loan, our Partners’ customers may choose to repay their obligations under such secured debt before repaying their unsecured loans, which could lead to higher default rates by our Partners’ customers with respect to their unsecured debt. This in turn could lead to losses for Financing Vehicles, which could lead to less demand from Asset Investors. If this leads to decreased demand by Asset Investors to participate in Financing Vehicles that acquire assets and other financial products facilitated with the assistance of our AI technology, our business, financial condition and results of operations could be adversely affected.

If our estimates, judgments or assumptions relating to our critical accounting policies prove to be incorrect or financial reporting standards or interpretations change, our results of operations could be adversely affected.

The preparation of financial statements in conformity with U.S. GAAP requires our management to make estimates, judgments and assumptions that affect the amounts reported and disclosed in our consolidated financial statements and accompanying notes. We base our estimates and assumptions on historical experience

 

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and on various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of certain assets, liabilities, and equity, and the amount of revenue and expenses that are not readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial statements and accompanying notes include those related to revenue recognition, consolidation of variable interest entities (each, “VIE”), fair value of certain assets and liabilities, stock-based compensation, and income taxes, including any valuation allowance for deferred tax assets. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of industry or financial analysts, which may result in a decline in the trading price of Pagaya Class A Ordinary Shares.

Additionally, we regularly monitor our compliance with applicable financial reporting standards and review new pronouncements and drafts thereof that are relevant to us. As a result of new standards, or changes and challenges to existing standards or their interpretation, we might be required to change our accounting policies, alter our operational policies or implement new or enhance existing systems so that they reflect new or amended financial reporting standards, or we may be required to restate our published financial statements. Such changes or challenges to existing standards or in their interpretation may have an adverse effect on our reputation, business, financial condition, and profit and loss, or cause an adverse deviation from our revenue and operating profit and loss target, which may negatively impact our results of operations.

We are currently undergoing an internal corporate reorganization for the purpose of consolidating our U.S. businesses. We may from time to time undertake other internal corporate reorganizations that may adversely impact our business and results of operations.

We are currently undertaking and from time to time, we may undertake internal corporate reorganizations in an effort to simplify our organizational structure, streamline our operations or for other operational reasons. Such internal reorganization involves and may involve, among other things, the combination or dissolution of certain of our existing subsidiaries and the creation of new subsidiaries. These transactions could be disruptive to our business, result in significant expense, require regulatory approvals, and fail to result in the intended or expected benefits, any of which could adversely impact our business and results of operations. See the section of this proxy statement/prospectus entitled “Description of Pre-Closing Transactions—Pagaya Internal Reorganization.

Our reputation and brand are important to our success. If we are unable to continue developing our reputation and brand, or if our brand or reputation is compromised, our ability to retain existing and attract new Partners and Asset Investors and our ability to maintain and improve our relationship with regulators of our industry could be adversely affected. As a result, our business, financial condition and results of operations may suffer.

We believe maintaining a strong brand and trustworthy reputation is critical to our success and our ability to attract new Partners and Asset Investors. Factors that affect our brand and reputation include, among other things: perceptions of AI, our industry and our Company, including the quality and reliability of our AI technology, the accuracy of our AI technology, perceptions regarding the application of AI to consumer lending or other markets specifically, the funding component of our business, privacy and security practices, litigation, regulatory activity, and the overall user experience of our Partners and their customers. Negative publicity or negative public perception of these factors, even if inaccurate, could adversely affect our brand and reputation.

Certain of the Partners’ arrangements have been criticized in government and media reports as “rent-a-charter” or “rent-a-bank” which has drawn the heightened attention of consumer advocacy groups, government officials and elected representatives. As a result, bank regulators have taken actions causing banks to exit third-party programs that the regulators determined involved unsafe and unsound practices. The payday and “short-term, small-dollar” loans that have been subject to more frequent criticism and challenge are different from loans facilitated with the

 

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assistance of our AI technology, in our view. If we are nevertheless associated because of the heightened attention with such payday or short-term, small-dollar consumer loans, or if we are associated with increased criticism of non-payday loan programs involving relationships between bank originators and non-bank lending networks and program managers, demand for loans and other financial products could significantly decrease, which could cause our Partners to reduce their origination volumes or terminate their arrangements with us, impede our ability to attract new Partners or delay the onboarding of Partners, impede our ability to attract Asset Investors to participate in the funding component of our network or reduce the number of potential Partners that use our network. Any of the foregoing could adversely affect our results of operations and financial condition.

We may also become subject to lawsuits, including class action lawsuits, or other challenges such as government investigations, inquiries, enforcement or arbitration, against our Partners or us for obligations from our Partners through our AI technology. If there are changes in laws or in the interpretation or enforcement of existing laws affecting loans or other financial products we place with the assistance our AI technology, or if we become subject to such lawsuits, investigations or inquiries, our business, financial condition and results of operations would be adversely affected.

Harm to our reputation can also arise from many other sources, including employee and independent contractor or former employee and independent contractor misconduct, misconduct or negligence by outsourced service providers or other counterparties, failure by us or our Partners to meet minimum standards of service and quality, and inadequate protection of borrower information and compliance failures and claims. If we are unable to protect our reputation and brand, our business, financial condition and results of operations would be adversely affected.

If we are unable to manage the risks associated with fraudulent activity, our brand and reputation, business, financial condition, and results of operations could be adversely affected and we could face material legal, regulatory and financial exposure (including fines and other penalties).

Fraud is prevalent in the financial services industry and is likely to increase as perpetrators become more sophisticated. We are subject to the risk of fraudulent activity associated with our Partners’ customers and third parties handling our Partners’ borrower information and, in limited situations, cover certain fraud losses of Partners and Asset Investors. Fraud rates could also increase in a down-cycle economy. We rely on our Partners to predict and otherwise validate or authenticate applicant-reported data and data derived from third-party sources. If such efforts are insufficient to accurately detect and prevent fraud, the level of fraud-related losses of products could increase, which would decrease confidence in our AI technology. A failure to accurately detect and prevent fraud may also lead to increased costs if we have to invest in developing new technology to defend against fraud, which, in turn may lead to decreased returns in Financing Vehicles and therefore decreased returns for Asset Investors . In addition, our Partners and Asset Investors may not be able to recover amounts disbursed on products made in connection with inaccurate statements, omissions of fact or fraud, which could erode the trust in our brand and negatively impact our ability to attract new Partners and Asset Investors.

High profile fraudulent activity also could negatively impact our brand and reputation. In addition, significant increases in fraudulent activity could lead to regulatory intervention, which could increase our costs and also negatively impact our brand and reputation. Further, if there is any increase in fraudulent activity that increases the need for human intervention in screening application data, the level of automation on our network could decline and negatively affect our unit economics. If we are unable to manage these risks, our business, financial condition and results of operations could be adversely affected.

We are subject to risks related to our dependency on our Founders, key personnel, employees and independent contractors, including highly-skilled technical experts, as well as attracting, retaining and developing human capital in a highly competitive market.

Our success and future growth depend upon the continued services of our management team and other key employees and independent contractors, including highly-skilled technical experts. In particular, the Founders who are members of our leadership team are critical to our overall management, as well as the continued

 

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development of our products and services, our culture and our strategic direction. From time to time, there may be changes in our management team resulting from the hiring or departure of executives, key employees and independent contractors, which could disrupt our business. The loss of one or more members of our senior management or key employees or independent contractors could harm our business, and we may not be able to find adequate replacements. We may not be able to retain the services of any members of our senior management, key employees or independent contractors, including high-skilled technical experts. From time to time, we rely on temporary independent contractor programs to scale our operations team. Failure to effectively implement and manage such programs could result in misclassification or other employment related claims or inquiries by governmental agencies. In addition, to execute our growth plan, we must attract and retain highly qualified personnel, including engineering and data analytics personnel. In order to continue to access top talent, we will likely continue to grow our footprint of office locations, which may add to the complexity and costs of our business operations. Competition for highly skilled technical experts, including engineering and data analytics personnel, is extremely intense, particularly in Israel where we are headquartered, which has experienced increased activity in technology startups. From time to time, we have experienced, and we expect to continue to experience, difficulty in hiring and retaining employees and independent contractors with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. In addition, prospective and existing employees and independent contractors often consider the value of the equity awards they receive in connection with their employment. If the perceived value of our equity awards declines, experiences significant volatility or increases such that prospective employees or independent contractors believe there is limited or less upside to the value of our equity awards, it may adversely affect our ability to recruit and retain key employees and independent contractors. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects would be harmed. We generally enter into non-competition agreements with our employees and independent contractors. These agreements prohibit our employees and independent contractors, if they cease working for us, from competing directly with us or working for our competitors for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees and independent contractors work, and it may be difficult for us to restrict our competitors from benefiting from the expertise our former employees and independent contractors developed while working for us.

The funding component of our business related to the Financing Vehicles is highly competitive.

The funding component of our business is highly competitive, with competition based on a variety of factors, including investment performance, the quality of assets provided to Asset Investors, investor liquidity and willingness to invest, vehicle terms (including fees), brand recognition and business reputation. The funding component of our business competes with a number of other specialized investment funds, hedge funds, funds of hedge funds, other managing pools of capital, securitizations by our Partners or other consumer credit originators, as well as corporate buyers, traditional asset managers, commercial banks, investment banks and other financial institutions (including sovereign wealth funds), and we expect that competition will continue to increase. For example, certain traditional asset managers have developed their own lending networks and are marketing other lending and credit strategies as alternatives to fund investments. Additionally, developments in financial technology, or fintech, such as distributed ledger technology, or blockchain, have the potential to disrupt the financial industry and change the way consumer lenders and other financial institutions do business. A number of factors serve to increase our competitive risks:

 

   

a number of our competitors in some of our businesses have greater financial, technical, marketing and other resources and more personnel than we do;

 

   

some Financing Vehicles may not perform as well as competitors’ Financing Vehicles or other available investment products;

 

   

several of our competitors have significant amounts of capital, and many of them have similar investment objectives to ours, which may create additional competition for investment opportunities and may reduce the size and duration of pricing inefficiencies that many alternative investment strategies seek to exploit;

 

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some of our competitors may be subject to less regulation and accordingly may have more flexibility to undertake and execute certain investments, including in certain industries or businesses, than we can and/or bear less compliance expense than we do;

 

   

some of our competitors may have more flexibility than us in raising certain types of Financing Vehicles under the contracts or terms they have negotiated with their investors; and

 

   

some of our competitors may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider variety of investments and to bid more aggressively than us for investments that we want to make.

We have historically competed primarily on the basis of the performance of Financing Vehicles, and not on the level of our fees or incentive fees relative to those of our competitors. However, there is a risk that fees and incentive fees in the alternative investment or securitization industry will decline, without regard to our historical performance. Fee or incentive fee income reductions on existing or future Financing Vehicles, without corresponding decreases in our cost structure, would adversely affect our business and revenues.

Maintaining our reputation is critical to attracting and retaining Asset Investors and for maintaining our relationships with our regulators. Negative publicity regarding our Company, our personnel or our Partners could give rise to reputational risk that could significantly harm our existing business and business prospects. Similarly, events could occur that damage the reputation of our industry generally, such as the insolvency or bankruptcy of large funds or lending networks or a significant number of funds or lending networks or highly publicized incidents of fraud or other scandals, any one of which could have a material adverse effect on our business, regardless of whether any of those events directly relate to the Financing Vehicles or the investments made by Financing Vehicles.

In addition, the attractiveness of Financing Vehicles relative to investments in other investment products could decrease depending on economic conditions. Furthermore, any new or incremental regulatory measures for the U.S. financial services and lending industries may increase costs and create regulatory uncertainty and additional competition for many Financing Vehicles. See “Risks Related to Our Legal and Regulatory EnvironmentAs the political and regulatory framework for AI technology and machine learning evolves, our business, financial condition and results of operations may be adversely affected.”

This competitive pressure could adversely affect our ability to make successful investments and limit our ability to raise future Financing Vehicles, either of which would adversely impact our business and revenues.

Our failure to deal appropriately with conflicts of interest in the funding component of our business, related to our allocation of investment opportunities between Financing Vehicles could damage our reputation and adversely affect our businesses. Conflicts of interest may also arise in our allocation of costs and expenses, and we are subject to increased regulatory scrutiny and uncertainty with regard to those determinations.

As we have expanded and as we continue to expand the number and scope of our businesses, we increasingly confront potential conflicts of interest relating to the investment activities of the Financing Vehicles. Conflicts of interest continue to be a significant area of focus for regulators, investors and the media. Because of the variety of businesses and investment strategies that we pursue, we may face a higher degree of scrutiny compared with others that focus on fewer asset classes. We place assets across Financing Vehicles. In addition, certain Financing Vehicles may purchase an interest in one or more other Financing Vehicles. However, the risk that Asset Investors or regulators could challenge allocation decisions as inconsistent with our obligations under applicable law, governing agreements or our own policies cannot be eliminated. Further, the perception of non-compliance with such requirements or policies could harm our reputation with Asset Investors. A failure to appropriately deal with these, among other, potential conflicts, could negatively impact our reputation and ability to raise additional Financing Vehicles or result in potential litigation or regulatory action against us.

 

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The investment activities or strategies used for certain Financing Vehicles may conflict with the transactions and strategies employed on behalf of other Financing Vehicles, and may affect the prices and availability of investments in which a Financing Vehicle may invest. Subject to any legal and regulatory obligations, the investment activities of our affiliates or a Financial Vehicle are carried out generally without reference to positions held by another Financing Vehicle and may have an effect on the value of the positions so held, or may result in an affiliate having an interest in an issuer adverse to that of a Financing Vehicle. Because the Financing Vehicles operate different businesses, the affiliates are subject to a number of potential and actual conflicts of interest, potentially greater regulatory oversight, and more legal and contractual restrictions than would be the case if the affiliates had only a single line of business.

In particular, Financing Vehicles may invest in the same types of assets in which the other Financing Vehicles currently invest and expect to continue to invest in the future. Although we anticipate that the Financing Vehicles will operate within a limited and defined set of parameters (e.g., time, scope and duration) when acquiring any such assets, a Financing Vehicle could encounter actual and potential conflicts to the extent that any such Financing Vehicle competes with others for investment opportunities or our resources (e.g., personnel). These activities can adversely affect the prices and availability of loans or other assets held by or potentially considered for purchase for the account of a Financing Vehicle.

Subject to the requirements of each Financing Vehicle’s governing documents, investment opportunities sourced by affiliates or Financing Vehicles will generally be placed among the accounts of the applicable Financing Vehicles in a manner that the applicable manager or sponsor believes to be appropriate given the factors that it believes to be relevant, such as each Financing Vehicle’s and each Financing Vehicle’s respective investment objectives, concentration limits, interest and asset coverage tests, collateral quality, liquidity and requirements tests, lender covenants, other limitations of such Financing Vehicle, the amount of free cash each of them has available for investment, total capital and capital commitments, anticipated future cash flows and cash requirements, and other considerations.

We regularly make determinations to allocate costs and expenses both among Financing Vehicles and between such vehicles and their respective governing entities. Certain of those determinations are inherently subjective and virtually all of them are subject to regulatory oversight. Any determination or allegation of, or investigation into, a potential violation could cause reputational harm and a loss of investor confidence in our business. It could also result in regulatory lapses and applicable penalties, as well as increased regulatory oversight of our business. In addition, any determination to allocate fees to the applicable investment adviser or manager could negatively affect our net income, and ultimately decrease the value of Pagaya Ordinary Shares and our dividends to our shareholders.

We may need to raise additional funds in the future, including, but not limited to, through equity, debt, or convertible debt financings, to support business growth, and those funds may be unavailable on acceptable terms, or at all. As a result, we may be unable to meet our future capital requirements, which could limit our ability to grow and jeopardize our ability to continue our business.

We intend to continue to make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new products and services, enhance our AI technology, scale and improve our operating infrastructure, or acquire complementary businesses and technologies. Accordingly, we may need to engage in equity, debt or convertible debt financings to secure additional funds. If we raise additional funds by issuing equity securities or securities convertible into equity securities, our shareholders may experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt or additional equity financing that we raise may contain terms that are unfavorable to us or our shareholders, including the risk in equity financing that debt will be paid first.

 

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If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may be unable to pursue certain business opportunities and our ability to continue to support our business growth and to respond to business challenges could be impaired and our business may be harmed. In addition, we may be unable to access capital to fund the purchases of additional products or other assets through raising new and successor Financing Vehicles. For additional information, see “—Risks Related to Management of Financing Vehicles—The funding component of our network depends in large part on our ability to raise capital from third party Asset Investors. A failure to raise capital from third party Asset Investors on attractive fee terms or at all, would impact our ability to collect Network Fees or deploy such capital into investments and potentially collect performance fee revenues, which would materially reduce our revenue and cash flow and adversely affect our financial condition.”

Any legal proceedings, investigations or claims against us could be costly and time-consuming to defend and could harm our reputation regardless of the outcome. In addition, our business and operations could be negatively affected if they become subject to any securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of business and growth strategy and impact our share price.

We are and may in the future become subject to legal proceedings, investigations and claims, including claims that arise in the ordinary course of business, such as claims brought by Asset Investors or Partners in connection with commercial disputes, claims by users, claims or investigations brought by regulators or employment claims made by our current or former employees and independent contractors. We are subject to claims in the ordinary course of business, including employment claims.

We are not currently a party to any pending or, to our knowledge, threatened litigation that will have a significant effect on our financial position or profitability. Any litigation, investigation or claim, whether meritorious or not, could harm our reputation, will increase our costs and may divert management’s attention, time and resources, which may in turn harm our business, financial condition and results of operations. Insurance might not cover such claims, might not provide sufficient payments to cover all the costs to resolve one or more such claims and might not continue to be available on terms acceptable to us. A claim brought against us for which we are uninsured or underinsured could result in unanticipated costs, potentially harming our business, financial position and results of operations.

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. Shareholder activism, which could take many forms or arise in a variety of situations, as well as the frequency of lawsuits against Special Purpose Acquisition Company (“SPAC”) sponsors, has been increasing recently, especially in the context of SPAC business combinations. Volatility in the share price of the Pagaya Class A Ordinary Shares or other reasons may in the future cause it to become the target of securities litigation or shareholder activism. Securities litigation and shareholder activism, including potential proxy contests, could result in substantial costs and divert management’s and the Pagaya Board’s attention and resources from Pagaya’s business. Additionally, such securities litigation and shareholder activism could give rise to perceived uncertainties as to Pagaya’s future, adversely affect its relationships with service providers and make it more difficult to attract and retain qualified personnel. Also, Pagaya may be required to incur significant legal fees and other expenses related to any securities litigation and activist shareholder matters. Further, Pagaya’s share price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and shareholder activism

Although we currently maintain insurance coverage, such coverage may not be sufficient to cover the types or extent of claims or loss that may be incurred or received. In addition, we may not maintain or procure insurance coverage in connection with the Merger that is sufficient to cover the types or extent of claims or loss that may be incurred or received.

We currently maintain insurance in connection with our business, including, among other coverages, directors and officers liability insurance, errors and omissions/professional liability insurance, employment practices

 

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liability insurance, fiduciary liability insurance, and cyber insurance. The scope and limits of such insurance may not be sufficient to cover the types or extent of claims or loss that may be incurred or received. In addition, there may be risks for which Pagaya does not maintain or procure insurance coverage or for which the insurance coverage may not respond.

We are growing rapidly, and our insurance coverage may not be sufficient to protect us from any loss now or in the future and we may not be able to successfully claim our losses under our current insurance policies on a timely basis, or at all. Our inability to obtain and maintain appropriate insurance coverage could cause a substantial business disruption, adverse reputational impact, and regulatory scrutiny.

If we incur any loss that is not covered by our insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.

Our risk management policies and procedures, and those of our third-party vendors upon which we rely, may not be fully effective in identifying or mitigating risk exposure. If our policies and procedures do not adequately protect us from exposure to these risks, we may incur losses that would adversely affect our financial condition, reputation and market share.

We have developed risk management policies and procedures and we continue to refine them as we conduct our business. Many of our procedures involve oversight of third-party vendors that provide us with critical services such as information technology systems and infrastructure, portfolio management, custody, market data expenses and fund accounting and administration and pricing services. Our policies and procedures to identify, monitor and manage risks may not be fully effective in mitigating our risk exposure. Further, as we expand into new lines of business, our risk management policies and procedures may not be able to adequately keep up with our current rapid rate of expansion, and may not be adequate or sufficient to mitigate risks. Moreover, we are subject to the risks of errors and misconduct by our employees and independent contractors, including fraud and non-compliance with policies. These risks are difficult to detect in advance and deter, and could harm our business, results of operations or financial condition. Although we maintain insurance and use other traditional risk-shifting tools, such as third-party indemnification, to manage certain exposures, they are subject to terms such as deductibles, coinsurance, limits and policy exclusions, as well as risk of counterparty denial of coverage, default or insolvency. If our policies and procedures do not adequately protect us from exposure, and our exposure is not adequately covered by insurance or other risk-shifting tools, we may incur losses that would adversely affect our business, financial condition and results of operations.

If there is a pledge of a substantial amount of Pagaya Ordinary Shares, a change of control could occur and could materially and adversely affect our financial condition, results of operation and cash flows.

Shareholders that beneficially own a significant interest in Pagaya may pledge a substantial portion of Pagaya Ordinary Shares that they own to secure loans made to them by financial institutions. If a shareholder defaults on any of its obligations under these pledge agreements or the related loan documents, these financial institutions may have the right to sell the pledged shares, subject to the lockup restrictions set forth in the Pagaya A&R Articles. Such a sale could cause our share price to decline. Many of the occurrences that could result in a foreclosure of the pledged shares are out of our control and are unrelated to our operations. Because these shares may be pledged to secure loans, the occurrence of an event of default could result in a sale of pledged shares that could cause a change of control of Pagaya, even when such a change of control may not be in the best interests of our shareholders, and it could also result in a default under certain material contracts to which we are a party, which could materially and adversely affect our financial condition, results of operations and cash flows.

 

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Risks Related to Technology, Intellectual Property and Data

Regulators may assert, and courts may conclude, that certain AI technology leads to unintentional bias or discrimination.

Regulatory agencies have expressed concerns that certain AI technology may lead to unintentional bias or discrimination in an automated credit analysis process. Such concerns could subject us to legal or regulatory liability, reputational harm, and/or increase our legal and compliance expenses. For example, on March 29, 2021, the Consumer Financial Protection Bureau (the “CFPB”) and the federal prudential bank regulators issued a “Request for Information and Comment on Financial Institutions’ Use of Artificial Intelligence, Including Machine Learning.” These regulators asked for comments regarding, among other things, whether the use of AI technology and machine learning in consumer credit underwriting can lead to bias and discrimination. A number of publicly submitted comments have asserted that AI technology and machine learning in consumer credit underwriting can lead to discrimination in violation of, inter alia, the Equal Credit Opportunity Act and the Fair Housing Act. This request for information process may lead to a regulatory rulemaking that could restrict the use of AI technology and machine learning in consumer credit underwriting. The Equal Credit Opportunity Act and the Fair Credit Report Act require creditors to provide consumers with the reasons for denial of credit or other adverse action, and providing such reasons can be more difficult given the complexity of certain AI technology. In addition, the Federal Trade Commission (“FTC”) has brought enforcement actions related to the use of AI and automated credit analysis in circumstances where the FTC has determined that the use of such tools is insufficiently transparent to consumers. Our inability to comply, and enable our Partners and their customers to comply, with the requirements of existing laws or new interpretations of existing laws, or new regulatory rulemaking that restricts the use of AI technology in consumer credit underwriting or other markets, could adversely affect our business, financial condition, and results of operations. We may also be obligated to indemnify Partners or pay substantial settlement costs in connection with any such claim or litigation related to the use of our AI technology and automated credit analysis, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our AI technology could be costly and time consuming and divert the attention of our management and key personnel from our business operations.

We may be unable to sufficiently, and it may be difficult and costly to, obtain, maintain, protect, or enforce our intellectual property and other proprietary rights.

Our ability to operate our businesses depends, in part, upon our proprietary technology. We may be unable to protect our proprietary technology effectively, which would allow competitors to duplicate our AI technology and adversely affect our ability to compete with them. We rely on a limited combination of trade secret, trademark laws and other rights, as well as confidentiality procedures, contractual provisions and our information security infrastructure to protect our proprietary technology, processes and other intellectual property. The steps we take to protect our intellectual property rights may be inadequate. For example, 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 any such efforts may not be successful. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and adversely impact our business.

Our proprietary technology, including our AI technology, may be alleged to infringe upon 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. If we are unsuccessful, such claim or litigation could result in a requirement that we pay significant damages or licensing fees, or we could in some circumstances be required to make changes to our business to avoid such infringement, which would negatively impact our financial performance. We may also be obligated to indemnify parties or pay substantial settlement costs, including royalty payments, in connection with any such claim or litigation and to modify applications or refund fees, which could be costly. Even if we were to prevail in such a dispute, any litigation regarding our intellectual property could be costly and time consuming and divert the attention of our management and key personnel from our business operations.

 

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Moreover, it has become common in recent years for individuals and groups to purchase intellectual property assets for the sole purpose of making claims of infringement and attempting to extract settlements from companies such as ours. Even in instances where we believe that claims and allegations of intellectual property infringement against us are without merit, defending against such claims is time consuming and expensive and could result in the diversion of time and attention of our management, employees and independent contractors. In addition, although in some cases a third party may have agreed to indemnify us for such costs, such indemnifying party may refuse or be unable to uphold its contractual obligations. In other cases, our insurance may not cover potential claims of this type adequately or at all, and we may be required to pay monetary damages, which may be significant.

Furthermore, our technology may become obsolete or inadequate, and we may not be able to successfully develop, obtain or use new technologies to adapt our models and systems to compete with other technologies as they develop. If we cannot protect our proprietary technology from intellectual property challenges, or if our technology becomes obsolete or inadequate, our ability to maintain our model and systems or facilitate products could be adversely affected.

Our technology relies in part on third-party open-source software components, and failure to comply with the terms of the underlying open-source software licenses could restrict our ability to utilize our technology and increase our costs.

Our AI technology, including our computational infrastructure, relies on software licensed to us by third-party authors under “open-source” licenses. 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 we combine our proprietary software with open-source software in a certain manner, we could, under certain open-source licenses, be required to release the source code of our proprietary software to the public. This would allow our competitors to create similar solutions with less development effort and time and ultimately put us at a competitive disadvantage.

Although we monitor our use of open-source software to avoid subjecting our products to conditions we do not intend, the terms of many open-source licenses have not been interpreted by U.S. courts, and there is a risk that these licenses could be construed in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our services. Moreover, our processes for controlling our use of open-source software may not be effective. If we are held to have breached the terms of an open-source software license, we could be required to seek licenses from third parties to continue operating our network on terms that are not economically favorable or feasible, to re-engineer our network or the supporting computational infrastructure to discontinue use of certain code, or to make generally available, in source code form, portions of our proprietary code.

Further, in addition to risks related to license requirements, use of certain open source software carries greater technical and legal risks than does the use of third-party commercial software. For example, open source software is generally provided as-is without any support or warranties or other contractual protections regarding infringement or the quality of the code, including the existence of security vulnerabilities. To the extent that our network depends upon the successful operation of open source software, any undetected errors or defects in open source software that we use could prevent the deployment or impair the functionality of our systems and harm our reputation. In addition, the public availability of such software may make it easier for attackers to target and compromise our network through cyber-attacks. Any of the foregoing risks could materially and adversely affect our business, financial condition and results of operations.

 

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Our proprietary AI technology relies in part on the use of our Partners’ borrower data and third-party data, and if we lose the ability to use such data, or if such data contains gaps or inaccuracies, our business could be adversely affected.

We rely on our proprietary AI technology, which includes statistical models built using a variety of datasets. Our AI technology relies on a wide variety of data sources, including data collected from our Partners’ customers and applicants, credit bureau data and our credit experience gained through monitoring the payment performance of our Partners’ customers over time. If we are unable to access and use data collected from our Partners’ customers and applicants, data received from credit bureaus, repayment data collected as part of the funding component of our network, or other third-party data used in our AI technology, or our access to such data is limited, our ability to accurately evaluate our Partners’ potential customers, detect fraud and verify applicant data would be compromised. Any of the foregoing could negatively impact the accuracy and effectiveness of our AI technology and the volume of products facilitated with the assistance of our network.

Third-party data sources on which we rely include the consumer reporting agencies regulated by the CFPB and other data sources. Such data is electronically obtained from third parties and used in our AI technology to process our Partners’ applicants. Data from national credit bureaus and other consumer reporting agencies and other information that we receive from third parties about a Partner’s applicant or borrower, may be inaccurate or may not accurately reflect the applicant’s or borrower’s creditworthiness for a variety of reasons, including inaccurate reporting by creditors to the credit bureaus, errors, staleness or incompleteness.

In addition, if third-party data used to improve our AI technology or train the AI model is inaccurate, or access to such third-party data is limited or becomes unavailable to us, the efficacy of our AI technology and our ability to continue to improve our AI technology would be adversely affected. Any of the foregoing could, for our Partners, result in sub-optimally and inefficiently evaluated assets, incorrect evaluation of transactions, or higher than expected losses, which in turn could adversely affect our ability to attract new Asset Investors and Partners or increase our Partners’ volume of financial products and adversely affect our business, financial condition and results of operations.

Cyberattacks and security breaches of our technology, or those impacting our users or third parties, could adversely impact our brand and reputation and our business, operating results and financial condition.

We are dependent on information technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, process, transmit and store large amounts of sensitive information, including personal information, credit information and other sensitive data of our Partners’ customers and other consumers providing their data to a Partner. It is critical that we do so in a manner designed to maintain the confidentiality, integrity and availability of such sensitive information. We also have arrangements in place with certain of our third-party vendors that require us to share consumer information. We rely on third parties to assist in our operations, and as a result, we manage a number of third-party vendors that may have access to our computer networks and sensitive or confidential information. In addition, many of those third parties turn to subcontractors or rely on their own service providers in outsourcing some of their responsibilities. As a result, our information technology systems, including the functions of third parties that are involved or have access to those systems, are large and complex, with many points of entry and access. While all information technology operations are inherently vulnerable to inadvertent or intentional security breaches, incidents, attacks and exposures, the size, complexity, accessibility and distributed nature of our information technology systems, and the large amounts of sensitive information stored on those systems make such systems potentially vulnerable to unintentional or malicious, internal and external attacks. Vulnerabilities may be exploited from inadvertent or intentional actions of our employees, independent contractors, third-party service providers, Partners, Asset Investors or by malicious third parties that may result in actual or attempted unauthorized access, mishandling or misuse of information, computer viruses or malware, cyberattacks that could lead to unauthorized persons obtaining confidential information, destruction of data, disruption or deterioration of service, sabotaged or damaged systems, as well as distributed denial of service attacks, data breaches and other infiltration, exfiltration or other

 

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similar events. Attacks of this nature are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives (including, but not limited to, industrial espionage) and expertise, including organized criminal groups, “hacktivists,” nation states and others. In addition to the extraction of sensitive information, such attacks could include the deployment of harmful malware, ransomware, denial-of-service attacks, social engineering and other means to affect service reliability and threaten the confidentiality, integrity and availability of information and systems. Further, our shift to a remote working environment due to the COVID-19 pandemic could increase the risk of a security breach. Significant disruptions of our, our Partners’ and third-party service providers’ and/or other business partners’ information technology systems or other similar data security incidents could adversely affect our business operations and result in the loss, misappropriation, or unauthorized access, use or disclosure of, or the prevention of access to, sensitive information, which could result in financial, legal, regulatory, business and reputational harm to us. Further, our systems, policies and procedures may not be able to adequately keep up with our rapid expansion, and may not be adequate or sufficient to mitigate risks. In addition, many governments 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 following a breach, which may cause our Partners’ customers and potential customers to lose confidence in the effectiveness of our data security measures related to our AI technology and business. Any security breach, whether actual or perceived, would harm our reputation and ability to attract new Partners and Asset Investors.

In addition, similar vulnerabilities may arise in the future as we continue to expand the features and functionalities of our network and introduce new products and services on our network, and we expect to continue investing substantially to protect against security vulnerabilities and incidents.

We rely on third-party service providers for a substantial portion of our business activities and for Financing Vehicles, and any disruption of service experienced by such third-party service providers or our failure to manage and maintain existing relationships or identify other high-quality, third-party service providers could harm our reputation, business, results of operations and growth prospects. We also depend on third-party property managers to manage our real property investments on a day-to-day basis, and there can be no assurance that they will operate such investments successfully.

We rely on a variety of third-party service providers in connection with a substantial portion of the operation of our business and Financing Vehicles. Any performance issues, errors, bugs or defects in third-party software or services could result in errors, defects or a failure of our solutions, which could materially and adversely affect our reputation, business, financial condition and results of operations. Many of our third-party service providers attempt to impose limitations on their liability for such performance issues, errors, bugs or defects, and if enforceable, we may have additional liability to our Partners, Asset Investors or to other third parties that could harm our reputation and increase our operating costs. Additionally, in the future, we might need to license other software or services to enhance our solutions and meet evolving Partner and Asset Investor demands and requirements, which may be unavailable to us on commercially reasonable terms or at all. Any limitations on our ability to use or obtain third-party software or services could significantly increase our expenses and otherwise result in delays, a reduction in functionality or errors or failures of our solutions until equivalent technology or content is either developed by us or, if available, identified, obtained through purchase or licensed and integrated into our solutions, which could adversely affect our business. In addition, third-party software and services may expose us to increased risks, including risks associated with the integration of new technology, the diversion of resources from the development of our own proprietary technology and our inability to generate revenue from new technology sufficient to offset associated acquisition and maintenance costs, all of which may increase our expenses and materially and adversely affect our business, financial condition and results of operations. We will need to maintain our relationships with third-party service providers and obtain software and services from such providers that do not contain any material errors or defects. Any failure to do so could adversely affect our ability to deliver effective solutions to Partners and Asset Investors and adversely affect our business.

 

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Although the manager monitors the performance of each real property investment, it is primarily the responsibility of third-party property managers to manage the properties on a day-to-day basis. A Financing Vehicle’s results of operations, including its ability to make payments on any indebtedness, depend in large part on the ability of these third-party property managers to operate and lease the properties on economically favorable terms. There can be no assurance that the third-party property management firms employed by a Financing Vehicle will be able to operate each investment successfully. Moreover, the risks of dependence on third-party property management firms are different by property type and by investment stage (for example, properties in development or redevelopment have a greater dependence on the leasing abilities of a third-party manager or leasing agent). Property managers may receive fee based upon gross revenues and such fee arrangements may create an incentive for the relevant investment to be managed in a manner that is not consistent with the applicable Financing Vehicle’s objectives.

Under applicable employment laws, we may not be able to enforce covenants not to compete.

We generally enter into non-competition agreements as part of our employment agreements with our employees. These agreements generally prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors, Partners or Asset Investors for a limited period. We may be unable to enforce these agreements under the laws of the jurisdictions in which our employees work and it may be difficult for us to restrict our competitors from benefitting from the expertise our former employees or consultants developed while working for us. For example, Israeli labor courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer which have been recognized by the courts, such as the protection of a company’s trade secrets or other proprietary knowhow.

Risks Related to Dual Class Structure

The dual class structure of Pagaya Ordinary Shares has the effect of concentrating voting power with certain shareholders—in particular, our Founders—which will effectively eliminate your ability to influence the outcome of many important determinations and transactions, including a change in control.

Pagaya Class A Ordinary Shares, which are the shares that are being listed, have one vote per share, and Pagaya Class B Ordinary Shares have 10 votes per share. At the Closing, the Founders, and any Permitted Class B Owners, are expected to receive all of the Pagaya Class B Ordinary Shares that will be issued and outstanding. By virtue of their holdings of Pagaya Class B Ordinary Shares, the Founders are expected to, in the aggregate, hold approximately 81% of Pagaya’s voting power immediately following the Closing in the no redemption scenario. In addition, the Founders hold Pagaya Options which, if exercised in full and assuming no dilution of their holdings, would be expected to result in the Founders’ holding, in the aggregate, approximately 85% of Pagaya’s voting power immediately following the Closing in the no redemption scenario. This percentage may increase if additional shares are issued to our Founders based on increases in the market capitalization of Pagaya following the Closing as a result of the vesting of stock options. See “Risk Factors—Risks Related to EJFA” All outstanding Pagaya Class B Ordinary Shares held by a Founder and any Permitted Class B Owners will automatically be converted into an equal number of Pagaya Class A Ordinary Shares (and therefore will have one rather than ten votes per share) on the earliest to occur of (i) (A) such Founder’s employment as an officer of Pagaya being terminated not for cause, such Founder resigning as an officer of Pagaya, death or permanent disability of such Founder or such Founder’s bankruptcy and (B) such Founder no longer serving on Pagaya Board; (ii) 90 days after such Founder is terminated for cause, subject to certain exceptions, or (iii) the earliest to occur of (A) such time as the Founders and their permitted transferees first collectively hold less than 10% of the total issued and outstanding ordinary share capital of Pagaya and (B) the 15th anniversary of the Closing. See the section titled “Description of Pagaya Securities—Pagaya Ordinary Shares—Pagaya Class B Ordinary Shares” for further discussion of the terms of the Pagaya A&R Articles that will be in effect immediately prior to the Closing, including the circumstances under which a Founder’s Pagaya Class B Ordinary Shares will convert into Pagaya Class A Ordinary Shares. Accordingly, except with respect to the limited matters as to which Israeli

 

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corporate law requires approval by a majority of votes cast by shareholders other than controlling shareholders, and although such Founders are not parties to any voting agreement (other than the Pagaya Voting Agreement which will terminate upon the earlier of the Effective Time and the date on which the Merger Agreement is terminated) or similar arrangement and are free to act independently of one another and without coordination or collaboration, such Founders will collectively effectively control all matters submitted to the Pagaya Shareholders for the foreseeable future, including the election of directors, amendments of our organizational documents, compensation matters, and any merger, consolidation, sale of all or substantially all of our assets, or other major corporate transaction requiring shareholder approval.

The Founders may 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 concentrated control is likely to have the effect of limiting the likelihood of an unsolicited merger proposal, unsolicited tender offer, or proxy contest for the removal of directors. As a result, our governance structure and the adoption of the Pagaya A&R Articles may have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices and make it more difficult to replace our directors and management.

The dual class structure of Pagaya Ordinary Shares may adversely affect the trading market for Pagaya Class A Ordinary Shares.

We cannot predict whether our dual class structure will result in a lower or more volatile market price of Pagaya Class A Ordinary Shares or in adverse publicity or other adverse consequences. For example, certain index providers have announced restrictions on including companies with dual class or multi-class share structures in certain of their indices. In July 2017, S&P Dow Jones and FTSE Russell announced changes to their eligibility criteria for the inclusion of shares of public companies on certain indices, including the Russell 2000, the S&P 500, the S&P Mid Cap 400 and the S&P SmallCap 600, to exclude companies with multiple classes of shares from being added to these indices. Beginning in 2017, MSCI Inc. (“MSCI”), a leading stock index provider, opened public consultations on their treatment of no-vote and multi-class structures and temporarily barred new multi-class listings from certain of its indices; however, in October 2018, MSCI announced its decision to include equity securities “with unequal voting structures” in its indices and to launch a new index that specifically includes voting rights in its eligibility criteria. As a result, our dual class capital structure would make us ineligible for inclusion in indices that exclude companies with multi-class share structures, and mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in Pagaya Class A Ordinary Shares. We cannot assure you that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future. Exclusion from indices could make Pagaya Class A Ordinary Shares less attractive to investors and, as a result, the market price of Pagaya Class A Ordinary Shares could be adversely affected.

Risks Related to Our Legal and Regulatory Environment

Litigation, regulatory actions, consumer complaints and compliance issues could subject us to significant fines, penalties, judgments, remediation costs and/or requirements resulting in increased expenses.

In the ordinary course of business, we may be named as a defendant in various legal actions, including litigation, involving our Partners’ financial products. All such legal actions are inherently unpredictable and, regardless of the merits of the claims, litigation is often expensive, time-consuming, disruptive to our operations and resources, and distracting to management. Generally, litigation involving our Partner’s financial products arises from the dissatisfaction of a consumer with the products or services offered by our Partners; some of this litigation, however, may arise from other matters, including claims of violation of laws related to do-not-call and credit reporting. Our involvement in any such matter also could cause significant harm to our or our Partners’ reputations and divert management attention from the operation of our business, even if the matters are ultimately determined in our favor. If resolved against us, legal actions could result in excessive verdicts and judgments, injunctive relief, equitable relief, and other adverse consequences that may affect our financial condition and how we operate our business.

 

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In addition, a number of participants in the consumer financial services industry have been the subject of putative class action lawsuits, state attorney general actions, other state or local regulatory or enforcement actions, and federal regulatory enforcement actions, including actions relating to alleged unfair, deceptive or abusive acts or practices, violations of state licensing and lending laws, including state usury and disclosure laws, actions alleging discrimination on the basis of race, ethnicity, gender or other prohibited bases, and allegations of noncompliance with various state and federal laws and regulations relating to originating and collecting consumer finance loans and other consumer financial services and products. In the current regulatory environment, increased regulatory compliance efforts and enhanced regulatory enforcement have resulted in us undertaking significant time-consuming and expensive operational and compliance improvement efforts, which may delay or preclude our or our Partners’ ability to provide certain new products and services, including the use of our AI technology by Partners. There is no assurance that these regulatory matters or other factors will not, in the future, affect how we conduct our business and, in turn, have a material adverse effect on our business. In particular, legal proceedings brought under state consumer protection statutes or under any of the various federal consumer financial services statutes may result in a separate fine assessed for each statutory and regulatory violation or substantial damages from class action lawsuits, potentially in excess of the amounts we earned from the underlying activities.

Many of the consumer and credit assets that the Financing Vehicles acquire are governed by agreements that include arbitration clauses. If these arbitration agreements were to become unenforceable for any reason, or such clauses are not included, we could experience an increase to our consumer litigation costs and exposure to potentially damaging class action lawsuits, with a potential material adverse effect on our business and results of operations.

In addition, from time to time, through our operational and compliance controls, we identify compliance issues that require us to make operational changes and, depending on the nature of the issues, could result in financial remediation. These self-identified issues and remediation payments could be significant, depending on the issues and impact, and could generate litigation or regulatory investigations that subject us to additional risk.

If we fail to comply with or facilitate compliance with, or our Partners fail to comply with the variety of federal, state and local laws to which we are subject, including those related to consumer protection, consumer finance, lending, data protection, and investment advisory services, or if we are found to be operating without having obtained necessary state or local licenses, it may result in regulatory action, litigation, monetary payments or may otherwise negatively impact our reputation, business, and results of operations, and may prevent us from serving users in jurisdictions where those regulations apply.

Our Partners and prospective Partners are highly regulated and are generally required to comply with stringent regulations in connection with performing business functions that our products and services address. Additionally, we facilitate compliance with these regulatory requirements. While we currently operate our business in an effort to ensure our business itself is not subject to extensive regulation, there is a risk that certain regulations could become applicable to us, including as we expand the functionality and use of our AI technology and network. In addition, we and our Partners, vendors, and other service providers must comply with laws and regulatory regimes that apply to us directly and our Partners, vendors, and other service providers indirectly, including through certain of our products and services, and in areas such as consumer finance and lending, investment advisory and securities law, and data protection, use and cybersecurity, and through our relationships with our Partners and the Financing Vehicles.

We must comply with regulatory regimes or facilitate compliance with regulatory regimes on behalf of our Partners that are independently subject to supervision by federal and state financial services and consumer protection regulators, including those applicable to consumer credit transactions, account servicing and debt collection, and the purchase and sale of whole loans and other related transactions. Certain state laws generally regulate interest rates, fees and other charges, require certain disclosures and regulate various loan terms and conditions. In addition, other federal and state laws may apply to loan originations, underwriting, allocation of

 

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finance assets originated by our Partners, the servicing and collection of loans and other obligations, the purchase and sale of whole loans or other obligations or securitization vehicles.

Certain states have adopted laws regulating and requiring licensing by parties that engage in certain activities relating to consumer finance transactions, including facilitating, offering and assisting with such transactions in certain circumstances. Furthermore, certain states and localities have also adopted laws requiring licensing for consumer debt collection or purchasing or selling consumer loans or other obligations. The application of some consumer finance licensing laws to our AI technology, the networks of our Partners and the related activities we perform is unclear or debatable, which increases the risk that we may be deemed noncompliant with such licensing laws. In addition, state licensing requirements may evolve over time, including, in particular, recent trends toward increased licensing requirements and regulation of parties engaged in loan solicitation activities. If we or our Partners were found to be in violation of applicable state licensing requirements by a court or a state, federal, or local enforcement agency, our business could be harmed or limited, we could be subject to fines, damages, injunctive relief (including required modification or discontinuation of our business in certain areas), criminal penalties and other penalties or consequences, and the obligations from our Partners could be rendered void or unenforceable, in whole or in part, any of which could have a material adverse effect on our business.

In particular, certain statutes, laws, regulations and rules to which we, our Partners, the Financing Vehicles or their service providers are or may be subject, and with which we facilitate or may facilitate compliance, include:

 

   

foreign, U.S. federal and state lending statutes and regulations that require certain parties, including our Partners, to hold licenses or other government approvals or filings in connection with specified activities, and impose requirements related to marketing and advertising, transaction disclosures and terms, fees and interest rates, usury, credit discrimination, credit reporting, servicemember relief, debt collection, repossession, unfair or deceptive business practices and consumer protection, as well as other state laws relating to privacy, information security, conduct in connection with data breaches and money transmission;

 

   

the Equal Credit Opportunity Act and Regulation B promulgated thereunder, which prohibit creditors from discouraging or discriminating against credit applicants on the basis of race, color, sex, age, religion, national origin, marital status, the fact that all or part of the applicant’s income derives from any public assistance program or the fact that the applicant has in good faith exercised any right under the federal Consumer Credit Protection Act, and similar state and municipal fair lending laws;

 

   

foreign, U.S. federal and state securities laws, including, among others, the Securities Act, the Exchange Act, the Investment Advisers Act, and the Investment Company Act rules and regulations adopted under those laws, and similar foreign, state laws and regulations which govern securities law, advisory services, Financing Vehicles or how we purchase consumer credit assets, other loan product regulations, the Israeli Joint Investments in Trust Law, 5754-1994, the Israeli Securities Law, the Israeli Law for Regulation of Investment Advice, Investment Marketing and Portfolio Management, 5755-1995, the Israeli Law for Supervision of Financial Services (Regulated Financial Services), 5776-2016, the Israeli Banking (Licensing) Law, 5741-1981;

 

   

foreign, U.S. federal and state laws and regulations addressing privacy, cybersecurity, data protection, and the receipt, storing, sharing, use, transfer, disclosure, protection, and processing of certain types of data, including, among others, Fair Credit Reporting Act (the “FCRA”), Gramm-Leach-Bliley Act (the “GLBA”), Children’s Online Privacy Protection Act, Personal Information Protection and Electronic Documents Act, Controlling the Assault of Non-Solicited Pornography and Marketing (the “CAN-SPAM”), Canada’s Anti-Spam Law, Telephone Consumer Protection Act (the “TCPA”), Federal Trade Commission Act (the “FTC Act”), California Consumer Privacy Act (the “CCPA”) and General Data Protection Regulation (the “GDPR”);

 

   

the FCRA and Regulation V promulgated thereunder, which imposes certain obligations on users of consumer reports and those that furnish information to consumer reporting agencies, including obligations relating to obtaining or using consumer reports, taking adverse action on the basis of information from consumer reports, the accuracy and integrity of furnished information, addressing

 

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risks of identity theft and fraud and protecting the privacy and security of consumer reports and consumer report information and other related data use law and regulations;

 

   

the GLBA and Regulation P promulgated thereunder, which includes limitations on financial institutions’ disclosure of nonpublic personal information about a consumer to nonaffiliated third parties, in certain circumstances requires financial institutions to limit the use and further disclosure of nonpublic personal information by nonaffiliated third parties to whom they disclose such information and requires financial institutions to disclose certain privacy notices and practices with respect to information sharing with affiliated and unaffiliated entities as well as to safeguard personal borrower information, and other privacy laws and regulations;

 

   

the U.S. credit risk retention rules promulgated under the Dodd-Frank Act, which require a securitizer of securitization vehicles to retain an economic interest in the credit risk of the assets collateralizing the securitization vehicles;

 

   

the Truth in Lending Act and Regulation Z promulgated thereunder, and similar state laws, which require certain disclosures to borrowers regarding the terms and conditions of their consumer credit obligations, require creditors to comply with certain practice restrictions, limit the ability of a creditor to impose certain terms, impose disclosure requirements in connection with credit card applications and solicitations, and impose disclosure requirements in connection with credit advertising;

 

   

Section 5 of the FTC Act, which prohibits unfair and deceptive acts or practices in or affecting commerce, and Section 1031 of the Dodd-Frank Act, which prohibits unfair, deceptive or abusive acts or practices in connection with any consumer financial product or service, and analogous state laws prohibiting unfair, deceptive, unconscionable, unlawful or abusive acts or practices;

 

   

the Credit Practices Rule, which (i) prohibits creditors from using certain contract provisions that the Federal Trade Commission has found to be unfair to consumers; (ii) requires creditors to advise consumers who co-sign obligations about their potential liability if the primary obligor fails to pay; and (iii) prohibits certain late charges;

 

   

the FDIC guidance related to model risk management and management of vendors and other bank specific requirements pursuant to the terms of service agreements with banks and the examination and enforcement authority of the FDIC under the Bank Service Company Act;

 

   

U.S. federal and state regulation and licensing requirements related to the auto insurance and finance industries, including related to being a manager general agent;

 

   

the U.S. Bankruptcy Code, which limits the extent to which creditors may seek to enforce debts against parties who have filed for bankruptcy protection;

 

   

the Servicemembers Civil Relief Act, which allows military members to suspend or postpone certain civil obligations, requires creditors to reduce the interest rate to 6% on loans to military members under certain circumstances, and imposes restrictions on enforcement of loans to servicemembers, so that military members can devote full attention to military duties;

 

   

the Military Lending Act, which requires those who lend to “covered borrowers,” including members of the military and their dependents, to only offer Military APRs (a specific measure of all-in-cost-of-credit) under 36%, prohibits arbitration clauses in loan agreements, and prohibits certain other loan agreement terms and lending practices in connection with loans to military servicemembers, among other requirements, and for which violations may result in penalties including voiding of a loan agreement;

 

   

the Electronic Fund Transfer Act and Regulation E promulgated thereunder, which provide guidelines and restrictions on the electronic transfer of funds from consumers’ bank accounts, including a prohibition on a creditor requiring a consumer to repay a credit agreement in preauthorized (recurring) electronic fund transfers and disclosure and authorization requirements in connection with such transfers;

 

   

the Electronic Signatures in Global and National Commerce Act and similar state laws, particularly the Uniform Electronic Transactions Act, which authorize the creation of legally binding and enforceable agreements utilizing electronic records and signatures and which require creditors and loan servicers to

 

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obtain a consumer’s consent to electronically receive disclosures required under federal and state laws and regulations;

 

   

the Right to Financial Privacy Act and similar state laws enacted to provide the financial records of financial institution customers a reasonable amount of privacy from government scrutiny;

 

   

the Bank Secrecy Act and the USA PATRIOT Act, which relate to compliance with anti-money laundering, borrower due diligence and record-keeping policies and procedures;

 

   

the regulations promulgated by the Office of Foreign Assets Control (“OFAC”) under the U.S. Treasury Department related to the administration and enforcement of sanctions against foreign jurisdictions and persons that threaten U.S. foreign policy and national security goals, primarily to prevent targeted jurisdictions and persons from accessing the U.S. financial system; and

 

   

other foreign, U.S., federal, state and local statutes, rules and regulations.

We and our Partners may not always have been, and may not always be, in compliance with these and other applicable statutes, regulations, rules and other laws. Compliance with these requirements is costly, time-consuming and limits our operational flexibility. Additionally, Congress, the states and regulatory agencies, as well as local municipalities, could further regulate consumer financial services in ways that make it more difficult or costly for us to operate our AI technology and offer related services or facilitate the allocation of obligations from our Partners. These laws also are often subject to changes that could severely limit the operations of our business model. For example, in 2019, a bill was introduced in the U.S. Senate that would create a notional cap of the lesser of 15% Annual Percentage Rate (“APR”) or the maximum rate permitted by the state in which the consumer resides. Although such a bill may never be enacted into law, if such a bill were to be enacted, it would greatly restrict the number of loans that could be placed through our network. Further, changes in the regulatory application or judicial interpretation of the laws and regulations applicable to financial institutions also could impact the manner in which we conduct our business. The regulatory environment in which financial institutions operate has become increasingly complex, and following the financial crisis that began in 2008, supervisory efforts to enforce relevant laws, regulations and policies have become more intense. Additionally, states are increasingly introducing and, in some cases, passing laws that restrict interest rates and APRs on loans similar to the loans or assets acquired by the Financing Vehicles. For example, California has enacted a “mini-CFPB,” which increases its oversight over partnership relationships and strengthens state consumer protection authority of state regulators to police debt collections and unfair, deceptive or abusive acts and practices. Additionally, voter referenda have been introduced and, in some cases, passed restrictions on interest rates and/or APRs. If such legislation or bills were to be adopted, or state or federal regulators seek to restrict regulated financial institutions such as our Partners from engaging in business with us in certain ways, our Partners’ ability to originate loans and other financial products in certain states, and the ability of Financing Vehicles to purchase such loans and other financial products, could be greatly reduced, and as a result, our business, financial condition and results of operations would be adversely affected.

In addition, we are currently subject to a variety of, and may in the future become subject to, additional foreign, federal, state, and local laws that are continuously changing, including laws related to: the real estate brokerage, auto insurance, real estate ownership and services industries, and data security, cybersecurity, privacy, and consumer protection. These laws can be costly to comply with, require significant management attention, and could subject us to claims, government enforcement actions, civil and criminal liability, or other remedies, including revocation of licenses and suspension of business operations.

Where applicable, we seek to comply with applicable law. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that our compliance policies and procedures will be effective. Compliance with these requirements is also costly, time-consuming and limits our operational flexibility. Nevertheless, if we, our Partners or the Financing Vehicles are found to not comply with applicable laws, we could become subject to greater scrutiny by regulatory agencies, face other sanctions or be required to obtain a license in such jurisdiction, which may have an adverse effect on our ability

 

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to continue to facilitate or acquire assets or make our network available to Partners and their customers in particular states, which may harm our business. In addition, non-compliance could subject us to damages, litigation, class action lawsuits, regulatory action, investigations, administrative enforcement actions, monetary payments to our Partners or Asset Investors, rescission rights held by investors in securities offerings and civil and criminal liability, all of which would harm our business and reputation.

Changes in laws or regulations relating to privacy, cybersecurity, data protection, or the protection, use or transfer of personal information, or any actual or perceived failure by us to comply with such laws and regulations or any other obligations relating to privacy, data protection, or the protection or transfer of personal information, could adversely affect our business.

We, our Partners, vendors, and other service providers, receive, collect, use, disclose, transmit, and store a large volume of personally identifiable information and other sensitive data relating to individuals, such as our Partners’ customers, Asset Investors and our employees. Our use, receipt, and other processing of data in our business subjects us to numerous state, federal and foreign laws and regulations, addressing privacy, cybersecurity, data protection, and the receipt, storing, sharing, use, transfer, disclosure, protection, and processing of certain types of data. Such regulations include, for example, the GLBA, Children’s Online Privacy Protection Act, Personal Information Protection and Electronic Documents Act, CAN-SPAM, Canada’s Anti- Spam Law, TCPA, FCRA, FTC Act, and California Consumer Privacy Act (the “CCPA”). These laws, rules, and regulations evolve frequently and their scope may continually change, through new legislation, amendments to existing legislation, and changes in interpretation or enforcement, and may be inconsistent from one jurisdiction to another.

For example, the Federal Trade Commission (the “FTC”), has announced a Notice of Proposed Rulemaking relating to proposed amendments to the GLBA’s Safeguards Rule, which requires financial services providers, like our Partners, to develop, implement, and maintain a comprehensive information security program. The proposed amendments provide more prescriptive security controls that financial services providers would be required to implement, such as specific access and authentication controls, risk assessment requirements, and oversight by appointment of a Chief Information Security Officer who would be required to provide annual written reports to the board of directors. In addition, the FTC has brought enforcement actions against third-party service providers of financial services providers directly and against financial services providers for failures by service providers to implement appropriate controls to safeguard consumers’ personal information.

As another example, the CCPA went into effect on January 1, 2020, and, among other things, requires new disclosures to California consumers and affords such consumers new data privacy rights, including, among other things, the right to request a copy from a covered company of the personal information collected about them, the right to request deletion of such personal information, and the right to opt out of certain sales of personal information. The California Attorney General can enforce the CCPA, including seeking an injunction and civil penalties of up to $7,500 per violation. The CCPA also provides a private right of action for certain data breaches that is expected to increase data breach litigation. Additionally, a new privacy law, the California Privacy Rights Act (the “CPRA”), was approved by California voters in the November 3, 2020 election, and significantly modifies the CCPA, including expanding California consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts. The CPRA creates obligations relating to consumer data beginning on January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023. Some observers have noted the CCPA and CPRA could mark the beginning of a trend toward more stringent privacy legislation in the United States, which could also increase our potential liability and adversely affect our business. For example, the CCPA has encouraged “copycat” or other similar laws to be considered and proposed in other states across the country, such as in Virginia, Colorado, New Hampshire, Illinois and Nebraska. On March 2, 2021, Virginia enacted the Virginia Consumer Data Protection Act (the “CDPA”), and on July 8, 2021, Colorado enacted the Colorado Privacy Act (the “CPA”), comprehensive privacy statutes that become effective on January 1, 2023 and July 1, 2023, respectively, and share similarities with the CCPA, CPRA, and legislation proposed in other states.

 

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The CCPA, CPRA, CDPA, CPA and other changes in laws or regulations relating to privacy, cybersecurity, data protection, and information security, particularly any new or modified laws or regulations, or changes to the interpretation or enforcement of laws or regulations like the GLBA, that require enhanced protection of certain types of data or new obligations with regard to data retention, transfer, or disclosure, could greatly increase the cost of providing our network, require significant changes to our operations, or even prevent us from providing our network in jurisdictions in which we currently operate and in which we may operate in the future. Certain other state laws impose similar privacy obligations and we also expect that more states may enact legislation similar to the CCPA, CPRA, CDPA and CPA, which provide consumers with new privacy rights and increase the privacy and security obligations of entities handling certain personal information of such consumers. The CCPA has prompted a number of proposals for new federal and state-level privacy legislation. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions, and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data, and could result in increased compliance costs and/or changes in business practices and policies. In addition, some jurisdictions, such as New York, Massachusetts, and Nevada have enacted more generalized data security laws that apply to certain data that we process. We cannot yet fully determine the impact these or future laws, rules, regulations, and industry standards may have on our business or operations. Any such laws, rules, regulations, and industry standards may be inconsistent among different jurisdictions, subject to differing interpretations, or may conflict with our current or future practices. Additionally, our Partners’ customers may be subject to differing privacy laws, rules, and legislation, which may mean that they

require us to be bound by varying contractual requirements applicable to certain other jurisdictions. Adherence to such contractual requirements may impact our receipt, use, processing, storage, sharing, and disclosure of various types of information including financial information and other personal information, and may mean we become bound by, or voluntarily comply with, self-regulatory or other industry standards relating to these matters that may further change as laws, rules, and regulations evolve. Complying with these requirements and changing our policies and practices may be onerous and costly, and we may not be able to respond quickly or effectively to regulatory, legislative and other developments. These changes may in turn impair our ability to offer our existing or planned products and services and/or increase our cost of doing business.

Additionally, we have incurred, and may continue to incur, significant expenses in an effort to comply with privacy, cybersecurity, data protection, and information security standards and protocols imposed by law, regulation, industry standards, or contractual obligations. In particular, with laws and regulations such as the FCRA, GLBA, CCPA, CPRA, CDPA, CPA and potentially other laws and regulations that may be proposed or amended, imposing new and relatively burdensome obligations, and with substantial uncertainty over the interpretation and application of these and other laws and regulations, we may face challenges in addressing their requirements and making necessary changes to our policies and practices and may incur significant costs and expenses in an effort to do so.

As our business grows, we may become subject to privacy and data security laws from other jurisdictions outside of the United States and Israel, potentially including the GDPR. The GDPR governs the collection, use, disclosure, transfer or other processing of personal data of European persons. Among other things, the GDPR imposes requirements regarding the security of personal data and notification of data processing obligations to competent national data processing authorities, provides for lawful bases on which personal data can be processed, provides for an expansive definition of personal data and requires changes to informed consent practices. In addition, the GDPR provides for heightened scrutiny of transfers of personal data from the European Economic Area, to the United States and other jurisdictions that the European Commission does not recognize as having “adequate” data protection laws, and imposes substantial fines for breaches and violations (up to the greater of €20 million or 4% of an enterprise’s consolidated annual worldwide gross revenue). The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations. If we expand our business into Europe and/or the United Kingdom, which has enacted data protection laws substantially implementing the GDPR, we will need to comply with the GDPR and data protection laws of the United

 

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Kingdom. This will involve significant resources and expense and may also impair our ability to offer our existing or planned features, products and services and/or increase our cost of doing business.

Despite our efforts to comply with applicable laws, regulations, and other obligations relating to privacy, cybersecurity, data protection, and information security, it is possible that our interpretations of the law, practices, or our network could be inconsistent with, or fail or be alleged to fail to meet all requirements of, such laws, regulations, or obligations. Our failure, or the failure by our Partners, vendors, service providers, or Partners’ customers, to comply with applicable laws or regulations or any other obligations relating to privacy,

cybersecurity, data protection, or information security, or any compromise of security that results in unauthorized access to, or use or release of personal information or other data relating to consumers or other individuals, or the perception that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing Partners from working with us, or result in fines, investigations, or proceedings by governmental agencies and private claims and litigation, any of which could adversely affect our business, financial condition, and results of operations. Even if not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and brand and adversely affect our business, financial condition, and results of operations.

A heightened regulatory environment in the financial services industry may have an adverse impact on our Partners and our business.

Since the enactment of the Dodd-Frank Act, a number of substantial regulations affecting the supervision and operation of the financial services industry within the United States have been adopted, including those that establish the CFPB. The CFPB has issued guidance that applies to, and conducts direct examinations of, “supervised banks and nonbanks” as well as “supervised service providers”. In addition, the CFPB regulates consumer financial products and services. Certain of our Partners are also subject to regulation by federal and state authorities and, as a result, could pass through some of those compliance obligations to us.

To the extent this oversight or regulation negatively impacts our Partners, our business, financial condition, and results of operations could be adversely affected because, among other matters, our Partners could have less capacity to purchase products and services from us, could decide to avoid or abandon certain lines of business, or could seek to pass on increased costs to us by re-negotiating their agreements with us. Additional regulation, examination, and oversight of us could require us to modify the manner in which we contract with or provide products and services to our Partners, require us to invest additional time and resources to comply with such oversight and regulations, or limit our ability to update our existing products and services, or require us to develop new ones. Any of these events, if realized, could adversely affect our business, financial condition, and results of operations.

If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, and our ability to complete the Merger and conduct business could be materially adversely affected.

The Investment Company Act contains substantive legal requirements that regulate the manner in which an “investment company” is permitted to conduct its business activities. In general, an “investment company” is a company that holds itself out as being engaged primarily in the business of investing, reinvesting, or trading in securities. We believe we have conducted, and intend to continue to conduct, our business in a manner that does not result in us being characterized as an investment company. To avoid being deemed an investment company, we may decide to forego attractive opportunities to expand our business. If we are deemed to be an investment company under the Investment Company Act, including as a result of changes in our business in the future (although no such changes are currently anticipated), we may be required to institute burdensome compliance requirements, restricting our activities in a way that could adversely affect our business, financial condition and results of operations. If we were ever deemed to be in noncompliance with the Investment Company Act, we could also be subject to various penalties, including administrative or judicial proceedings that might result in

 

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censure, fine, civil penalties, cease-and-desist orders or other adverse consequences, as well as private rights of action, any of which could materially adversely affect our business.

The SEC oversees and directly regulates the activities of a subsidiary that is a registered investment adviser under the Investment Advisers Act.

The Investment Advisers Act imposes specific restrictions on an investment adviser’s ability to conduct its investment advisory business and operations. Our registered investment adviser and certain other parts of our business are subject to additional requirements that cover, among other things, disclosure of information about our business to Partners and Asset Investors; maintenance of written compliance policies and procedures; conflicts of interest; agency and principal transactions; maintenance of extensive books and records; restrictions on the types of fees we may charge, including Network AI Fees; solicitation arrangements; maintaining effective compliance programs; custody of client assets; client privacy; advertising; and proxy voting. Under the Investment Advisers Act, an investment adviser (whether or not registered under the Investment Advisers Act) has fiduciary duties to its clients. The SEC has interpreted these duties to impose standards, requirements and limitations on, among other things, trading for proprietary, personal and client accounts; conflicts of interest; allocations of investment opportunities among clients or other services that help managers make investment decisions; execution of transactions; and recommendations to clients. One of our subsidiaries is subject to regular examinations by the SEC and as a newly registered investment adviser in 2021, it has not yet undergone a routine examination. Any adverse findings resulting from such examination may result in administrative enforcements or significant reputational harm. Failure to comply with the obligations imposed by the Investment Advisers Act could result in investigations, sanctions, restrictions on the activities of us or our personnel and reputational damage.

We and the Financing Vehicles rely on complex exemptions from statutes in conducting the funding component of our business.

We regularly rely on exemptions from various requirements of the Securities Act, the Exchange Act, the Investment Company Act, the Commodity Exchange Act and the U.S. Employee Retirement Income Security Act of 1974, as amended, in conducting the funding component of our business with the Financing Vehicles. The requirements imposed by regulators are designed primarily to ensure the integrity of the financial markets and to protect Asset Investors and are not designed to protect our shareholders. Consequently, these regulations often serve to limit our activities and impose burdensome compliance requirements. These exemptions are highly complex, the application to our business and Financing Vehicles can be ambiguous and may in certain circumstances depend on compliance by third parties whom we do not control. If for any reason these exemptions were to become unavailable to us, or their applicability challenged, we could become subject to regulatory action or third party claims and our business could be materially and adversely affected.

Securitizations expose us to certain risks, and we can provide no assurance that we will be able to access the securitization market in the future, which could materially and adversely affect our ability to execute on our business plan.

We have sponsored the securitizations, and may in the future sponsor securitizations, of certain assets acquired from our Partners by the Financing Vehicles. In asset-backed securities transactions, a special purpose entity (or “SPE”), which we administer, purchases pools of assets from certain of our Partners. Concurrently, each securitization SPE typically issues notes and certificates pursuant to the terms of indentures and trust agreements. The securities issued by the SPEs in securitization vehicles transactions are each secured by the pool of assets owned by the applicable SPE. We may retain equity interests in the SPEs, which are residual interests in that they entitle the equity owners of such SPEs, including us, to a certain proportion of the residual cash flows, if any, from the loans and any assets remaining in such SPEs once the securities are satisfied and paid in full. Further, we, as securitization sponsor or through a majority-owned affiliate, will hold either an eligible horizontal interest in the most subordinate class of securities or an eligible vertical interest of a portion of each class of securities offered to satisfy U.S. risk retention

 

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requirements, and we may purchase securities in excess of the amount required pursuant to U.S. risk retention rules. As a result of challenging credit and liquidity conditions, the value of the subordinated securities that we retain or other transaction participants purchase in such SPEs might be reduced or, in some cases, eliminated.

During periods of financial disruption, such as the financial crisis that began in 2008 and the COVID-19 pandemic that began in early 2020, the securitization market has been constrained or has contracted, and this could occur again in the future. In addition, other matters, such as (i) accounting standards applicable to securitization transactions and (ii) capital and leverage requirements applicable to banks and other regulated financial institutions holding asset-backed securities, could result in decreased investor demand for securities issued through our securitization transactions, or increased competition from other institutions that undertake securitization transactions. In addition, compliance with certain regulatory requirements, including the Dodd-Frank Act, the Investment Company Act and the so-called “Volcker Rule,” may affect the type of securitizations that we are able to complete or limit our ability to effect securitization transactions entirely.

If it is not possible or economical for us to securitize consumer credit assets in the future, we would need to seek alternative financing to support our business and the products and services we provide to our Partners. Such funding may be unavailable on commercially reasonable terms, or at all. If the cost of such purchasing consumer credit assets were to be higher than that of our securitizations, the fair value of the consumer credit assets would likely be reduced, which would negatively affect the investment performance of certain of the Financing Vehicles and our results of operations. If we are unable to access such alternative financing, our ability to direct the purchase of consumer credit assets by securitization vehicles and our results of operations, financial condition and liquidity would be materially adversely affected.

Pursuant to the terms of the securitization transaction documents, we may be entitled to excess amounts, if any, generated by the sale of securitization notes and certificates to Asset Investors, which represents a significant source of our earnings. We cannot assure you that the Financing Vehicles will continue to purchase consumer credit assets or that they will continue to purchase assets in transactions that generate the same excess cash flow, spreads and/or fees that have historically been purchased.

Potential Asset Investors may also reduce the prices they are willing to pay for the securitization notes and/or certificates they purchase during periods of economic slowdown or recession to compensate for any increased risks. A reduction in the sale price of the securitization notes and/or certificates would negatively impact our operations and returns. Any sustained decline in demand for consumer credit assets, or any increase in delinquencies, defaults or losses that result from economic downturns, may also reduce the price we receive on securitization notes and/or certificates.

We are subject to anti-corruption, anti-bribery, anti-money laundering, economic and trade sanctions and similar laws, and non-compliance with such laws can subject us to criminal or civil liability and harm our business, financial condition and results of operations.

We may be subject to certain economic and trade sanctions laws and regulations, export control and import laws and regulations, including those that are administered by OFAC, the U.S. Department of State, the U.S. Department of Commerce, the United Nations Security Council, the Israeli Ministry of Defense, the Israeli Ministry of Finance, and other relevant governmental authorities.

We are also subject to the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), the United Kingdom Bribery Act 2010, Chapter 9 (sub-chapter 5) of the Israeli Penal Law, 5737-1977, the Israeli Prohibition on Money Laundering Law, 5760-2000 and other anti-bribery laws in countries in which we conduct our activities. These laws generally prohibit companies, their employees and third-party intermediaries from authorizing, promising, offering, providing, soliciting or accepting, directly or indirectly, improper payments or benefits to or from any person whether in the public or private sector. In addition, the FCPA’s accounting provisions require us to maintain accurate books and records and a system of internal accounting controls. We have policies, procedures, systems, and controls designed to promote compliance with applicable anti-corruption laws.

 

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As we increase and scale our business, we may engage with business partners and third-party intermediaries to market our solutions and obtain necessary permits, licenses and other regulatory approvals. In addition, we or our third-party intermediaries may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We can be held liable for the corrupt or other illegal activities of these third-party intermediaries, our employees, representatives, contractors, Partners, Asset Investors and agents, even if we do not authorize such activities.

Our Partners may have customers, or Asset Investors may be, in jurisdictions that are subject to economic and financial sanctions programs or trade embargoes maintained by the United States (including sanctions administered by OFAC), Israel (including the Israeli Trade with the Enemy Ordinance, 1939, the Israeli Defense Export Control Law, 5767-2007, the Israeli Import and Export Order (Control of Dual-Purpose Goods, Services and Technology Exports), 5767-2006 and other sanctions laws and specialized lists), the European Union, the United Kingdom, and other applicable jurisdictions. These sanctions generally prohibit the sale of products or provision of services to jurisdictions subject to a full embargo (“Sanctioned Countries”) and to sanctioned parties. We have taken steps to avoid having transactions with those in Sanctioned Countries and have implemented various control mechanisms designed to prevent unauthorized dealings with Sanctioned Countries or sanctioned parties going forward. Although we have taken precautions to prevent our solutions from being provided, deployed or used in violation of sanctions laws, due to the remote nature of our solutions and the potential for manipulation using virtual private networks (VPNs), we cannot assure you that our policies and procedures relating to sanctions compliance will prevent any violations. If we are found to be in violation of any applicable sanctions regulations laws and regulations, it could result in significant fines or penalties and possible incarceration for responsible employees and managers, as well as reputational harm and loss of business.

Despite our compliance efforts and activities, there can be no assurance that our employees or representatives will comply with the relevant laws and we may be held responsible. Non-compliance with anti-corruption, anti-money laundering, export control, economic and trade sanctions and other trade laws could subject us to whistleblower complaints, investigations, sanctions, settlements, prosecution, other enforcement actions, disgorgement of profits, significant fines, damages, other civil and criminal penalties or injunctions, suspension and/or debarment from contracting with certain persons, the loss of export privileges, reputational harm, adverse media coverage and other collateral consequences. If any subpoenas or investigations are initiated, or governmental or other sanctions are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, financial condition and results of operations could be materially harmed. Responding to any action will likely result in a materially significant diversion of management’s attention and resources and significant defense and compliance costs and other professional fees. As a general matter, enforcement actions and sanctions could harm our business, financial condition and results of operations.

As the political and regulatory framework for AI technology and machine learning evolves, our business, financial condition and results of operations may be adversely affected.

The political and regulatory framework for AI technology and machine learning is evolving and remains uncertain. It is possible that new laws and regulations will be adopted in the United States, or existing laws and regulations may be interpreted in new ways, that would affect the operation of our network and the way in which we use AI technology and machine learning, including with respect to fair lending laws and model risk management guidance. In the last year, the CFPB has increased its focus on financial institutions that rely on AI technology in their business and has sent requests for information to various companies to better understand the use of AI technology and machine learning by financial institutions. Further, the cost to comply with such laws or regulations could be significant and would increase our operating expenses, which could adversely affect our business, financial condition and results of operations.

 

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If obligations by one or more Partners that utilize our network were subject to successful challenge that the Partner was not the “true lender,” such obligations may be unenforceable, subject to rescission or otherwise impaired, we or other program participants may be subject to penalties, and/or our commercial relationships may suffer, each of which would adversely affect our business, financial condition and results of operations.

Obligations are originated by our Partners in reliance on the fact that our Partners or their bank partners (if applicable) are the “true lenders” for such obligations rather than us or our Partners (if applicable). That true lender status determines various program details, including that we do not hold licenses required solely for being the party that extends credit to consumers, among other requirements. Because the obligations facilitated with the assistance of our AI technology are originated by our Partners or their bank partners, many state consumer financial regulatory requirements, including usury restrictions (other than the restrictions of the state in which a partner originating a particular obligation is located) and many licensing requirements and substantive requirements under state consumer credit laws, are treated as inapplicable based on principles of federal preemption or express exemptions provided in relevant state laws for certain types of financial institutions or obligations they originate.

Certain recent litigation and regulatory enforcement activities have challenged, or are currently challenging, the characterization of certain Partners or their bank partners as the “true lender” in connection with programs involving origination relationships between a bank partner and non-bank lending network or program manager. For example, the Colorado Administrator has entered into a settlement agreement with certain banks and nonbanks that addresses this true lender issue. Specifically, the settlement agreement sets forth a safe harbor indicating that a bank is the true lender if certain specific terms and conditions are met. However, other states could also bring lawsuits based on these types of relationships. For example, on June 5, 2020, the Washington, DC Attorney General filed a lawsuit against online lender Elevate Credit International Limited (“Elevate”) for allegedly deceptively marketing high-cost loans with interest rates above the Washington, DC usury cap. The usury claim is based on an allegation that Elevate, which was not licensed in Washington, DC, and not its partner bank, originated these loans, and were therefore in violation of the state’s usury laws.

Pursuant to the Congressional Review Act, Congress and the executive branch have repealed the Office of the Comptroller of the Currency’s (the “OCC”) True Lender Rule, which deemed a national bank that funded a loan or was named as the lender in an agreement the “true lender.” Under the Congressional Review Act, the OCC is barred from promulgating a substantially similar rule. Accordingly, how regulators and courts will apply and interpret laws relevant to the “true lender” issue is unclear.

There have been no formal proceedings against us or the Financing Vehicles or indication of any such proceedings to date, but there can be no assurance that the Colorado Administrator will not make assertions similar to those made in its present actions with respect to the obligations facilitated with the assistance of our network in the future.

It is also possible that other state agencies or regulators could make similar assertions. If a court, or a state or federal enforcement agency, were to deem us, rather than our Partners, to be the “true lender” for obligations originated by our Partners on our network, and if for this reason (or any other reason), the obligations were deemed subject to and in violation of certain state consumer finance laws, we (or the Financing Vehicles) could be subject to fines, damages, injunctive relief (including required modification or discontinuation of our business in certain areas) and other penalties or consequences, and the obligations could be rendered void or enforceable in whole or in part, any of which could have a material adverse effect on our business (directly, or as a result of adverse impact on our relationships with our Partners, Asset Investors or other commercial counterparties).

 

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If loans originated by our Partners were found to violate the laws of one or more states, whether at origination or after sale by our Partner, assets acquired, directly or indirectly, by the Financing Vehicles may be unenforceable or otherwise impaired, we (or the Financing Vehicles) may be subject to, among other things, fines and penalties, and/or our commercial relationships may suffer, each of which would adversely affect our business and results of operations.

When establishing the interest rates and structures (and the amounts and structures of certain fees constituting interest under federal banking law, such as origination fees, late fees and non-sufficient funds fees) that are charged by our Partners on loans originated with the assistance of our AI technology, our Partners (or their bank partners) rely on certain authority under federal law to export the interest rate permitted in the state where each Partner (or its bank partners) is located to their customers in all other states. Further, certain of our Partners and Asset Investors rely on the ability of subsequent holders to continue charging such rate with such fee structures and enforce other contractual terms agreed to by our Partners (or their bank partners), which are permissible under federal banking laws following the acquisition of the loans. The current annual percentage rates of the loans facilitated with the assistance of our technology network typically range up to 36%. In some states, the interest rates of certain loans exceed the maximum interest rate permitted for consumer loans made by non-bank lenders to customers residing in, or that have nexus to, such states. In addition, the rate structures for loans may not be permissible in all states for non-bank lenders and/or the amount or structures of certain fees charged in connection with loans may not be permissible in all states for non-bank lenders.

Usury, fee and disclosure-related claims involving loans may be brought or raised in multiple ways. Program participants may face litigation, government enforcement or other challenge, for example, based on claims that bank lenders did not establish loan terms that were permissible in the state such participants were located or did not correctly identify the home or host state in which they were located for purposes of interest exportation authority under federal law. Alternatively, we, our non-bank Partners or Asset Investors may face litigation, government enforcement or other challenge, for example, based on claims that rates and fees were lawful at origination, but that subsequent purchasers were unable to enforce the loan pursuant to its contracted-for terms, or that certain disclosures were not provided at origination because while such disclosures are not required of banks, they may be required of non-bank lenders.

In Madden v. Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015), cert. denied, 136 S. Ct. 2505 (June 27, 2016), for example, the U.S. Court of Appeals for the Second Circuit held that the non-bank purchaser of defaulted credit card debt could not rely on preemption standards under the National Bank Act applicable to the originator of such debt in defense of usury claims.

The extent to which other courts will apply the Second Circuit’s Madden decision remains subject to clarification. For example, the Colorado Administrator of the Colorado Uniform Consumer Credit Code (the “UCCC”), reached a settlement with respect to complaints against two online lending platforms, including with respect to the role of Partners and sale of loans and other financial products to investors. The complaints included, among other claims, allegations, grounded in the Second Circuit’s Madden decision, that the rates and fees for certain loans could not be enforced lawfully by non-bank purchasers of bank-originated loans. Under the settlement, these banks and non-partners committed to, among other things, limit the APR on loans to Colorado consumers to 36% and to take other actions to ensure that the banks were in fact the true lenders. The nonbanks also agreed to obtain and maintain a Colorado lending license. In Colorado, this settlement should provide a helpful model for what constitutes an acceptable partnership model. However, the settlement may also invite other states to initiate their own actions, and set their own regulatory standards through enforcement.

As noted above, federal prudential regulators have also taken actions to address the Madden decision. On May 29, 2020, the OCC issued a final rule clarifying that, when a national bank or savings association sells, assigns, or otherwise transfers a loan, interest permissible before the transfer continues to be permissible after the transfer. That rule took effect on August 3, 2020. Similarly, the FDIC finalized on June 25, 2020 its 2019 proposal declaring that the interest rate for a loan is determined when the loan is made, and will not be affected

 

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by subsequent events. A number of states have filed suits seeking to invalidate these rules on the grounds that the OCC and FDIC exceeded their authority when promulgating those rules. The outcome of that litigation is uncertain.

There are factual distinctions between our programs and the circumstances addressed in the Second Circuit’s Madden decision, as well as the circumstances in the Colorado Uniform Consumer Credit Code settlement, credit card securitization litigation, and similar cases. As noted above, there are also bases on which the Madden decision’s validity might be subject to challenge or the Madden decision may be addressed by federal regulation or legislation. Nevertheless, there can be no guarantee that a Madden-like claim will not be brought successfully against us, the Financing Vehicles.

If a borrower or any state agency were to successfully bring a claim against us, our Partners, a Financing Vehicle and/or the managers or administrators of such vehicles or Asset Investors for a state usury law or fee restriction violation and the rate or fee at issue on the loan was impermissible under applicable state law, we, our Partners, Financing Vehicles and/or administrators or such Asset Investors may face various commercial and legal repercussions, including that such parties would not receive the total amount of interest expected, and in some cases, may not receive any interest or principal, may hold loans and other financial products that are void, voidable, rescindable, or otherwise impaired, or may be subject to monetary, injunctive or criminal penalties. Were such repercussions to apply to us, we may suffer direct monetary loss or may be a less attractive candidate for our Partners, Financing Vehicle administrators or Asset Investors to enter into or renew relationships. We may also be subject to payment of damages in situations where we agreed to provide indemnification to our Partners or Financing Vehicles, as well as fines and penalties assessed by state and federal regulatory agencies.

The CFPB has at times taken expansive views of its authority to regulate consumer financial services, creating uncertainty as to how the agency’s actions or the actions of any other new government agency could adversely affect our business, financial condition and results of operations.

The CFPB has broad authority to create and modify regulations under federal consumer financial protection laws and regulations, such as the Truth in Lending Act and Regulation Z, the Equal Credit Opportunity Act (“ECOA”) and Regulation B, the Fair Credit Reporting Act and Regulation V, the Electronic Funds Transfer Act and Regulation E, among other laws, and to enforce compliance with those laws. The CFPB supervises banks, thrifts and credit unions with assets over $10 billion and examines certain of our Partners. Further, the CFPB is charged with the examination and supervision of certain participants in the consumer financial services market, including payday lenders, private education lenders, and larger participants in other areas of financial services. The CFPB is also authorized to prevent “unfair, deceptive or abusive acts or practices” through its rulemaking, supervisory and enforcement authority. To assist in its enforcement, the CFPB maintains an online complaint system that allows consumers to log complaints with respect to various consumer finance products, including our financial products. This system could inform future CFPB decisions with respect to its regulatory, enforcement or examination focus. The CFPB may also request reports concerning our organization, business conduct, markets and activities and conduct on-site examinations of our business on a periodic basis if the CFPB were to determine, including through its complaint system, that we were engaging in activities that pose risks to consumers.

There is uncertainty about the future of the CFPB and as to how its strategies and priorities, including for both its examination and enforcement processes, will impact our business and our results of operations going forward. Evolving views regarding the use of machine learning and alternative variables in assessing credit risk could result in the CFPB taking actions that result in requirements to alter or cease offering affected financial products and services, making them less attractive and restricting our ability to offer them. The CFPB could implement regulations that restrict our effectiveness in providing our financial products and services or reduce the profitability of those products and services.

Although we have committed resources to enhancing our compliance programs, future actions by the CFPB (and/or other regulators) against us, our Partners or our competitors could discourage the use of our services or those

 

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of our Partners, which could result in reputational harm, a loss of our Partners, our Partners’ customers or Asset Investors, or discourage the use of our or their services and adversely affect our business. If the CFPB changes regulations that were adopted in the past by other regulators and transferred to the CFPB by the Dodd-Frank Act, or modifies through supervision or enforcement past regulatory guidance or interprets existing regulations in a different or stricter manner than they have been interpreted in the past by us, the industry or other regulators, our compliance costs and litigation exposure could increase materially. This is particularly true with respect to the application of ECOA and Regulation B to credit risk models that rely upon machine learning and alternative variables, an area of law where regulatory guidance is currently uncertain and still evolving, and for which there are not well-established regulatory norms for establishing compliance. If future regulatory or legislative restrictions or prohibitions are imposed that affect our ability to offer certain of our products or that require us to make significant changes to our business practices, and if we are unable to develop compliant alternatives with acceptable returns, these restrictions or prohibitions could have a material adverse effect on our business. If the CFPB were to pursue an enforcement action against us or one or more of our Partners, this could also directly or indirectly adversely affect our business, financial condition and results of operations.

Our compliance and operational costs and litigation exposure could increase if and when the CFPB amends or finalizes any proposed regulations, including the regulations discussed above or if the CFPB or other regulators enact new regulations, change regulations that were previously adopted, modify, through supervision or enforcement, past regulatory guidance, or interpret or enforce existing regulations in a manner different or stricter than have been previously interpreted.

We may be subject to regulatory risks related to our operation in Israel.

While we operate and manage significant business activities from our headquarters in Israel, and source part of the financing for the Financing Vehicles from Israeli Asset Investors, we do not deliberately target the Israeli consumer market, do not actively promote or market our services or products to Israeli consumers, and do not solicit funding from non-accredited Israeli investors, except with respect to a limited number of non-accredited Israeli investors available under applicable Israeli securities laws. We believe it is not required to hold any specific licenses in Israel and have not applied for any such licenses, since we believes that our activity is either not regulated under Israeli law or performed in reliance on applicable exemptions from the relevant regulation. Nevertheless, in view of the complexity and novelty of our business model and the fact that investment funds activity is not specifically regulated in Israel, uncertainty exists with respect to various regulatory matters, and we are exposed to the risk that an Israeli regulatory authority or agency (including the Israel Securities Authority, the Israel Capital Markets, Insurance and Savings Authority or the Bank of Israel) determines that our conduct is not is compliance with local laws or regulations or requires local licensing, including pursuant to the Israeli Regulation of Investment Advice, Investment Marketing and Portfolio Management Law, 5755-1995, the Joint Investments in Trust Law, 5754-1994, the Law for the Regulation of the Activity of Credit Rating Companies, 5774-2014, the Supervision of Financial Services (Regulated Financial Services) Law, 5776-2016, and the Banking (Licensing) Law, 5741-1981.

Failure to comply with relevant licensing or other regulatory requirements could lead to reputational damage to Pagaya, limit our ability to grow or continue to operate our business in Israel, negatively impact our relationships with Israeli regulators and expose us to the risk of fines, penalties and sanctions.

 

Risks Related to Our Operations in Israel

Conditions in Israel and relations between Israel and other countries could adversely affect our business.

We are incorporated under the laws of the State of Israel, and our major corporate office and certain of our facilities are located in Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region directly affect our business and operations, and our ability to continue to operate could be materially adversely affected. Since the State of Israel was established in 1948, a number of armed conflicts have

 

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occurred between Israel and its Arab neighbors. In the event that our facilities are damaged as a result of hostile action or hostilities otherwise disrupt the ongoing operation of its facilities, our ability to continue our operations could be materially adversely affected.

In recent years, Israel has been engaged in sporadic armed conflicts with terrorist groups, including those that control the Gaza Strip and other regions close to Israel. In addition, Iran has threatened to attack Israel and may be developing nuclear weapons. Some of these hostilities were accompanied by missiles being fired from the Gaza Strip, Lebanon and Syria against civilian targets in various parts of Israel, including areas in which our employees and independent contractors are located, which negatively affected business conditions in Israel. Any hostilities involving Israel, regional political instability or the interruption or curtailment of trade between Israel and its trading partners could materially and adversely affect our operations and results of operations.

Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Although the Israeli government currently covers the reinstatement value of property damage and certain direct and indirect damages that are caused by terrorist attacks or acts of war, such coverage would likely be limited, may not be applicable to our business (either due to the geographic location of our offices or the type of business that we operate) and may not reinstate our loss of revenue or economic losses more generally. Furthermore, we cannot assure you that this government coverage will be maintained or that it will sufficiently cover our potential damages, or whether such coverage would be timely provided. Any losses or damages incurred by us could have a material adverse effect on our business, financial condition and results of operations.

Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict doing business with Israel and Israeli companies, and additional countries may impose restrictions on doing business with Israel and Israeli companies if hostilities in Israel or political instability in the region continues or increases. These restrictive laws and policies, or significant downturn in the economic or financial condition of Israel, could materially and adversely affect our operations and product development, and could cause our sales to decrease.

A large concentration of our staff resides in Israel and many of our employees and independent contractors in Israel are required to perform military reserve duty, which may disrupt their work for us.

Many of our employees and independent contractors, including certain of our Founders and certain members of our management team, operate from our headquarters that are located in Tel Aviv, Israel. In addition, a number of our officers and directors are residents of Israel. Accordingly, political, economic and military conditions in Israel and the surrounding region may directly affect our business and operations.

In addition, many Israeli citizens are obligated to perform several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and, in the event of a military conflict, may be called to active duty. In response to increases in terrorist activity, there have been periods of significant call-ups of military reservists. It is possible that there will be military reserve duty call-ups in the future. Our operations could be disrupted by such call-ups, particularly if such call-ups include the call-up of members of our management, and given the current shortage of talent in Israel due to the recent acceleration of activity in startups, especially in the technology space. Such disruption could materially and adversely affect our business, financial condition and results of operations.

Your rights and responsibilities as our shareholder will be governed by Israeli law, which differ in some respects from the rights and responsibilities of shareholders of U.S. corporations.

We were incorporated under Israeli law and the rights and responsibilities of our shareholders are governed by the Pagaya A&R Articles as in effect from time to time and Israeli law. These rights and responsibilities differ in some respects from the rights and responsibilities of shareholders of U.S. and other non-Israeli corporations. In particular, a shareholder of an Israeli company has a duty to act in good faith and in a customary manner in

 

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exercising its rights and performing its obligations towards the company and other shareholders and to refrain from abusing its power in the company, including, among other things, in voting at the general meeting of shareholders on certain matters, such as an amendment to the articles of association, an increase of the company’s authorized share capital, a merger of the company and approval of related party transactions that require shareholder approval. A shareholder also has a general duty to refrain from discriminating against other shareholders. In addition, a controlling shareholder or a shareholder who knows that it possesses the power to determine the outcome of a shareholders’ vote or to appoint or prevent the appointment of an office holder in the company has a duty to act in fairness towards the company. These provisions may be interpreted to impose additional obligations and liabilities on our shareholders that are not typically imposed on shareholders of U.S. corporations.

Provisions of Israeli law and the Pagaya A&R Articles may delay, prevent, or make undesirable an acquisition of all or a significant portion of our shares or assets.

Provisions of Israeli law and the Pagaya A&R Articles could have the effect of delaying or preventing a change in control and may make it more difficult for a third party to acquire us or our shareholders to elect different individuals to our board of directors, even if doing so would be considered to be beneficial by some of our shareholders, and may limit the price that investors may be willing to pay in the future for Pagaya Ordinary Shares. Among other things:

 

   

Israeli corporate law regulates mergers and requires that a tender offer be effected when more than a specified percentage of shares in a company are purchased;

 

   

Israeli corporate law requires special approvals for certain transactions involving directors, officers or significant shareholders and regulates other matters that may be relevant to these types of transactions;

 

   

Israeli corporate law does not provide for shareholder action by written consent for public companies, thereby requiring all shareholder actions to be taken at a general meeting of shareholders;

 

   

the dual class structure of Pagaya Ordinary Shares concentrates voting power with certain Pagaya Shareholders—in particular, our Founders;

 

   

the Pagaya A&R Articles divide our directors into three classes, each of which is elected once every three years;

 

   

the Pagaya A&R Articles generally require a vote of a majority of the voting power represented at a general meeting of Pagaya Shareholders in person or by proxy and voting thereon, as one class (a “simple majority”), and the amendment of a limited number of provisions—such as the provision regarding the size of the Pagaya Board, the provision dividing our directors into three classes, the provision that sets forth the procedures and the requirements that must be met in order for a Pagaya Shareholder to require Pagaya to include a matter on the agenda for a general meeting of the Pagaya Shareholders and the provisions relating to the election and removal of members of the Pagaya Board and empowering the Pagaya Board to fill vacancies on the Pagaya Board—require a supermajority vote of the holders of 75% of the total voting power of Pagaya Shareholders if no Pagaya Class B Ordinary Shares remain outstanding (or a simple majority so long as Pagaya Class B Ordinary Shares remain outstanding);

 

   

the Pagaya A&R Articles do not permit a director who is a member of one of the three staggered classes to be removed other than in the annual general meeting in which the term of such class expires, except in special circumstances of incapacity or ineligibility (and in the case of other directors, such as those appointed by the Pagaya Board to fill vacancies, do not permit a director to be removed by shareholders except by a vote of the holders of at least 75% of the total voting power of Pagaya Shareholders if no Pagaya Class B Ordinary Shares remain outstanding, or a simple majority so long as Pagaya Class B Ordinary Shares remain outstanding); and

 

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the Pagaya A&R Articles provide that director vacancies may be filled by the Pagaya Board.

Further, Israeli tax considerations may make potential transactions undesirable to us or some of our shareholders whose country of residence does not have a tax treaty with Israel granting tax relief to such shareholders from Israeli tax. For example, Israeli tax law does not recognize tax-free share exchanges to the same extent as U.S. tax law. With respect to mergers, Israeli tax law allows for tax deferral in certain circumstances but makes the deferral contingent on the fulfillment of numerous conditions, including, a holding period of two years from the date of the transaction during which certain sales and dispositions of shares of the participating companies are restricted. Moreover, with respect to certain share swap transactions, the tax deferral is limited in time, and when such time expires, the tax becomes payable even if no disposition of the shares has occurred.

The Pagaya A&R Articles contain a forum selection clause for substantially all disputes between us and our shareholders, which could limit our shareholders’ ability to bring claims and proceedings against us, our directors, officers, and other employees and independent contractors. It may be difficult to enforce a U.S. judgment against Pagaya or its officers or directors or named experts in Israel or the United States or to assert a U.S. securities laws claim in Israel or serve process on our officers, directors and the named experts.

Under the Pagaya A&R Articles, the competent courts of Tel Aviv, Israel shall be the exclusive forum for any (i) derivative action or proceeding brought on behalf of Pagaya, (ii) action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of Pagaya to Pagaya or its shareholders, or (iii) action asserting a claim arising pursuant to any provision of the Pagaya A&R Articles, the Companies Law or the Israeli Securities Law. This exclusive forum provision is intended to apply to claims arising under Israeli law and would not apply to claims brought pursuant to the Securities Act or the Exchange Act, or any other claim for which federal courts would have exclusive jurisdiction. Such exclusive forum provision in the Pagaya A&R Articles will not relieve us of our duties to comply with federal securities laws and the rules and regulations thereunder, and our shareholders will not be deemed to have waived our compliance with these laws, rules and regulations. This exclusive forum provision may limit a shareholder’s ability to bring a claim in a judicial forum of its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us, our directors, officers and employees.

Risks Related to Being a Public Company

Our management team has limited experience managing a public company.

Our management team has limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. As a result, these executives may not successfully or efficiently manage their new roles and responsibilities, and our transition to being a public company is subject to significant regulatory oversight, reporting obligations under U.S. and international securities laws and the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our senior management and could divert their attention away from the day-to-day management of our business, which could result in less time being devoted to our management, growth and the achievement of our operational goals.

In addition, we may not have adequate personnel with the appropriate level of knowledge, experience and training in the accounting policies, practices or internal controls over financial reporting required of public companies in the United States. We are in the process of upgrading our finance and accounting systems and related controls to an enterprise system suitable for a public company, and a delay could impact our ability or prevent us from timely reporting our operating results or timely filing reports with the SEC. The development and implementation of the standards and controls necessary for us to achieve the level of accounting standards required of a public company in the U.S. may require costs greater than expected. We may need to significantly expand our employee and independent contractor base in order to support our operations as a public company, increasing our operating costs. Failure to adequately comply with the requirements of being a public company, could adversely affect our business, financial condition and results of operation.

 

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Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to our effectiveness, which could have a significant and adverse effect on our business and reputation. Our current controls and any new controls that we develop may be inadequate because of changes in conditions in our business. Further, weaknesses in our internal controls may be discovered in the future. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended and anticipate that we will continue to expend significant resources, including accounting-related costs, and to provide significant management oversight. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could adversely affect our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our financial statements for prior periods. Ineffective disclosure controls and procedures and internal control over financial reporting could also cause investors to lose confidence in our reported financial and other information.

We will incur increased costs as a result of operating as a public company, and our management will devote substantial time to new compliance initiatives.

As a public company that qualifies as a foreign private issuer, we will become subject to certain of the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act and other requirements by Nasdaq. The Exchange Act requires the filing of annual reports on Form 20-F and current reports on Form 6-K with respect to a public company’s business and financial condition. The Sarbanes-Oxley Act requires, among other things, that a public company establish and maintain effective internal control over financial reporting. As a result, we will incur significant legal, accounting and other expenses that we did not previously incur. Our management team and many of our other employees and independent contractors will need to devote substantial time to compliance and may not effectively or efficiently manage its transition into a public company. See “—Our management team has limited experience managing a public company.

As a result of these rules and regulations, we will incur substantial legal and financial compliance costs and some activities will become more time-consuming and costly. For example, these rules and regulations will likely 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 incur substantially higher costs to obtain the same or similar coverage. As a result, it may be difficult for us to attract and retain qualified people to serve on our board of directors, our board committees or as executive officers.

In addition to the above, we expect that compliance with these requirements will increase our legal and financial compliance costs. We have made, and will continue to make, changes to our financial management control systems and other areas to manage our obligations as a public company, including corporate governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. Implementation of such changes is costly, time-consuming and, even if implemented, may not be sufficient to allow us to satisfy our obligations as a public company on a timely basis. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could negatively affect the trading price of our securities.

As a “foreign private issuer” under applicable securities laws and regulations, we are permitted to, and may, file less or different information with the SEC than a listed public company incorporated in the United States, and will follow certain home country governance practices in lieu of certain Nasdaq requirements applicable to U.S. issuers.

We are, and will after the consummation of the Merger be, considered a “foreign private issuer” under the Exchange Act and are therefore exempt from certain rules under the Exchange Act. Moreover, we are not required to file certain periodic reports at all, and we are not required to file other periodic reports and financial statements with the SEC as frequently or within the same time frames as U.S. issuers with securities registered

 

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under the Exchange Act. We are not required to comply with Regulation FD, which imposes restrictions on the selective disclosure of material information to shareholders. In addition, our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our securities. Accordingly, after the business combination, if you continue to hold our securities, you may receive less or different information about us than you currently receive or that you would receive about a U.S. issuer.

In addition, as a “foreign private issuer” with ordinary shares to be listed on Nasdaq, we are permitted to follow certain home country corporate governance practices in lieu of certain Nasdaq requirements. A “foreign private issuer” must disclose in its annual reports filed with the SEC each Nasdaq requirement with which it does not comply, followed by a description of its applicable home country practice. We currently intend to follow the corporate governance requirements of Nasdaq. However, we cannot make any assurances that we will continue to follow such corporate governance requirements in the future, and may therefore in the future, rely on available Nasdaq exemptions that would allow us to follow our home country practice. Unlike the requirements of Nasdaq, there are currently no mandatory corporate governance requirements in Israel that would require us to (i) have a majority of our board of directors be independent, (ii) establish a nominating/governance committee, or (iii) hold regular executive sessions where only independent directors may be present. Such Israeli home country practices may afford less protection to holders of Pagaya Ordinary Shares.

We could lose our status as a “foreign private issuer” under applicable securities laws and regulations if more than 50% of our outstanding voting securities become directly or indirectly held of record by U.S. Holders and any one of the following is true: (i) the majority of our directors or executive officers are U.S. citizens or residents; (ii) more than 50% of our assets are located in the United States; or (iii) our business is administered principally in the United States. If we lose our status as a “foreign private issuer” in the future, we will no longer be exempt from the rules described above and, among other things, will be required to file with the SEC periodic reports and annual and quarterly financial statements as if we were a company incorporated in the United States. If this were to happen, we would likely incur substantial costs in fulfilling these additional regulatory requirements, and members of our management would likely have to divert time and resources from other responsibilities to ensuring these additional regulatory requirements are fulfilled.

We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, Pagaya Ordinary Shares may be less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other 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. We cannot predict if investors will find Pagaya Class A Ordinary Shares less attractive because we will rely on these exemptions, including delaying adoption of new or revised accounting standards until such time as those standards apply to us and reduced disclosure obligations regarding executive compensation. If some investors find Pagaya Class A Ordinary Shares less attractive as a result, there may be a less active trading market and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of the EJFA IPO, (b) in which we have total annual gross revenues of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of Pagaya Ordinary Shares that are held by non-affiliates exceeds $700 million as of the last day of the second fiscal quarter of such fiscal year, and (2) the date on which it has issued more than $1.0 billion in non-convertible debt during the prior three-year period.

 

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The price of Pagaya Class A Ordinary Shares and Pagaya Warrants may be volatile.

Upon the Closing, the price of Pagaya Class A Ordinary Shares, as well as Pagaya Warrants, may fluctuate due to a variety of factors, including:

 

   

changes in the industries in which we and our Partners operate;

 

   

developments involving our competitors;

 

   

changes in laws and regulations affecting our business;

 

   

variations in our operating performance and the performance of our competitors in general;

 

   

actual or anticipated fluctuations in our quarterly or annual operating results;

 

   

publication of research reports by securities analysts about us or our competitors or our industry;

 

   

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

 

   

actions by shareholders, including the sale by investors in the PIPE Investment of any of their Pagaya Ordinary Shares;

 

   

additions and departures of key personnel;

 

   

commencement of, or involvement in, litigation by or against Pagaya;

 

   

changes in our capital structure, such as future issuances of equity securities or the incurrence of debt;

 

   

the volume of Pagaya Class A Ordinary Shares available for public sale; and

 

   

general economic and political conditions, such as interest rates, unemployment levels, conditions in the housing market, immigration policies, government shutdowns, trade wars and delays in tax refunds, as well as events such as natural disasters, acts of war, terrorism, catastrophes and pandemics.

These market and industry factors may materially reduce the market price of Pagaya Class A Ordinary Shares and Pagaya Warrants regardless of our operating performance.

We do not intend to pay cash dividends for the foreseeable future.

Following the Merger, we currently intend to retain our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends to shareholders in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in the Companies Law and in future agreements and financing instruments, business prospects and such other factors as our board of directors deems relevant. As a result, you may not receive any return on an investment in Pagaya Class A Ordinary Shares unless you sell Pagaya Class A Ordinary Shares for a price greater than that which you paid for them. See the section entitled “Price Range of Securities and Dividends.

If analysts do not publish research about our business or if they publish inaccurate or unfavorable research, our share price and trading volume could decline.

The trading market for Pagaya Class A Ordinary Shares will depend in part on the research and reports that analysts publish about our business. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade Pagaya Class A Ordinary Shares or publish inaccurate or unfavorable research about our business, the price of Pagaya Class A Ordinary Shares may decline. If few analysts cover us, demand for Pagaya Class A Ordinary Shares could decrease, and Pagaya Class A Ordinary Shares and trading volume may decline. Similar results may occur if one or more of these analysts stop covering us in the future or fail to publish reports on us regularly.

 

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The unaudited pro forma financial information included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” may not be representative of our results if the Merger is completed. Additionally, the projections and forecasts presented in this proxy statement/prospectus may not be an indication of the actual results of the transaction or Pagaya’s future results.

We and EJFA currently operate as separate companies and have had no prior history as a combined entity, and we and our operations have not previously been managed on a combined basis. The pro forma financial information included in this proxy statement/prospectus is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have actually occurred had the Merger been completed at or as of the dates indicated, nor is it indicative of our future operating results or financial position. The pro forma statement of operations does not reflect future nonrecurring charges resulting from the Merger. The unaudited pro forma financial information does not reflect future events that may occur after the Merger and does not consider potential impacts of future market conditions on revenues or expenses. The pro forma financial information included in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information” has been derived from EJFA’s and our historical financial statements and certain adjustments and assumptions have been made regarding us after giving effect to the Merger. There may be differences between preliminary estimates in the pro forma financial information and the final acquisition accounting, which could result in material differences from the pro forma information presented in this proxy statement/prospectus in respect of our estimated financial position and results of operations.

In addition, the assumptions used in preparing the pro forma financial information may not prove to be accurate and other factors may affect our financial condition or results of operations following the Closing. Any potential decline in our financial condition or results of operations may cause significant variations in our share price.

This proxy statement/prospectus contains projections and forecasts prepared by Pagaya. None of the projections and forecasts included in this proxy statement/prospectus have been prepared with a view toward public disclosure other than to certain parties involved in the Merger or toward complying with SEC guidelines or U.S. GAAP. The projections and forecasts were prepared based on numerous variables and assumptions which are inherently uncertain and may be beyond the control of Pagaya and EJFA. Important factors that may affect actual results and results of Pagaya’s operations following the Merger, or could lead to such projections and forecasts not being achieved include, but are not limited to: Partner and Asset Investor demand for Pagaya’s products, an evolving competitive landscape, rapid technological change, margin shifts in the industry, regulation changes in a highly regulated environment, successful management and retention of key personnel, unexpected expenses and general economic conditions. As such, these projections and forecasts may be inaccurate and should not be relied upon as an indicator of actual past or future results.

Risks Related to Tax

If the Merger does not qualify as a reorganization under section 368(a) of the Code, then the Merger will generally be taxable to U.S. Holders.

There are significant factual and legal uncertainties as to whether the Merger will qualify as a tax-free reorganization within the meaning of section 368(a) of the Code. Under section 368(a) of the Code and Treasury Regulations promulgated thereunder, an acquiring corporation must either continue, directly or indirectly through certain controlled corporations, a significant line of the acquired corporation’s historic business or use a significant portion of the acquired corporation’s historic business assets in a business. There is an absence of guidance as to how the foregoing requirement applies in the case of an acquisition of a corporation with investment-type assets, such as EJFA. The Closing is not conditioned upon the receipt of an opinion of counsel that the Merger will qualify as a tax-free reorganization within the meaning of section 368(a) of the Code, and neither us nor EJFA intends to request a ruling from the Internal Revenue Service (the “IRS”) regarding the U.S. federal income tax treatment of the Merger. Accordingly, no assurance can be given that the IRS will not challenge a tax-free treatment of the Merger or that such a challenge will not be sustained a court.

 

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If, at the effective time, any requirement of section 368(a) of the Code is not met, then a U.S. Holder (as defined in the section of this proxy statement/prospectus titled “Certain Material U.S. Tax Considerations—U.S. federal income tax considerations”) will generally recognize gain or loss in an amount equal to the difference between the fair market value (as of the closing date of the Merger) of Pagaya Ordinary Shares and Pagaya Warrants received in the Merger, over such holder’s aggregate adjusted tax basis in the corresponding EJFA Ordinary Shares and EJFA Public Warrants surrendered by such holder in the Merger.

The tax consequences of the Merger are complex and will depend on the particular circumstances of EJFA Shareholders. For a more detailed discussion of the U.S. federal income tax considerations of the Merger for U.S. Holders, see the section of this proxy statement/prospectus titled “Certain Material U.S. Tax Considerations—Effects of the Merger.” U.S. Holders whose EJFA Ordinary Shares or EJFA Public Warrants are being exchanged in the Merger should consult their tax advisors to determine the tax consequences thereof.

The Merger and the other Transactions are or could constitute taxable events in Israel.

The Merger is a taxable event in Israel. The EJFA Shareholders and EJFA Warrantholders that are not Israeli residents should, generally, be exempt from Israel tax while those that are Israeli residents should be taxed on real capital gains resulting from the exchange of their shares. We, Merger Sub, our respective affiliates and any other person making a payment under the Merger Agreement will be required to deduct and withhold from the Merger Consideration any amount required to be deducted and withheld with respect to the making of such payment under applicable legal requirements. According to the Merger Agreement, there will be no withholding with respect to any EJFA Shareholder that owns less than 5% of EJFA Ordinary Shares and is not an Israeli tax resident, provided that such EJFA Shareholder completes an appropriate declaration of tax residence. We have applied for a tax ruling from the ITA exempting us, Merger Sub and our respective agents from any obligation to withhold Israeli tax from the Merger Consideration payable or otherwise deliverable to EJFA Shareholders and EJFA Warrantholders that are non-residents of Israel, and deferring the taxable event to the time of the sale of the shares or warrants. If such ruling is not obtained, any EJFA Shareholder, whether or not an Israeli tax resident, that owns at least 5% of EJFA Ordinary Shares will be subject to tax withholding in Israel, unless an exemption certificate from the ITA is provided by such shareholder.

Furthermore, each of the Preferred Share Conversion, Reclassification and Stock Split may be treated as a taxable event for our shareholders subject to capital gains tax in Israel. However, shareholders who are not residents of Israel should generally be exempt from Israeli tax on the sale of our shares subject to the receipt of a withholding exemption certificate from the ITA. Moreover, we have applied for a tax ruling from the ITA, approving that the Preferred Share Conversion, Reclassification and Stock Split will not be classified as a sale of the shares and will not trigger a taxable event. In the event that such tax ruling is not obtained, the Preferred Share Conversion, Reclassification and Stock Split may cause adverse tax consequences to the Pagaya Shareholders, as well as to the holders of Pagaya Warrants and equity awards, and expose Pagaya to potential claims by such parties. This exposure may include claims by holders or Pagaya’s equity awards for loss of the significant tax benefit (generally, an increase of 22% to the tax rate applicable to the gain from the awards) that they would have otherwise enjoyed under Israeli law upon exercise and sale of their equity awards if the Capital Restructuring had not taken place, or if the tax ruling had been obtained.

No assurance can be given that the tax rulings will be obtained or that the ITA will not treat the Merger, Preferred Share Conversion, Reclassification and Stock Split as taxable events. The tax consequences of the Merger are complex and will depend on each shareholder’s particular circumstances. For a more detailed discussion, see the section of this proxy statement/prospectus entitled “Certain Material Israeli Tax Considerations.

 

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There can be no assurances that we will not be a passive foreign investment company for any taxable year, which could subject U.S. Holders to significant adverse U.S. federal income tax consequences.

If we are or become a PFIC within the meaning of section 1297 of the Code for any taxable year during which a U.S. Holder holds Pagaya Ordinary Shares or Pagaya Warrants, certain adverse U.S. federal income tax consequences may apply to such U.S. Holder. A non-U.S. corporation will generally be treated as a “passive foreign investment company,” or a PFIC, for U.S. federal income tax purposes, in any taxable year if either (1) at least 75% of its gross income for such year is passive income (such as interest, dividends, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of assets giving rise to passive income) or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce or are held for the production of passive income.

We do not believe that we were a PFIC for our prior taxable year and do not expect to be a PFIC for U.S. federal income tax purposes for the current taxable year. However, PFIC status depends on the composition of a company’s income and assets and the fair market value of its assets (including goodwill) from time to time, as well as on the application of complex statutory and regulatory rules that are subject to potentially varying or changing interpretations. Accordingly, there can be no assurance that we will not be treated as a PFIC for any taxable year.

If we were to be treated as a PFIC, a U.S. Holder of Pagaya Ordinary Shares or Pagaya Warrants may be subject to adverse U.S. federal income tax consequences, such as taxation at the highest marginal ordinary income tax rates on capital gains and on certain actual or deemed distributions, interest charges on certain taxes treated as deferred and additional reporting requirements. See “Certain Material U.S. Tax Consideration—Ownership and disposition of Pagaya securities—Passive foreign investment company considerations.

If we become a controlled foreign corporation for U.S. federal income tax purposes, there could be adverse U.S. federal income tax consequences to certain U.S. shareholders.

If a U.S. person is treated as owning (directly, indirectly, or constructively) at least 10 percent of the value or voting power of Pagaya Ordinary Shares, such person may be treated as a “U.S. shareholder” with respect to each of us and any of our direct and indirect foreign affiliates that is a “controlled foreign corporation” (“CFC”) for U.S. federal income tax purposes. If we have a U.S. subsidiary, certain of our non-U.S. subsidiaries could be treated as CFCs (regardless of whether or not we are treated as a CFC). A U.S. shareholder of a CFC may be required to report annually and include in its U.S. taxable income its pro rata share of “subpart F income,” “global intangible low-taxed income,” and investments in U.S. property by CFCs, regardless of whether we make any distributions. Individual U.S. shareholders of a CFC are generally not allowed certain tax deductions or foreign tax credits that are allowed to corporate U.S. shareholders. Failure to comply with applicable reporting obligations may subject a U.S. shareholder to significant monetary penalties and may prevent the statute of limitations with respect to such shareholder’s U.S. federal income tax return for the year for which reporting was due from starting. We cannot provide any assurance that we will assist investors in determining whether we or any of our non-U.S. subsidiaries is treated as a CFC or whether any investor is treated as a U.S. shareholder with respect to any such CFC or furnish to any U.S. shareholders information that may be necessary to comply with the aforementioned reporting and tax paying obligations. Each U.S. investor should consult its advisors regarding the potential application of these rules to an investment in Pagaya Ordinary Shares.

We and the Financing Vehicles are subject to tax laws, tariffs and potential tax audits in multiple jurisdictions that could affect our financial results.

We and the Financing Vehicles are subject to tax laws, tariffs and potential tax audits in multiple jurisdictions. The application and interpretation of these laws in different jurisdictions affect our international operations in complex ways and are subject to change, and some changes may be retroactively applied. Our tax liabilities in

 

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the different countries where we operate depend, in part, on transfer pricing and administrative charges among us and our subsidiaries. These arrangements require us to make judgments with which tax authorities may disagree, potentially resulting in the assessment of material additional taxes, penalties, interest or other charges to resolve these issues.

The combination of the above factors may lead to an increased likelihood of tax audits with respect, among other things, to: (i) tax residence, (ii) trade or business activities and/or permanent establishment status in various jurisdictions, (iii) transfer pricing, (iv) CFC legislation, (v) taxation of dividends and capital gains derived upon interests held in companies located in low-tax jurisdictions, (vi) withholding tax application on cross-border payments, and (vii) anti-hybrid mismatches. In any such case, depending on the specific circumstances, tax audits and/or tax litigations with the tax authorities could result in tax liabilities and fines and penalties of significant amounts, which could be in excess of the amounts we provide for in our financial statements for tax liabilities.

Transactions, including those with Financing Vehicles, that we have structured in light of current tax rules could have material and adverse consequences for us if tax rules change or if tax authorities apply or interpret the rules differently than we do. Changes in tax laws, their application and interpretation or imposition of any new or increased tariffs, duties and taxes could increase our tax burden and materially and adversely affect our sales, profits and financial condition and could have an adverse effect on our business, net assets, or results of operations. Such factors could also cause us to expend significant time and resources and/or cause investors to lose confidence in our reported financial information.

Risks Related to EJFA

There is no guarantee that a shareholder’s decision whether to redeem its shares for a pro rata portion of the Trust Account will put the shareholder in a better future economic position.

We can give no assurance as to the price at which a shareholder may be able to sell its Pagaya Class A Ordinary Shares in the future following the completion of the Merger or any alternative business combination. Certain events following the consummation of any initial business combination, including the Merger, may cause an increase in the share price, and may result in a lower value realized now than an EJFA Shareholder might realize in the future had the shareholder not redeemed its shares. Similarly, if a shareholder does not redeem its shares, the shareholder will bear the risk of ownership of the Pagaya Class A Ordinary Shares after the consummation of the Merger, and there can be no assurance that a shareholder can sell its shares in the future for a greater amount than the redemption price. A shareholder should consult the shareholder’s own financial advisor for assistance on how this may affect his, her or its individual situation.

EJFA has identified a material weakness in its internal control over financial reporting. This material weakness could continue to adversely affect its ability to report its results of operations and financial condition accurately and in a timely manner.

After consultation with its independent registered public accounting firm, EJFA’s management and audit committee concluded that it was appropriate to restate its previously issued financial statements as of March 1, 2021, March 31, 2021 and June 30, 2021 because of a misapplication in the guidance around complex accounting for financial instruments, and that such previously-issued financial statements should no longer be relied upon.

EJFA’s management is responsible for establishing and maintaining adequate internal controls over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. EJFA’s management is likewise required, on a quarterly basis, to evaluate the effectiveness of its internal controls and to disclose any changes and material weaknesses identified through such evaluation of those internal controls. 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 its annual or interim financial statements will not be prevented or detected and corrected on a timely basis.

 

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EJFA has identified a material weakness in its internal control over financial reporting related to the accounting for complex financial instruments. Specifically, this weakness is related to the EJFA Warrants and redeemable equity instruments EJFA issued in connection with the EJFA IPO in March 2021. As a result of this material weakness, EJFA’s management has concluded that its internal controls over financial reporting were not effective as of September 30, 2021. This material weakness resulted in a material misstatement of its derivative warrant liabilities, EJFA Class A Ordinary Shares subject to possible redemption, additional paid-in capital, accumulated deficit and related financial disclosures as of March 1, 2021, March 31, 2021 and June 30, 2021.

EJFA has taken a number of measures to remediate the material weakness; however, if EJFA is unable to remediate its material weakness in a timely manner or EJFA identifies additional material weaknesses, EJFA may be unable to provide required financial information in a timely or reliable manner and EJFA may incorrectly report financial information. Since following Closing, EJFA’s financial statements will be consolidated with Pagaya’s financial statements, any misstatement in EJFA’s reporting of its financial condition or results of operations may impact Pagaya’s financial statements as well. Likewise, if EJFA’s financial statements are not filed on a timely basis, EJFA could be subject to sanctions or investigations by the Nasdaq, where the EJFA Ordinary Shares are listed, the SEC or other regulatory authorities. In such a case, there could result a material adverse effect on its business results of operations and financial condition and its ability to complete a business combination. The existence of material weaknesses or significant deficiencies in internal control over financial reporting could adversely affect EJFA’s reputation or investor perceptions of EJFA, which could have a negative effect on the trading price of its shares. In addition, EJFA may incur additional costs to remediate the material weakness in its internal control over financial reporting.

EJFA can give no assurance that the measures EJFA has taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls or otherwise.

EJFA may face litigation and other risks as a result of the material weakness in its internal control over financial reporting.

After consultation with its independent registered public accounting firm, EJFA’s management and audit committee concluded that its previously issued financial statements as of March 1, 2021, March 31, 2021 and June 30, 2021 should be restated because of a misapplication in the guidance around complex accounting for financial instruments and should no longer be relied upon. As part of the restatement, EJFA identified a material weakness in its internal controls over financial reporting.

As a result of such material weakness, the restatement, the change in accounting for the warrants, and other matters raised or that may in the future be raised by the SEC, other regulators or other parties, EJFA may face potential litigation or other disputes, which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from, among others, the restatement and material weakness in its internal control over financial reporting and the preparation of its financial statements. As of November 24, 2021, EJFA has no knowledge of any such litigation or dispute. However, EJFA can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on its business, results of operations and financial condition or its ability to complete a business combination.

 

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If, after EJFA distributes the funds in the Trust Account to EJFA Public Shareholders, EJFA files a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against EJFA that is not dismissed, a bankruptcy or insolvency court may seek to recover such proceeds, and the EJFA Board may be viewed as having breached its fiduciary duties to EJFA’s creditors, thereby exposing the members of the EJFA Board and EJFA to claims of punitive damages.

If, after EJFA distributes the funds in the Trust Account to EJFA Public Shareholders, EJFA files a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against EJFA that is not dismissed, any distributions received by shareholders could be viewed under applicable debtor/creditor and/or bankruptcy or insolvency laws as either a “voidable preference” or subject to challenge under the relevant “fraudulent trading” provisions. As a result, a bankruptcy or insolvency court could seek to recover some or all amounts received by the EJFA Shareholders. In addition, in the event that such payments are made at the time when EJFA is insolvent, the EJFA Board may be viewed as having breached its fiduciary duty to its creditors and/or having acted in bad faith, thereby exposing itself and EJFA to claims of damages, by paying EJFA Public Shareholders from the Trust Account prior to satisfying the claims of creditors.

If, before distributing the funds in the Trust Account to EJFA Public Shareholders, EJFA files a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against EJFA that is not dismissed, the claims of creditors in such proceeding will have priority over the claims of the EJFA Shareholders, and the per-share amount that would otherwise be received by the EJFA Shareholders in connection with EJFA’s liquidation may be reduced.

If, before distributing the funds in the Trust Account to EJFA Public Shareholders, EJFA files a bankruptcy or winding-up petition or an involuntary bankruptcy or winding-up petition is filed against EJFA that is not dismissed, the funds held in the Trust Account could be subject to applicable bankruptcy or insolvency law, and may be included in EJFA’s bankruptcy estate and subject to the claims of third parties with priority over the claims of the EJFA Shareholders. To the extent any bankruptcy claims deplete the Trust Account, the per-share amount that would otherwise be received by the EJFA Shareholders in connection with EJFA’s liquidation may be reduced.

If third parties bring claims against EJFA, the funds held in the Trust Account could be reduced and the per-share redemption amount received by EJFA Shareholders may be less than $10.00 per share.

EJFA’s placing of funds in the Trust Account may not protect those funds from third party claims against EJFA. Although EJFA will seek to have all third parties, vendors, service providers (other than EJFA’s public accounting firm) and other entities with which EJFA does business execute agreements with EJFA waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of the EJFA Public Shareholders (and EJFA has obtained such waiver from Pagaya as part of the Merger Agreement), such parties may not execute such agreements, or even if they execute such agreements they may not be prevented from bringing claims against the Trust Account, including, but not limited to, fraudulent inducement, breach of fiduciary responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order to gain advantage with respect to a claim against EJFA’s assets, including the funds held in the Trust Account. If any third party refuses to execute an agreement waiving such claims to the monies held in the Trust Account, EJFA’s management will consider whether competitive alternatives are reasonably available to EJFA and will only enter into an agreement with such third party if management believes that such third party’s engagement would be in the best interests of EJFA under the circumstances. Marcum LLP, EJFA’s independent registered public accounting firm, and the underwriters of the EJFA IPO, except with respect to the deferred underwriting commission in the case of liquidation, will not execute agreements with EJFA waiving such claims to the monies held in the Trust Account.

Examples of possible instances where EJFA may engage a third party that refuses to execute a waiver include the engagement of a third party consultant whose particular expertise or skills are believed by management to be

 

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significantly superior to those of other consultants that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver. In addition, there is no guarantee that such entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations, contracts or agreements with EJFA and will not seek recourse against the Trust Account for any reason. Upon redemption of the EJFA Public Shares, if EJFA has not completed its initial business combination within the prescribed timeframe, or upon the exercise of a redemption right in connection with its initial business combination, EJFA will be required to provide for payment of claims of creditors that were not waived that may be brought against EJFA within the 10 years following redemption. Accordingly, the per-share redemption amount received by EJFA Public Shareholders could be less than the $10.00 per public share initially held in the Trust Account, due to claims of such creditors. The Sponsor has agreed that it will be liable to EJFA if and to the extent any claims by a third party (other than Marcum LLP, EJFA’s independent registered public accounting firm) for services rendered or products sold to EJFA, or a prospective target business with which EJFA have entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, in each case less taxes payable; provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under EJFA’s indemnity of the underwriters of the EJFA IPO against certain liabilities, including liabilities under the Securities Act. However, EJFA has not asked the Sponsor to reserve for such indemnification obligations, nor has EJFA independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and EJFA believes that the Sponsor’s only assets are securities of EJFA. Therefore, EJFA cannot provide assurance that the Sponsor would be able to satisfy those obligations. As a result, if any such claims were successfully made against the Trust Account, the funds available for the Merger and redemptions could be reduced to less than $10.00 per EJFA Public Share. In such event, EJFA may not be able to complete the Merger, and EJFA Public Shareholders would receive such lesser amount per EJFA Public Share in connection with any redemption of the EJFA Public Shares. None of EJFA’s officers or directors will indemnify EJFA for claims by third parties including, without limitation, claims by third parties, vendors and prospective target businesses.

The EJFA Warrants may have an adverse effect on the market price of the EJFA Class A Ordinary Shares.

EJFA issued warrants to purchase 8,333,333 EJFA Class A Ordinary Shares as part of the units offered in the EJFA IPO and, simultaneously with the closing of the EJFA IPO, EJFA issued in a private placement an aggregate 4,666,667 EJFA Private Placement Warrants, each exercisable to purchase one EJFA Class A Ordinary Share at $11.50 per share.

Subsequently, EJFA issued and sold an additional 3,750,000 units pursuant to the underwriter’s over-allotment option at a price of $10.00 per EJFA Unit and sold an additional 500,000 EJFA Private Placement Warrants. The warrants will entitle the holders to purchase EJFA Class A Ordinary Shares. Such warrants, when exercised, will increase the number of issued and outstanding EJFA Class A Ordinary Shares and reduce the value of the EJFA Class A Ordinary Shares. Therefore, the EJFA Warrants may increase the cost of the Merger.

If EJFA Public Shareholders or a “group” of EJFA Public Shareholders are deemed to hold in excess of 15% of EJFA Class A Ordinary Shares, such EJFA Public Shareholders will lose the ability to redeem all such EJFA Class A Ordinary Shares in excess of 15% of EJFA Class A Ordinary Shares.

The EJFA Memorandum and Articles of Association provide that an EJFA Public Shareholder, together with any affiliate of such EJFA Public Shareholder or any other person with whom such EJFA Public Shareholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its EJFA Class A Ordinary Shares with respect to more than an aggregate of 15% of the EJFA Class A Ordinary Shares (the “Excess Shares”) without EJFA’s prior consent. However, this limitation on redeeming

 

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Excess Shares would not restrict the EJFA Public Shareholders’ ability to vote all of their shares (including Excess Shares) for or against the Transactions. An EJFA Public Shareholder’s inability to redeem the Excess Shares will reduce its influence over EJFA’s ability to complete the Transactions and such EJFA Public Shareholder could suffer a material loss on its investment in EJFA if it sells Excess Shares in open market transactions. Additionally, EJFA Public Shareholder’s will not receive redemption distributions with respect to the Excess Shares if EJFA completes the Transactions. As a result, such EJFA Public Shareholder will continue to hold that number of EJFA Class A Ordinary Shares exceeding 15% and, in order to dispose of such EJFA Class A Ordinary Shares, would be required to sell such EJFA Class A Ordinary Shares (or the Pagaya Class A Ordinary Shares issued in exchange of such shares upon completion of the Transactions) in open market transactions, potentially at a loss.

EJFA Public Shareholders will not have any rights or interests in funds from the Trust Account, except under certain limited circumstances. Therefore, to liquidate its investment, an EJFA Public Shareholder may be forced to sell its EJFA Class A Ordinary Shares potentially at a loss.

EJFA Public Shareholders will be entitled to receive funds from the Trust Account only upon the earliest to occur of: (i) EJFA’s completion of an initial business combination, and then only in connection with EJFA Class A Ordinary Shares that such shareholder properly elected to redeem, subject to the limitations and on the conditions described herein; (ii) the redemption of any EJFA Class A Ordinary Shares properly tendered in connection with a shareholder vote to amend the EJFA Memorandum and Articles of Association (A) to modify the substance or timing of EJFA’s obligation to allow redemption in connection with EJFA’s initial business combination or to redeem 100% of the EJFA Public Shares if EJFA does not complete EJFA’s initial business combination within 24 months of the EJFA IPO or (B) with respect to any other specified provisions relating to shareholders’ rights or pre-initial business combination activity; and (iii) the redemption of the EJFA Public Shares if EJFA has not completed an initial business combination within 24 months of the EJFA IPO (or such later date as may be approved by the EJFA Shareholders in an amendment to the EJFA Memorandum and Articles of Association). In no other circumstances will an EJFA Public Shareholder have any right or interest of any kind in the Trust Account. Holders of warrants will not have any right to the funds held in the Trust Account. Accordingly, to liquidate your investment, you may be forced to sell your public shares, potentially at a loss.

If EJFA is unable to complete the business combination with Pagaya or another business combination by March 1, 2023 (or such later date as EJFA Shareholders may approve), EJFA will cease all operations except for the purpose of liquidating, winding up and dissolving and EJFA will redeem its EJFA Class A Ordinary Shares and liquidate the Trust Account, in which case EJFA Shareholders may only receive approximately $10.00 per share and the EJFA Public Warrants and the EJFA Private Placement Warrants will expire worthless. In such event, third parties may also bring claims against EJFA and, as a result, the proceeds held in the Trust Account could be reduced and the per share liquidation price received by EJFA Shareholders could be less than $10.00 per share.

If EJFA is unable to complete the Merger or another business combination within the required time period, EJFA will (i) cease all operations except for the purpose of winding up and dissolution, (ii) as promptly as reasonably possible but not more than 10 Business Days thereafter, redeem 100% of the outstanding public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the funds held in the Trust Account and not previously released to EJFA to pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding EJFA Public Shares, which redemption will completely extinguish EJFA Public Shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of EJFA’s remaining shareholders and the EJFA Board, wind-up and subsequently dissolve, subject (in each case) to EJFA’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. In such case, EJFA Public Shareholders may only receive $10 per share. In certain circumstances, EJFA Public Shareholders may receive less than $10 per share on the redemption of their shares.

 

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Because EJFA is incorporated under the laws of the Cayman Islands, in the event the Merger is not completed, you may face difficulties in protecting your interests through the U.S. federal courts, and your ability to protect your rights through the U.S. federal courts may be limited.

Because EJFA is currently incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests through the U.S. federal courts and your ability to protect your rights through the U.S. federal courts may be limited. EJFA is currently an exempted company incorporated under the laws of the Cayman Islands. As a result, it may be difficult for investors to effect service of process within the United States upon EJFA’s directors or officers, or enforce judgments obtained in the U.S. courts against EJFA’s directors or officers. EJFA’s corporate affairs are governed by the EJFA Memorandum and Articles of Association, the Companies Act and the common law of the Cayman Islands. The rights of shareholders to take legal action against the directors, actions by minority shareholders and the fiduciary responsibilities of its directors to EJFA under the laws of the Cayman Islands are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of the EJFA Shareholders and the fiduciary responsibilities of its directors under Cayman Islands law are different from what they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a different body of securities laws as compared to the United States., and certain states, such as Delaware, may have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a U.S. federal court.

The courts of the Cayman Islands are unlikely (i) to recognize or enforce against EJFA judgments of courts of the United States predicated upon the civil liability provisions of the U.S. federal securities laws or any state; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against EJFA predicated upon the civil liability provisions of the U.S. federal securities laws or any state, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is no statutory enforcement in the Cayman Islands of judgments obtained in the United States, the courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive and for a liquidated sum, and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands (awards of punitive or multiple damages may well be held to be contrary to public policy). A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.

The EJFA Public Shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the EJFA Board or controlling shareholders than they would as public shareholders of a U.S. company.

Risks Related to the Merger

The completion of the Merger is subject to the satisfaction of certain closing conditions, including a minimum cash condition and the receipt of the requisite approval of the Pagaya Shareholders and EJFA Shareholders.

The Merger and the other Transactions are subject to a number of conditions, including the condition that EJFA have at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-5(g)(1) of the Exchange Act) either immediately prior to or upon consummation of the Transactions. The obligation of each party to effect the Merger and the other Transactions is also subject to the condition that there is no legal prohibition against consummation of the Transactions, that the Pagaya Ordinary Shares be approved for listing on Nasdaq subject only to official notice of issuance thereof, receipt of the requisite approval of EJFA’s and

 

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Pagaya’s respective shareholders, continued effectiveness of the registration statement of which this proxy statement/prospectus is a part, the waiting period or periods under the HSR Act applicable to the Transactions will have expired or been terminated (which waiting period expired on November 12, 2021), the truth and accuracy of the other party’s representations and warranties in the Merger Agreement, subject to certain materiality standards set forth therein and subject to exceptions set forth in the Pagaya Disclosure Letter (as defined below) and the EJFA Disclosure Letter (as defined below), the non-occurrence of any material adverse effect with respect to the other party from the date of the Merger Agreement, compliance by the other party in all material respects with all agreements, obligations and covenants required by the Merger Agreement and delivery to each party of a certificate executed by an authorized executive officer of the other party certifying as to certain of these conditions. The Merger is also subject to a condition in favor of Pagaya that the minimum cash condition is satisfied (which minimum cash condition is equal to the amount committed as part of the PIPE Investment). There are no assurances that all conditions to effecting the Merger and the other Transactions will be satisfied or that the conditions will be satisfied in the time frame expected.

If the conditions to effect the Merger and the other Transactions are not satisfied (or are not waived, to the extent waivable), either EJFA or Pagaya, as applicable, may, subject to the terms and conditions of the Merger Agreement, terminate the Merger Agreement under certain circumstances. See the section of this proxy statement/prospectus entitled “The Merger Agreement—Termination.”

The Merger may be completed even though material adverse effects may result from the announcement of the Transactions, industry-wide changes and other causes.

In general, either EJFA or Pagaya may refuse to complete the Merger if there is a material adverse effect affecting the other party that occurs after the execution of the Merger Agreement. However, certain types of changes do not permit either party to refuse to consummate the Transactions, even if such change could be said to have a material adverse effect on EJFA or Pagaya, including the following events (except, in certain cases, where the change has a disproportionate effect on a party as compared to its peers in the industry or market in which it operates):

 

   

acts of war, sabotage, hostilities, civil unrest, protests, demonstrations, insurrections, riots, cyberattacks or terrorism, or any escalation or worsening of the foregoing, or changes in national, regional, state or local political or social conditions in countries in which, or in the proximate geographic region of which, Pagaya or EJFA, as applicable, operates;

 

   

earthquakes, hurricanes, tornados, wildfires, or other natural disasters;

 

   

epidemics, pandemics, including the COVID-19 pandemic, or other public health emergencies;

 

   

changes directly attributable to the execution or performance of the Merger Agreement, the public announcement or pendency of the Transactions;

 

   

changes in applicable legal requirements, changes of official guidance or official positions of general applicability, or changes in enforcement policies or official interpretations thereof or decisions of general applicability by any governmental entity;

 

   

changes in U.S. GAAP, or any official interpretation of U.S. GAAP;

 

   

general economic, regulatory, business or tax conditions;

 

   

events, changes or conditions generally affecting participants in the industries and markets in which EJFA or Pagaya, as applicable, operates;

 

   

failure to meet any projections, forecasts, guidance, estimates or financial or operating predictions of revenue, earnings, cash flow or cash position; or

 

   

any actions required to be taken, or required not to be taken, pursuant to the terms of the Merger Agreement, taken with the prior written consent of the other party or taken by, or at the written request of, the other party.

 

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Furthermore, EJFA or Pagaya may waive the occurrence of a material adverse effect affecting the other party. If a material adverse effect occurs and the Merger is still consummated, the market trading price of the Pagaya Ordinary Shares and the Pagaya Warrants may suffer.

EJFA and Pagaya have and will continue to incur significant, non-recurring transition costs in connection with and following the Merger.

EJFA and Pagaya have both incurred and expect to incur significant, non-recurring costs in connection with consummating the Transactions and operating as a public company following the consummation of the Transactions. Pagaya may also incur additional costs to retain key employees and independent contractors. All expenses incurred in connection with the Transactions, including all legal, accounting, consulting, investment banking and other fees, expenses and costs, will be for the account of the party incurring such fees, expenses and costs or paid by the post-Closing combined company following the Closing, subject to a dollar for dollar adjustment in the Sponsor’s pro forma ownership of the post-Closing combined company for EJFA Transaction Costs in the amount of any Expenses Excess Amount (or an equivalent amount of cash of any Expenses Excess Amount), as set forth in the Side Letter Agreement, and any filing fees required by governmental entities required in connection with the execution and delivery of the Merger Agreement and the performance by the parties thereunder will be borne 50% by EJFA and 50% by Pagaya.

If the benefits of the Merger do not meet the expectations of investors or securities analysts, the market price of, prior to the Merger, EJFA’s securities or, following the Merger, Pagaya’s securities, may decline.

If the benefits of the Merger do not meet the expectations of investors or securities analysts, the market price of EJFA Class A Ordinary Shares prior to the consummation of the Merger may decline. The trading prices of the EJFA Class A Ordinary Shares at the time of the Merger may vary significantly from their trading prices on the date the Merger Agreement was executed, the date of this proxy statement/prospectus, or the date on which EJFA Shareholders vote to approve the Merger. Because the number of Pagaya Class A Ordinary Shares to be issued pursuant to the Merger Agreement will not be adjusted to reflect any changes in the market price of the EJFA Class A Ordinary Shares, the trading price of Pagaya Class A Ordinary Shares issued in the Merger may be higher or lower than the values of these shares on earlier dates.

In addition, following the Merger, fluctuations in the trading price of Pagaya Class A Ordinary Shares could contribute to the loss of all or part of your investment. Prior to the Merger, there has not been a public market for Pagaya Class A Ordinary Shares. Accordingly, the valuation ascribed to Pagaya in the Merger may not be indicative of the price that will prevail in the trading market following the Merger. If an active market for Pagaya’s securities develops and continues, the trading price of Pagaya Class A Ordinary Shares following the Merger could be volatile and subject to wide fluctuations in response to various factors, some of which are beyond Pagaya’s control. Any of the factors listed below could have a material adverse effect on your investment in Pagaya Class A Ordinary Shares and Pagaya Class A Ordinary Shares may trade at prices significantly below the price you paid for them. In such circumstances, the trading price of Pagaya Class A Ordinary Shares may not recover and may experience a further decline.

Factors affecting the trading price of Pagaya Class A Ordinary Shares may include:

 

   

actual or anticipated fluctuations in Pagaya’s quarterly and annual financial results or the quarterly or annual financial results of companies perceived to be similar to Pagaya;

 

   

changes in the market’s expectations about Pagaya’s operating results;

 

   

success of competitors;

 

   

Pagaya’s operating results failing to meet the expectation of securities analysts or investors in a particular period;

 

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changes in financial estimates and recommendations by securities analysts concerning Pagaya or the industries in which Pagaya operates in general;

 

   

operating and share price performance of other companies that investors deem comparable to Pagaya;

 

   

Pagaya’s ability to market new and enhanced products and services on a timely basis;

 

   

changes in laws and regulations affecting Pagaya’s business;

 

   

commencement of, or involvement in, litigation involving Pagaya;

 

   

changes in Pagaya’s capital structure, such as future issuances of securities or the incurrence of additional debt;

 

   

volume of Pagaya Ordinary Shares available for public sale;

 

   

any major change in the Pagaya Board or management;

 

   

sales of substantial amounts of Pagaya Class A Ordinary Shares by Pagaya’s directors, executive officers or significant shareholders or the perception that such sales could occur;

 

   

general economic and political conditions such as recessions, interest rates, international currency fluctuations and acts of war or terrorism; and

 

   

occurrence of natural disasters, pandemics or other unanticipated catastrophes.

Broad market and industry factors may materially harm the trading price of Pagaya Class A Ordinary Shares irrespective of Pagaya’s operating performance. The stock market in general has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of Pagaya Class A Ordinary Shares, may not be predictable. A loss of investor confidence in the market for the equity of other companies that investors perceive to be similar to Pagaya could depress its share price regardless of its business, prospects, financial conditions, or results of operations. A decline in the trading price of Pagaya Class A Ordinary Shares also could adversely affect Pagaya’s ability to issue additional securities and its ability to obtain additional financing in the future.

Subsequent to the completion of the Merger, Pagaya may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on Pagaya’s financial condition and Pagaya’s share price, which could cause you to lose some or all of your investment.

Although EJFA has conducted due diligence on Pagaya, there can be no assurance that the due diligence EJFA has conducted on Pagaya revealed all material issues that may be present with regard to Pagaya’s business, that it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of EJFA’s or Pagaya’s control will not later arise, and the Merger Agreement does not provide for indemnification after the Closing, whether in respect of liability relating to the period before the Closing or arising after the Closing. As a result of unidentified issues or factors outside of EJFA’s or Pagaya’s control, Pagaya may be forced to later write-down or write-off assets, restructure operations, or incur impairment or other charges that could result in reporting losses. Even if the due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner inconsistent with the preliminary risk analysis conducted by EJFA. Even though these charges may be non-cash items that would not have an immediate impact on Pagaya’s liquidity, the fact that Pagaya reports charges of this nature could contribute to negative market perceptions about Pagaya or Pagaya’s securities. In addition, charges of this nature may cause Pagaya to violate certain covenants to which Pagaya may be subject. Accordingly, any EJFA Shareholders who remain shareholders following the Merger could suffer a reduction in the value of their Pagaya Ordinary Shares from any such write-down or write-downs. Such EJFA Shareholders are unlikely to have a remedy for such reduction in value.

 

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Pagaya’s directors and officers and EJFA’s directors and officers could still be subject to potential liability from claims arising from conduct alleged to have occurred prior to effectiveness of the Merger. As a result, in order to protect EJFA’s directors and officers, the post-Merger entity is required to purchase additional insurance with respect to any such claims.

Delays in completing the Merger may substantially reduce the expected benefits of the Merger.

Satisfying the conditions to, and completion of, the Merger may take longer than, and could cost more than, EJFA and Pagaya expect. Any delay in completing or any additional conditions imposed in order to complete the Merger may materially adversely affect the benefits that EJFA and Pagaya expect to achieve from the Merger.

The Pagaya securities to be received by EJFA’s securityholders as a result of the Merger will have different rights from EJFA securities.

Following completion of the Merger, EJFA’s securityholders will no longer be securityholders of EJFA but will instead be securityholders of Pagaya. There will be important differences between your current rights as an EJFA securityholder and your rights as a Pagaya Shareholder. See “Comparison of Rights of Pagaya Shareholders and EJFA Shareholders for a discussion of the different rights associated with the Pagaya securities.

EJFA may be a target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the business combination from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into business combinations or merger agreements or similar agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on EJFA’s liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Merger or any other part of the Transactions, then that injunction may delay or prevent the Transactions from being completed. Currently, EJFA is not aware of any securities class action lawsuits or derivative lawsuits that have been filed in connection with the Merger or any other part of the Transactions.

The Sponsor and certain other EJFA Shareholders have agreed to vote in favor of the Merger, regardless of how the EJFA Public Shareholders vote.

The Sponsor and all other holders of EJFA Class B Ordinary Shares have agreed to vote all their EJFA Class B Ordinary Shares in favor of all of the EJFA Shareholder Proposals, including the Business Combination Proposal and the Merger Proposal. Pursuant to the terms of the EJFA Voting Agreement, the Sponsor and all other holders of EJFA Class B Ordinary Shares have agreed to vote all of their respective EJFA Class B Ordinary Shares (i) in favor of (A) (the EJFA Shareholder Matters, and (B) any other matter reasonably necessary for the consummation of the Transactions and considered and voted upon by the EJFA Shareholders; and (ii) against any (A) proposal or offer from any person (other than from Pagaya or any of its affiliates) concerning (1) a merger, consolidation, liquidation, recapitalization, share exchange or other business combination transaction involving EJFA, (2) the issuance or acquisition of shares or other equity securities of EJFA, or (3) the sale, lease, exchange or other disposition of any significant portion of EJFA’s properties or assets; (B) action, proposal, transaction or agreement that could reasonably be expected to result in a breach of any covenant or obligation of EJFA set forth in the Merger Agreement or any other Transaction Agreement, or that could reasonably be expected to result in any representation or warranty of EJFA set forth in the Merger Agreement or any other Transaction Agreement becoming inaccurate; and (C) action, proposal, transaction or agreement that could reasonably be expected to impede, interfere with, delay, discourage, adversely affect or inhibit the timely consummation of the Transactions or the fulfillment of EJFA’s conditions under the Merger Agreement or any other Transaction Agreement or change in any manner the voting rights of any class of shares of EJFA (including any amendments to EJFA’s governing documents). As of the date of this proxy statement/prospectus, the Sponsor and other holders of EJFA

 

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Class B Ordinary Shares collectively own approximately 20% of the issued and outstanding EJFA Ordinary Shares. Accordingly, the agreement of the Sponsor and other holders of EJFA Class B Ordinary Shares increases the likelihood that EJFA will receive the requisite shareholder approval for the EJFA Shareholder Matters (the “EJFA Shareholder Approval”).

EJFA may be forced to close the Merger even if the EJFA Board determines it is no longer in the best interest of EJFA.

The EJFA Shareholders are protected from a material adverse effect on Pagaya arising between the date of the Merger Agreement and the Closing primarily by (i) the right to redeem their EJFA Public Shares for a pro rata portion of the funds held in the Trust Account, calculated as of two Business Days prior to the consummation of the Transactions, and (ii) the closing condition in the Merger Agreement that there be no material adverse effect on Pagaya. However, if an event occurs and the EJFA Board determines it is no longer in the best interest of EJFA to close the Merger but the event does not constitute a material adverse effect under the Merger Agreement, then EJFA may be forced to close the Merger even if the EJFA Board determines it is no longer in EJFA’s best interest to do so (as a result of such event) which could have a significant negative impact on EJFA’s business, financial condition or results of operations.

Additionally, if requested by Pagaya, EJFA is obligated to postpone or adjourn (in the case of an adjournment, with the approval of the Special Meeting) the Special Meeting (up to three times in total) in order to seek withdrawals of redemption requests from EJFA Shareholders if EJFA or Pagaya reasonably expects that the minimum cash condition would not be satisfied at the Closing or in order to solicit additional proxies from the EJFA Shareholders for purposes of obtaining approval of the EJFA Shareholder Matters. EJFA is also restricted from seeking, soliciting, negotiating or consummating any alternative business combination while the Merger Agreement is still in effect.

Some of EJFA’s officers and directors may have conflicts of interest that may influence or have influenced them to support or approve the Merger without regard to the interests of EJFA Public Shareholders or in determining whether Pagaya is appropriate for EJFA’s initial business combination.

The personal and financial interests of the Sponsor, officers and directors may influence or have influenced their motivation in identifying and selecting a target for the Merger, their support for completing the Merger and Pagaya’s operation following the Merger.

The Sponsor and certain of EJFA’s directors and advisors and their permitted transferees own 7,187,500 EJFA Class B Ordinary Shares in the aggregate, which were initially acquired by the Sponsor prior to the EJFA IPO for an aggregate purchase price of $25,000, or approximately $0.003 per share. Additionally, certain of EJFA’s directors and officers have pecuniary interests in the EJFA Class B Ordinary Shares held by the Sponsor through their ownership interest in the Sponsor. Such EJFA Class B Ordinary Shares had an aggregate market value of approximately $71,515,625, based on the last sale price of $9.95 per share on Nasdaq on November 22, 2021, In addition, the Sponsor purchased an aggregate of 5,166,667 EJFA Private Placement Warrants simultaneously with the EJFA IPO, each such EJFA Private Placement Warrant exercisable for one ordinary share of EJFA at $11.50 per share, for a purchase price of $7,750,000.50, or $1.50 per warrant. The EJFA Memorandum and Articles of Association require EJFA to complete an initial business combination (which will be the Merger should it occur) within 24 months from the closing of the EJFA IPO, or March 1, 2023 (the “Combination Period”) (unless EJFA submits for approval, and its shareholders approve, an extension of such date). If the Merger is not completed and EJFA is forced to wind up, dissolve and liquidate in accordance with the EJFA Memorandum and Articles of Association, the 7,187,500 EJFA Class B Ordinary Shares currently held by the Sponsor (and certain of EJFA’s directors and advisors and their permitted transferees) and the EJFA Private Placement Warrants held by the Sponsor would be worthless (as the holders have waived liquidation rights with respect to such EJFA Class B Ordinary Shares). The Sponsor and EJFA’s other directors and officers may therefore opt to engage in a business combination prior to the expiry of the Combination Period to avoid such consequence, even if such business combination may not be in the best interest of the other EJFA Shareholders.

 

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Pre-existing relationships between participants (or their affiliates) in the Merger, the other Transactions and the PIPE Investment could give rise to actual or perceived conflicts of interest in connection with the Merger.

Certain of the participants in the Merger, the other Transactions and the PIPE Investment or their affiliates have pre-existing relationships that could give rise to conflicts of interest in connection with the Merger and the Transactions. For example: the anticipated appointment of Emanuel Friedman, the Chairman of the EJFA Board, as a member of the Pagaya Board; the continued indemnification of former and current directors and officers of EJFA and the continuation of directors’ and officers’ liability insurance after the Closing; the fact that the Sponsor and certain directors and advisors of EJFA and their permitted transferees have waived their right to redeem any of their EJFA Ordinary Shares in connection with a shareholder vote to approve the EJFA Shareholder Matters (and that none of the Sponsor or any such EJFA directors or advisors received any separate consideration for such waiver; the fact that the Sponsor beneficially owns or has an economic interest in the EJFA Private Placement Warrants that the Sponsor purchased in a private placement simultaneously with the EJFA IPO for which the Sponsor has no redemption rights in the event an initial business combination is not effected in the required time period; the fact that the Sponsor and certain directors and advisors of EJFA paid an aggregate of $25,000 for EJFA Class B Ordinary Shares (i.e., the EJFA founder shares), which immediately prior to the Effective Time will convert into 7,187,500 Pagaya Class A Ordinary Shares, assuming there is no Expenses Excess Amount, and such securities will have a significantly higher value at the time of the Merger and the other Transaction, estimated at approximately $71,515,625 based on the reported closing price of $9.95 per EJFA Class A Ordinary Share on Nasdaq on November 22, 2021; the fact that the Sponsor paid $7,750,000.50 for the 5,166,667 EJFA Private Placement Warrants, and each EJFA Warrant will be assumed by Pagaya at the Closing and will be exercisable commencing 30 days following the Closing for one Pagaya Class A Ordinary Share at $11.50 per share; and if the Trust Account is liquidated, including in the event EJFA is unable to complete an initial business combination within the required time period, the Sponsor has agreed that it will be liable to EJFA if and to the extent any claims by a third party for services rendered or products sold to it, or a prospective target business with which it has entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per EJFA Class A Ordinary Share and (ii) the actual amount per EJFA Class A Ordinary Share sold as part of the EJFA Units in the EJFA IPO held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per EJFA Class A Ordinary Share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business that executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the indemnity of the underwriters of the EJFA IPO against certain liabilities, including liabilities under the Securities Act.

Even if such relationships do not create actual conflicts, the perception of conflicts in the press or the financial community generally could create negative publicity with respect to the Merger, which could adversely affect the business generated.

The exercise of EJFA’s directors’ and executive officers’ discretion in agreeing to changes or waivers in the terms of the Merger may result in a conflict of interest when determining whether changes to the terms of the Merger or waivers of conditions are appropriate and in EJFA’s best interest.

In the period leading up to the Closing, events may occur that, pursuant to the Merger Agreement, may require EJFA to consent to certain actions taken by Pagaya or to waive rights that EJFA is entitled to under the Merger Agreement in connection with the Merger. Such events could arise because of changes in the course of Pagaya’s business, a request by Pagaya to undertake actions that would otherwise be prohibited by the terms of the Merger Agreement or the occurrence of other events that would have a material adverse effect on Pagaya’s business and would entitle EJFA to terminate the Merger Agreement. In any of such circumstances, it would be at EJFA’s discretion, acting through the EJFA Board, to grant its consent or waive those rights. The existence of financial and personal interests of one or more of the directors described in the preceding risk factors may result in a conflict of interest on the part of such director(s) between what he or they may believe is best for EJFA and what

 

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he or they may believe is best for himself or themselves in determining whether or not to take the requested action. As of the date of this proxy statement/prospectus, EJFA does not believe there will be any amendments that EJFA’s directors and executive officers would be likely to approve after the EJFA Shareholder Approval has been obtained. While certain changes could be made without further shareholder approval, EJFA will circulate a new or amended proxy statement/prospectus and resolicit the EJFA Shareholders if changes to the terms of the Transactions that would have a material impact on its shareholders are required prior to the shareholder vote on the Merger Proposal.

A significant portion of the total outstanding shares of Pagaya will be restricted from immediate resale after the Closing but may be sold into the market after the expiration of applicable restrictions. This could cause the market price of Pagaya Class A Ordinary Shares to drop significantly, even if the business is doing well.

Sales of a substantial number of shares of Pagaya Class A Ordinary Shares in the public market could occur at any time after the Closing. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of the Pagaya Class A Ordinary Shares. Upon completion of the Merger, the EJF Investor will own approximately 3.1% of the outstanding shares of the Pagaya Class A Ordinary Shares assuming no EJFA Public Shareholders redeem their EJFA Class A Ordinary Shares in connection with the Merger and assuming there is no Expenses Excess Amount or approximately 3.2% of the outstanding Pagaya Class A Ordinary Shares assuming that 28,750,000 million EJFA Class A Ordinary Shares (the maximum number of EJFA Class A Ordinary Shares that could be redeemed in connection with the Merger) are redeemed in connection with the Merger and assuming there is no Expenses Excess Amount. While the EJF Investor, the Sponsor and pre-Closing Pagaya Shareholders will be subject to certain restrictions regarding the transfer of the Pagaya Class A Ordinary Shares, these shares may be sold after the expiration of the applicable lock-up restrictions. Under the Registration Rights Agreement, Pagaya is required to file one or more registration statements shortly after the Closing to provide for the resale of such shares from time to time. As restrictions on resale end and the registration statements become available for use, the market price of the Pagaya Class A Ordinary Shares could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them.

EJFA Public Shareholders will experience immediate dilution as a consequence of the issuance of additional Pagaya Ordinary Shares in connection with the Transactions and the PIPE Investment and due to future issuances pursuant to the 2022 Plan and the exercise of Pagaya Warrants. Having a minority share ownership position may reduce the influence that EJFA’s current shareholders have on the management of Pagaya.

EJFA Public Shareholders who do not redeem their EJFA Public Shares will experience immediate dilution as a consequence of the issuance of additional Pagaya Ordinary Shares in connection with the Transactions and may experience dilution from several additional sources to varying degrees in connection with and after the Merger, including the following:

Approximately                  Pagaya Ordinary Shares are anticipated to be held by pre-Closing Pagaya Shareholders immediately after consummation of the Transactions. This represents approximately                 % or     % of the number of Pagaya Ordinary Shares that will be outstanding following the consummation of the Transactions, assuming the no redemption scenario and the maximum redemption scenario, respectively, and that in either case that there is no Expenses Excess Amount, and     % or     % of the total voting power of Pagaya Ordinary Shares that will be outstanding following the consummation of the Transactions, assuming the no redemption scenario and the maximum redemption scenario, respectively, and that in either case that there is no Expenses Excess Amount. For additional information about the high vote Pagaya Class B Ordinary Shares that are expected to be held by the Founders after consummation of the Transactions, see “—Risks Related to Dual Class Structure”.

Up to 20 million shares of the Pagaya Class A Ordinary Shares are anticipated to be issued to the EJF Investor pursuant to the PIPE Investment, at a price of $10.00 per share. This represents approximately 3.05% or 3.19% of the number of shares of the Pagaya Ordinary Shares that will be outstanding following the consummation of the

 

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Transactions, assuming the no redemption scenario and the maximum redemption scenario, respectively, and in either case that there is no Expenses Excess Amount.

Pagaya Warrants to purchase              Pagaya Class A Ordinary Shares will be outstanding following the Merger. The shares of the Pagaya Class A Ordinary Shares underlying these warrants represent approximately     % or     % of the fully-diluted number of shares of the Pagaya Ordinary Shares immediately following the consummation of the Transactions, assuming the no redemption scenario and the maximum redemption scenario, respectively, and in either case that there is no Expenses Excess Amount.

Pagaya will reserve 10% of the number of outstanding shares of the Pagaya Class A Ordinary Shares on a fully diluted basis (as of immediately following the Merger) pursuant to the 2022 Plan and expects to grant equity awards under the 2022 Plan. The granted awards, when vested and settled or exercisable, may result in the issuance of additional shares up to the amount of the share reserve under the 2022 Plan.

The issuance of additional shares of the Pagaya Class A Ordinary Shares (or other equity securities of equal or senior rank) including through the exercise of warrants or options, will have the following effects for EJFA Public Shareholders who elect not to redeem their shares:

 

   

your proportionate ownership interest in Pagaya will decrease; and/or

 

   

the relative voting strength of each previously outstanding share of the Pagaya Class A Ordinary Shares will be diminished;

Additionally, the market price of the Pagaya Class A Ordinary Shares may decline.

Even if EJFA and Pagaya consummate the Merger, there is no guarantee that the Pagaya Warrants will ever be in the money, and they may expire worthless and the terms of the Pagaya Warrants may be amended.

Upon consummation of the Merger, the EJFA Warrants will become Pagaya Warrants. The exercise price for the Pagaya Warrants will be $11.50 per ordinary share. There is no guarantee that the Pagaya Warrants, following the Merger, will ever be in the money prior to their expiration, and as such, the Pagaya Warrants may expire worthless.

During the pendency of the Merger, both EJFA and Pagaya will be prohibited from facilitating or engaging in alternative acquisition proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.

During the pendency of the Merger, EJFA and Pagaya will not be able to enter into a business combination with another party because of restrictions in the Merger Agreement. Furthermore, certain provisions of the Merger Agreement will discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement, in part, because of the inability of the EJFA Board under the Merger Agreement to change its recommendation in connection with the Merger and the other Transactions except in the event that, prior to receipt of the EJFA Shareholder Approval, the EJFA Board determines in good faith that it is required to do so in order to comply with fiduciary duties under legal requirements of the Cayman Islands. Even if the EJFA Board changes its recommendation, EJFA is still obligated to hold the Special Meeting and is not permitted to terminate the Merger Agreement upon a Change in Recommendation.

Pursuant to the Merger Agreement, it is prohibited for EJFA and Pagaya to (i) solicit, initiate or knowingly encourage any inquiries or proposals by, or provide any non-public information to, any person (other than Pagaya, EJFA and their respective representatives, as applicable) concerning any alternative acquisition proposal; (ii) enter into or continue any discussions, negotiations or transactions with or respond to any inquiries or proposals by any person (other than Pagaya, EJFA and their respective representatives, as applicable) concerning any alternative acquisition proposal; or (iii) enter into any agreement regarding any alternative acquisition proposal.

 

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Certain covenants in the Merger Agreement impede the ability of EJFA to make acquisitions or complete certain other transactions pending completion of the Merger. As a result, EJFA may be at a disadvantage to other special purpose acquisition companies during that period. In addition, if the Merger is not completed, these provisions will make it more difficult to complete an alternative business combination following the termination of the Merger Agreement due to the passage of time during which these provisions have remained in effect.

We cannot assure you that the Pagaya Class A Ordinary Shares will be approved for listing on Nasdaq or that Pagaya will be able to comply with the continued listing standards of Nasdaq.

In connection with the Closing, Pagaya intends to list the Pagaya Class A Ordinary Shares on Nasdaq under the ticker symbol “            ”. Pagaya’s eligibility for listing may depend on the number of EJFA Public Shares that are redeemed. If, after the Merger, Nasdaq delists the Pagaya Class A Ordinary Shares from trading on its exchange for failure to meet the listing standards and Pagaya is unable to list such securities on another national securities exchange, Pagaya expects such securities could be quoted on an over-the-counter market. If this were to occur, Pagaya and its shareholders could face significant material adverse consequences including, but not limited to:

 

   

a limited availability of market quotations for Pagaya’s securities;

 

   

reduced liquidity for Pagaya’s securities;

 

   

a determination that the Pagaya Class A Ordinary Shares are a “penny stock,” which will require brokers trading the Pagaya Class A Ordinary Shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for Pagaya Class A Ordinary Shares;

 

   

a limited amount of news and analyst coverage; and/or

 

   

a decreased ability to issue additional securities or obtain additional financing in the future.

The ability to successfully effect the Merger and the Transactions and Pagaya’s ability to successfully operate the business thereafter will be largely dependent upon the efforts of certain key personnel of Pagaya, all of whom are expected to stay with Pagaya following the Closing. The loss of such key personnel could negatively impact the operations and financial results of the combined business.

The ability to successfully effect the Merger and the Transactions and Pagaya’s ability to successfully operate the business following the Closing is dependent upon the efforts of certain key personnel of Pagaya. There can be no assurance that any of Pagaya’s key management personnel or other key employees and independent contractors will continue their employment in connection with the Transactions. It is possible that Pagaya will lose key personnel, the loss of which could negatively impact the operations and profitability of Pagaya. Pagaya’s success depends to a significant degree upon the continued contributions of senior management, certain of whom would be difficult to replace. Departure by certain of Pagaya’s officers could have a material adverse effect on Pagaya’s business, financial condition, or operating results. The services of such personnel may not continue to be available to Pagaya. While Pagaya generally enters into non-competition agreements with Pagaya’s employees and independent contractors, Pagaya may be unable to enforce these agreements under the laws of the jurisdictions in which Pagaya’s employees and independent contractors work, and it may be difficult for Pagaya to restrict Pagaya’s competitors from benefiting from the expertise Pagaya’s former employees and independent contractors developed while working for Pagaya. For example, Israeli labor courts have required employers seeking to enforce non-compete undertakings of a former employee to demonstrate that the competitive activities of the former employee will harm one of a limited number of material interests of the employer that have been recognized by the courts, such as the protection of a company’s trade secrets or other intellectual property. Furthermore, following the Closing, the key personnel of Pagaya may be unfamiliar with the requirements of operating a company regulated by the SEC, which could cause Pagaya to have to expend time and resources helping them become familiar with such requirements.

 

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In connection with the Merger, EJFA, the Sponsor, other initial shareholders, directors, executive officers and advisors of EJFA and their affiliates, Pagaya, as well as shareholders, directors, executive officers and advisors of Pagaya and their affiliates, may elect to purchase shares (or additional shares) of EJFA or EJFA Public Warrants from EJFA Public Shareholders, which may influence a vote on a proposed business combination and reduce the public “float” of the Pagaya Class A Ordinary Shares.

In connection with the Merger, EJFA, the Sponsor, other initial shareholders, directors, executive officers and advisors of EJFA and their affiliates, Pagaya, as well as shareholders, directors, executive officers and advisors of Pagaya and their affiliates, may purchase shares (or additional shares) of EJFA or EJFA Public Warrants in privately negotiated transactions or in the open market either prior to or following the completion of the initial business combination, subject to applicable restrictions under the securities laws, although they are under no obligation to do so. However, other than as expressly stated herein, they have no current commitments, plans or intentions to engage in such transactions and have not formulated any terms or conditions for any such transactions. None of the funds in the Trust Account will be used to purchase shares of EJFA or EJFA Public Warrants in such transactions.

In the event that EJFA, the Sponsor, other initial shareholders, directors, executive officers and advisors of EJFA and their affiliates, Pagaya, as well as shareholders, directors, executive officers and advisors of Pagaya and their affiliates purchase shares in privately negotiated transactions from EJFA Public Shareholders that have already elected to exercise their redemption rights, such selling shareholders would be required to revoke their prior elections to redeem their shares. The purpose of any such purchases of shares may be to vote such shares in favor of the EJFA Shareholder Matters and thereby increase the likelihood of obtaining the required EJFA Shareholder Approval, where it appears that such requirement would otherwise not be met. The purpose of any such purchases of EJFA Public Warrants may be to reduce the number of EJFA Public Warrants outstanding or to vote such warrants on any matters submitted to the warrant holders for approval in connection with the initial business combination. Any such purchases of EJFA securities may result in the completion of the initial business combination that may not otherwise have been possible. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements.

In addition, if such purchases are made, the public “float” of the Pagaya Class A Ordinary Shares or EJFA Public Warrants and the number of beneficial holders of securities may be reduced, possibly making it difficult to maintain or obtain the quotation, listing or trading of the securities on Nasdaq.

If a shareholder fails to receive notice of EJFA’s offer to redeem EJFA Class A Ordinary Shares in connection with the Merger, such shares may not be redeemed.

Pagaya and EJFA must comply with the proxy rules when conducting redemptions in connection with the Merger. Despite compliance with these rules, if a shareholder fails to receive the proxy solicitation, such shareholder may not become aware of the opportunity to redeem its shares. In addition, this proxy statement/prospectus describes the various procedures that must be complied with in order to validly redeem or tender EJFA Class A Ordinary Shares. In the event that a shareholder fails to comply with these procedures, its shares may not be redeemed.

The grant of registration rights to certain of the Pagaya Shareholders and the EJF Investor and the future exercise of such rights may adversely affect the market price of the Pagaya Class A Ordinary Shares.

Upon the completion of the Merger, the Registration Rights Agreement will be entered into between Pagaya, the Sponsor and certain equityholders of Pagaya named therein, replacing EJFA’s and Pagaya’s existing registration rights agreements. Pursuant to the Registration Rights Agreement, the Sponsor and the Pagaya Shareholders party thereto and their permitted transferees will have customary registration rights (including demand rights and piggy-back rights, subject to cooperation and cut-back provisions) with respect to Pagaya Class A Ordinary

 

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Shares and any Pagaya Class A Ordinary Shares issuable upon the exercise of warrants and any other equity security of Pagaya issued or issuable with respect to any such Pagaya Class A Ordinary Shares in connection with certain transactions. Further, pursuant to the Registration Rights Agreement and the EJF Subscription Agreement, Pagaya agrees that Pagaya will (i) file within 30 days after the Closing a registration statement with the SEC for a secondary offering of the registrable securities under the Registration Rights Agreement and the PIPE Shares, respectively, and (ii) use commercially reasonable efforts to have such registration statement declared effective as soon as reasonably practicable after the filing thereof. In addition, the EJF Subscription Agreement provides the EJF Investor with certain piggyback rights. Pagaya will bear the cost of registering these securities. The registration and availability of such a significant number of securities for trading in the public market may have an adverse effect on the market price of the Pagaya Class A Ordinary Shares.

You may not have the same benefits as an investor in an underwritten public offering.

Pagaya will become a publicly listed company upon the completion of the Merger. The Merger and the Transactions described in this proxy statement/prospectus are not an underwritten initial public offering of Pagaya’s securities and differ from an underwritten initial public offering in several significant ways, which include, but are not limited to, the following:

Like other business combinations and spin-offs, in connection with the Merger, you will not receive the benefits of the diligence performed by the underwriters in an underwritten public offering. Investors in an underwritten public offering may benefit from the role of the underwriters in such an offering. In an underwritten public offering, an issuer initially sells its securities to the public market via one or more underwriters, which distribute or resell such securities to the public. Underwriters have liability under the U.S. securities laws for material misstatements or omissions in a registration statement pursuant to which an issuer sells securities. Because the underwriters have a “due diligence” defense to any such liability by, among other things, conducting a reasonable investigation, the underwriters and their counsel conduct a due diligence investigation of the issuer. Due diligence includes engaging legal, financial and/or other experts to perform an investigation as to the accuracy of an issuer’s disclosure regarding, among other things, its business and financial results. Auditors of the issuer will also deliver a “comfort” letter with respect to the financial information contained in the registration statement. In making their investment decision, investors have the benefit of such diligence having been undertaken in underwritten public offerings. In contrast, we and EJFA have each engaged a financial advisor (rather than underwriters) in connection with the Merger, and Duff & Phelps provided the EJFA Board with a fairness opinion in connection with the Transactions. See the section of this proxy statement/prospectus entitled “Fairness Opinion of Duff & Phelps” for additional information about the Opinion. While such financial advisors or their respective affiliates may act as underwriters in underwritten public offerings, the role of a financial advisor differs from that of an underwriter. For example, financial advisors do not act as intermediaries in the sale of securities and therefore do not face the same potential liability under the U.S. securities laws as underwriters. As a result, financial advisors typically do not undertake the same level of, or any, due diligence investigation of the issuer as is typically undertaken by underwriters.

In addition, because there are no underwriters engaged in connection with the Merger, prior to the opening of trading on Nasdaq on the trading day immediately following the Closing, there will be no book building process and no price at which underwriters initially sold shares to the public to help inform efficient and sufficient price discovery with respect to the initial post-Closing trades on Nasdaq. Therefore, buy and sell orders submitted prior to and at the opening of initial post-Closing trading of the Pagaya Class A Ordinary Shares on Nasdaq will not have the benefit of being informed by a published price range or a price at which the underwriters initially sold shares to the public, as would be the case in an underwritten initial public offering. There will be no underwriters assuming risk in connection with an initial resale of Pagaya Class A Ordinary Shares or helping to stabilize, maintain or affect the public price of the Pagaya Class A Ordinary Shares following the Closing. Moreover, we will not engage in, and have not and will not, directly or indirectly, request the financial advisors to engage in, any special selling efforts or stabilization or price support activities in connection with the Pagaya Class A Ordinary Shares that will be outstanding immediately following the Closing. All of these differences from an

 

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underwritten public offering of Pagaya’s securities could result in a more volatile price for the Pagaya Class A Ordinary Shares following the Closing.

Further, we will not conduct a traditional “roadshow” with underwriters prior to the opening of initial post-Closing trading of the Pagaya Class A Ordinary Shares on Nasdaq. There can be no guarantee that any information made available in this proxy statement/prospectus and/or otherwise disclosed or filed with the SEC will have the same impact on investor education as a traditional “roadshow” conducted in connection with an underwritten initial public offering. As a result, there may not be efficient or sufficient price discovery with respect to the Pagaya Class A Ordinary Shares or sufficient demand among potential investors immediately after the Closing, which could result in a more volatile price for the Pagaya Class A Ordinary Shares following the Closing.

Such differences from an underwritten public offering may present material risks to unaffiliated investors that would not exist if Pagaya became a publicly listed company through an underwritten initial public offering instead of upon completion of the Merger.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS; MARKET, RANKING AND OTHER INDUSTRY DATA

This proxy statement/prospectus contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this proxy statement/prospectus, including statements regarding Pagaya’s, EJFA’s or the post-Closing combined company’s future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “strategy,” “future,” “opportunity,” “may,” “target,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” or similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Forward-looking statements include, without limitation, Pagaya’s or EJFA’s expectations concerning the outlook for their or the post-Closing combined company’s business, productivity, plans and goals for future operational improvements and capital investments, operational performance, future market conditions or economic performance and developments in the capital and credit markets and expected future financial performance, as well as any information concerning possible or assumed future results of operations of the post-Closing combined company as set forth in the section of this proxy statement/prospectus entitled “Proposal One—The Business Combination Proposal”. Forward-looking statements also include statements regarding the expected benefits of the Merger.

Forward-looking statements involve a number of risks, uncertainties and assumptions, and actual results or events may differ materially from those projected or implied in those statements. Important factors that could cause such differences include, but are not limited to:

 

   

the risk that the Merger may not be completed in a timely manner or at all;

 

   

the effect of the announcement or pendency of the Merger on Pagaya’s business;

 

   

the failure to satisfy the conditions to the consummation of the Merger;

 

   

the incurrence of significant costs in connection with and following the Merger;

 

   

the inability to complete the Transactions;

 

   

the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement;

 

   

the amount of EJFA Shareholder redemption requests made by EJFA Public Shareholders;

 

   

the effect of the announcement or pendency of the Merger on Pagaya’s business;

 

   

risks that the Merger disrupts current plans and operations of Pagaya;

 

   

potential litigation or conflicts relating to the Merger;

 

   

the ability to implement business plans and other expectations after the completion of the Merger;

 

   

market interest rates;

 

   

difficult market or political conditions in which Pagaya competes;

 

   

the uncertain future prospects and rate of growth of Pagaya due to its relatively limited operating history;

 

   

the ability of Pagaya to improve, operate and implement its AI technology, including as it expands into new businesses;

 

   

competition in retaining and attracting and onboarding new Partners and raising capital from Asset Investors through Financing Vehicles given the current limited number of Partners that account for a substantial portion of the total number of the financial products facilitated with the assistance of Pagaya’s AI technology;

 

   

potential difficulties in retaining Pagaya’s current management team and other key employees and independent contractors, including highly-skilled technical experts;

 

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Pagaya’s estimates of its future financial performance;

 

   

changes in the political, legal and regulatory framework for AI technology and machine learning;

 

   

the impact of health epidemics, including the ongoing COVID-19 pandemic;

 

   

conditions related to Pagaya’s operations in Israel;

 

   

risks related to data security and privacy;

 

   

changes to accounting principles and guidelines;

 

   

potential litigation relating to the Merger;

 

   

following the Closing, the ability to maintain the listing of Pagaya’s securities on Nasdaq;

 

   

the price of Pagaya’s securities may be volatile;

 

   

unexpected costs or expenses; and

 

   

the other matters described in the section titled “Risk Factors.

In addition, the Merger is subject to the satisfaction of the conditions to the completion of the Merger set forth in the Merger Agreement and the absence of events that could give rise to the termination of the Merger Agreement. Forward-looking statements also include the possibility that the Merger does not close, and risks that the Merger disrupts current plans and operations and business relationships, or poses difficulties in attracting or retaining employees for Pagaya.

Pagaya and EJFA caution you against placing undue reliance on forward-looking statements, which reflect current beliefs and are based on information currently available as of the date a forward-looking statement is made. Forward-looking statements set forth herein speak only as of the date of this proxy statement/prospectus. Neither Pagaya nor EJFA undertakes any obligation to revise forward-looking statements to reflect future events, changes in circumstances or changes in beliefs except to the extent required by law. In the event that any forward-looking statement is updated, no inference should be made that Pagaya or EJFA will make additional updates with respect to that statement, related matters, or any other forward-looking statements except to the extent required by law. Any corrections or revisions and other important assumptions and factors that could cause actual results to differ materially from forward-looking statements, including discussions of significant risk factors, may appear, up to the consummation of the Merger, in EJFA’s or Pagaya’s public filings with the SEC or, upon and following the consummation of the Merger, in Pagaya’s public filings with the SEC, which are or will be (as appropriate) accessible at www.sec.gov, and which you are advised to consult. For additional information, please see the section titled “Where You Can Find More Information”.

Market, ranking and industry data used throughout this proxy statement/prospectus, including statements regarding market size and technology adoption rates, is based on the good faith estimates of Pagaya’s management, which in turn are based upon Pagaya’s management’s review of internal surveys, independent industry surveys and publications and other third-party research and publicly available information. These data involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While Pagaya is not aware of any misstatements regarding the industry data presented herein, its estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” and “Pagaya’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this proxy statement/prospectus. Additionally, any projections contained herein were prepared solely for internal use and not with a view toward public disclosure, or complying with the published guidelines of the SEC regarding projections or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information, but, in the view of Pagaya’s management, were prepared on a reasonable basis, reflect the best currently available estimates and judgments, and presents, to the best knowledge and belief of Pagaya’s management, the expected course of action and the expected future financial performance of Pagaya.

 

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PAGAYA’S BUSINESS

Our Business

Pagaya makes life-changing financial products and services available to more people.

We have built, and we are continuing to scale, a leading AI and data network for the benefit of financial services providers, their customers, and asset investors. Financial services providers integrated in our network, which we refer to as our “Partners,” range from high-growth financial technology companies to incumbent financial institutions, auto dealers and brokers. Partners utilize our network to extend financial products to their customers, in turn helping those customers fulfill their financial needs and dreams. These assets originated by Partners with the assistance of Pagaya’s AI technology are acquired by Financing Vehicles.

In recent years, investments in digitization have improved the front-end delivery of financial products, upgrading customer experience and convenience. Notwithstanding these advances, we believe underlying approaches to the determination of credit fitness for financial products are often outdated and overly manual. In our experience, providers of financial services tend to utilize a limited number of factors to make decisions, operate with siloed technology infrastructure and have data limited to their own experience. As a result, we believe financial services providers approve a smaller proportion of their application volume than is possible with the benefit of modern technology, such as our AI technology and network.

We are a technology company that deploys sophisticated data science, machine learning and AI technology to drive better results. Partners utilize our centralized AI and data network to evaluate their customers’ applications in real time. We believe this solution measures risk and predicts behavior more accurately than legacy approaches, and our performance continuously improves as more information flows through our network. Further, Partners integrate seamlessly through APIs, providing them with access to our proprietary technology with minimal latency and no significant upfront investment.

We believe our solution drives a “win-win-win” for Partners, their customers and potential customers, and Asset Investors. First, by utilizing our network, Partners can approve a greater share of customer applications, which we believe drives superior revenue growth, enhanced brand affinity, opportunities to promote other financial products and decreased unit-level customer acquisition costs. Partners realize these benefits without taking on incremental risk or requiring incremental funding. Second, Partners’ customers benefit from enhanced and more convenient access to financial products. Third, Asset Investors gain exposure to assets originated by Partners with the assistance of our AI technology and acquired by the Financing Vehicles through our network.

We believe the scale of our opportunity speaks for itself. Our network currently operates very large addressable market segments, including the personal, auto, credit card and point-of-sale loan markets, as well as the real estate asset market. Collectively in these markets, financial services providers originate approximately $4 trillion of assets each year. We are actively pursuing expansion within these markets and entry into new ones.

Our growth further benefits from broader trends in technology and finance. Advancements in computing power have enabled sophisticated machines to study and analyze data in ways that humans cannot. For financial services, applications have migrated to digital channels and we believe consumers have come to expect rapid decisions. Against this backdrop, we believe legacy underwriting processes, rooted in rules-based approaches and manual human reviews, are uncompetitive. We believe our network enables Partners to bridge this gap.

We have achieved significant scale to date. Our models and algorithms have been trained using over 16 million data points since inception through June 30, 2021, and our network currently processes approximately one

 

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application per second. We have retained 100% of our Partners since inception and diversified Asset Investor relationships, while rapidly expanding into new markets.

 

 

 

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1

For Partners who have utilized our network for at least six months; Increase measured relative to Partner’s second month volume.

2

For Partners who have utilized our network for at least 12 months; Increase measured relative to Partner’s second month volume.

When Partners originate financial products with the assistance of our AI technology and the assets are acquired by Asset Investors through Financing Vehicles, we refer to this volume as “Network Volume.” We source capital from Asset Investors who invest through funds and securitization vehicles managed, sponsored or administered by Pagaya (together, “Financing Vehicles”), which fund this Network Volume. We earn revenue primarily in the form of fees that we are paid when Network Volume is generated.

We have significantly grown our Network Volume and revenues. Our revenues increased by 598% to $183.3 million in the six months ended June 30, 2021, from $26.3 million in the six months ended June 30, 2020. On an annualized basis, our revenues in the three months ended June 30, 2021 were $396.4 million. For the six months ended June 30, 2021 and June 30, 2020, we generated a net loss of $45.0 million and net income of $2.5 million, respectively, and Adjusted EBITDA of $33.7 million and $0.5 million, respectively.

Our Market Opportunity

 

 

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Note: Represents estimated annual U.S. market origination volumes;

 

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1

Estimated origination volumes based on Q4 2020 annualized originations in The TransUnion “Consumer Credit Origination, Balance and Delinquency Trends: Q4 2020” report.

2

Estimated origination volumes based on McKinsey & Company US Lending at the Point of Sale report.

3

Represents homeowners and auto insurance net written premiums in 2020, as per the Insurance Information Institute.

4

Estimated origination volumes based on Q4 2019 annualized originations in The TransUnion “Consumer Credit Origination, Balance and Delinquency Trends: Q4 2020” report.

We are addressing a vast and expanding market opportunity. Our network currently operates in the personal, auto, credit card and point-of-sale loan markets, as well as the real estate asset market. Collectively in these markets, financial services providers originate approximately $4 trillion of assets each year.

We believe we benefit from a number of tailwinds as we seek to expand our relationships with existing Partners and onboard new Partners. Financial services firms are increasingly partnering with technology companies to drive enhanced financial inclusivity and improved customer experience. More than 48% of banks and 42% of credit unions have partnered with technology companies over the past three years to address specific needs, according to the Credit Union Executive Society.

Our Technology Solution

Our network deploys sophisticated data science, machine learning and AI technology to drive better results for Partners, their customers, and Asset Investors.

We believe we have aggregated one of the world’s largest data sets focused on the consumer, comprised of over 16 million training data points. Our network utilizes this data to improve on traditional credit metrics and rules-based underwriting approaches, which are based on a limited number of factors. As is characteristic of AI and machine learning, our data advantage grows through a flywheel effect: incremental training data points, such as new applications and markets, provide more data to enhance intelligence and enable better results.

Additionally, we believe we have one of the world’s largest AI and data science networks focused on consumer assets. We employ more than 200 technologists, of which approximately 170 are research and development specialists responsible for continually building and refining our models and related technology.

 

 

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Our network is designed to offer seamless integration with Partners. Onboarding requires no significant upfront investment and connecting is virtually seamless via modern APIs. Once connected, our network provides an automated solution for 100% of transactions, whereby Partners’ customer applications are evaluated with minimal latency and Network Volume is generated in real time.

 

 

 

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Our AI and data network has been demonstrated to be highly scalable within existing markets and into new ones. We have expanded rapidly: personal loans in 2018; auto loans in 2019; credit card and point-of-sale loans in 2020; and real estate assets in 2021. We are actively evaluating new markets, and we believe our technology will continue to facilitate our expansion.

Advantages for Partners, Their Customers and Asset Investors

Benefits to Partners

Enhanced financial inclusion and customer satisfaction. Partners utilize our network to extend financial products to a greater number of customers. We believe that this allows our Partners to be more inclusive and provide a better customer experience.

Revenue growth without incremental risk, funding or capital requirements. Partners earn revenue when they generate Network Volume, acquired by Financing Vehicles, while generally not assuming additional balance sheet risk.

Expanded customer ecosystem. When Partners convert a greater share of their application volume, they improve the retention of existing relationships and build relationships with new customers, which they can in turn offer additional financial products and services.

Ability to offer new financial products. Partners can utilize our technology to bring new products to market rather than building them in house, which we believe allows Partners to bring products to market more quickly and cost-efficiently.

Network effects. Partners benefit from the AI and data advantages of our network, which we believe a single firm operating on its own could not replicate given their data is limited to their own experience and their investment dollars also support brand, marketing and front-end user experience upgrades.

 

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Benefits to Partners’ Customers

Enhanced and more convenient access to financial products. Partners are able to serve more customers by using our AI and technology enabling their customers to better fulfill their financial needs and dreams.

Reduced dependence on higher cost credit alternatives. We believe our network generally provides a lower-cost product and superior experience than alternative financing sources, allowing a Partner’s customer to obtain a better quality financial product.

Customer can choose their desired brand. When a customer chooses to apply with one of our Partners they are making a brand decision. We believe that Partners are able to work with a greater number of customers when utilizing our technology, allowing more of their customers into their preferred brand ecosystem.

Benefits to the Asset Investors

Access to assets originated with the assistance of our network. Financing Vehicles include assets that meet specific investment criteria without Asset Investors incurring the cost of building their own analytic capabilities to evaluate the assets themselves.

Access to multiple markets. Asset Investors can deploy capital across multiple Financing Vehicles focused on different asset types.

Scaled capital deployment. A significant and growing amount of Network Volume is generated providing the opportunity to invest at scale.

Our Growth Strategies

Expand Our Relationships with Our Existing Partners

While we evaluated one application every second and enabled $4.7 billion of annualized Network Volume as of the three months ending June 30, 2021, this represents less than 1% of the overall addressable market. In our experience, Partners, on average, grow their volumes on our network significantly over time. After utilizing our network, Partners’ volume on our network has historically increased by approximately three times after six months and approximately six times after 12 months, as measured relative to the Partners’ second month’s volume on the network. As our AI technology continues to learn from new data points added to our network, our Partners are able to convert a greater proportion of their customer application volume, and thus increase their overall volume. In addition, Partner retention since inception is 100%. We believe that this is reflective of the value we add by driving better outcomes for our Partners and their customers through increased conversion. Our Network Volume grows as Partners grow their volumes and as we, over time, comprise a greater proportion of our Partners’ volumes.

Add New Partners to Our Network

Adding new Partners to our network is a key driver of our growth. A powerful driver of Partner growth is the addition of larger banking partners and auto lenders. We have designed our network to minimize friction in technology integration through an API plugin. Our AI technology also provides our Partners with an automated process with virtually zero latency, which we believe is valuable for our Partners.

While we believe that we have opportunities for onboarding Partners of a variety of profiles, one area of focus for us in the near-term is the opportunity to partner with larger banks in the United States. This is a significant potential opportunity, with 64 banks that each have at least $50 billion in assets and $18 trillion in combined industry assets. We believe that we have an attractive value proposition for these banks, including increased sales

 

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through improved access to credit for customers, the ability to offer additional financial products with no incremental capital requirements, deepened brand loyalty by offering customers packaged financial services, and operational efficiencies due to our easy integration with API-based infrastructure.

Enter New Markets

We have added one new market to our offerings every year since 2018, with the launch of personal loans in 2018, auto loans in 2019, credit card / point-of-sale loans in 2020 and real estate asset acquisition and renovation in 2021. Although, our pace in future years may be different, we believe this illustrates the adaptability of our business model. We believe that there are significant further opportunities to utilize our AI technology to improve outcomes for financial services providers and their customers. Since our inception, we have been able to scale new markets increasingly quickly. While reaching $500 million of annualized Network Volume in personal loans took 36 months from launch, we achieved the same milestone in 18 months in auto loans, and in real estate loans we have achieved annualized Network Volume in excess of $200 million six months from launch. We believe that our existing diversification across four markets and our strong track record in launching and scaling new products give us an advantage expanding into new markets in the future.

Continue Enhancing Our AI

As our AI technology and network see more volume, our models and algorithms become smarter and our data asset set expands, in turn, allowing us to provide greater value to our Partners and their customers. Our models and algorithms are continuously processing new and deeper data: as of the three months ending June 30, 2021, the Pagaya network evaluated one application every second, and evaluated more than 17 million applications in the last 12 months. We believe our network is designed to process data at significantly greater scale, and that as our network accelerates, so too will the pace of our AI development.

Our Competitive Advantages

Scaled R&D Infrastructure

We believe we were among the first, and are presently among the largest, technology companies devoting sophisticated data science, machine learning and AI techniques in our areas of focus. We believe that our ability to effectively enhance the credit decision-making process across financial products is driven in part by our innovative technology and our investment in research and development. We employ approximately 170 research and development specialists, many with Ph.Ds. in data science or related fields. Our research and development specialists and technologists more broadly comprise approximately 37% of our global headcount as of June 30, 2021. We believe that our investment in research and development is core to building and maintaining our competitive advantage. Since our inception, we have considered ourselves, at our core, a technology company that is bringing data science, machine learning and AI expertise to empower our Partners.

Significant Accumulated Data and Experience

As a business driven by data science and AI, we believe that our accumulated experience and data asset are critical drivers of our competitive advantage. The models and algorithms that drive our AI are trained on more than 16 million data points and five years of machine learning. As Pagaya processes more applications and observes the performance of assets over time, our models and algorithms can train on a larger and richer dataset. This continuous upgrade and refinement of our AI model is driven by the data moving through our network: as of the three months ending June 30, 2021, the Pagaya network evaluated one application every second, and evaluated more than 17 million applications in the last 12 months. As we grow and increase volumes, both by onboarding new Partners and by growing volumes with our existing Partners, we anticipate that the volume of new data to our models and algorithms would also increase. We believe that this creates a virtual flywheel effect for our network, as additional Partner onboarding provides richer data for our models and algorithms and

 

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enhances the collective power of our AI technology and network, likely driving incremental insight, uplift and volumes for the benefit of all Partners utilizing the network.

Culture of Growth and Innovation

We believe that our entrepreneurial culture of innovation and collaboration is an important driver of our growth, and that this culture has been led by our Founders and management team. Our management team brings a breadth of experience from a variety of fields, including AI, machine learning, investment management and banking. Professional development and training are key components of our culture and in developing our talent and are areas of focus for our management team. For example, we have created Pagaya Pro: a research fellowship that takes top-tier candidates with technical backgrounds and provides them with the tools needed to process, analyze and make smart predictions when working with big data. This program provides us with an additional talent pipeline for research and development specialists who can continue to drive our growth.

Industry Overview

Siloed Data and Technology Infrastructure Hinder Financial Services Providers

We believe that legacy systems create inefficient outcomes for financial services providers and their customers. Today, consumers desire convenient access to a broad array of financial products, yet a substantial number of consumers are left behind by financial services providers. Financial services providers are primarily reliant on their own data history and experience coupled with traditional lagging indicator credit factors such as credit bureau data.

For example, the FICO score, which was invented in 1989, is used by over 90% of financial services providers to determine who is approved for credit and at what interest rate. While a FICO score is rarely used in isolation, many credit models are similarly rules-based systems with limited inputs. A recent study found that bank credit models commonly incorporate eight to 15 variables, with the more sophisticated models using as many as 30.

In fact, financial services providers view the data available to them as insufficient for making informed decisions: in a recent Aite Group survey of banks, credit unions and fintech firms, 48% of financial services providers reported feeling less confident making consumer lending decisions based on traditional credit scores and reports compared with a year prior.

Lenders’ Tech Investment Prioritizes Brand and User Experience Over Decision-Making and Automation

While financial services providers invest in the development and growth of their businesses, there are a number of competing priorities for these investment dollars. At their core, financial services providers are consumer-facing businesses and are required to feed their funnel with more applications from new customers. For this reason, investments in brand and user experience are often prioritized over investments in improvements for underwriting systems, credit decision-making and automation. According to Deloitte and Gartner, traditional banks spend only 7% of their revenues on technology, representing less than 65% of their marketing budgets.

Fintech Partnerships Are Accelerating

Financial services providers are increasingly seeking partners to help them drive better results for their customers. To remain competitive, 48% of banks and 42% of credit unions have partnered with fintech startups over the past three years to address specific technology needs. Amon