Item 1.01 Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On February 18, 2020, Ally Financial Inc. (Ally) entered into an Agreement and
Plan of Merger (the Merger Agreement) with Wildcat Merger Sub I LLC, a Delaware
limited liability company and a wholly owned subsidiary of Ally (Merger Sub I),
Wildcat Merger Sub II LLC, a Delaware limited liability company and a wholly
owned subsidiary of Ally (Merger Sub II), Cardholder Management Services, Inc.,
a New York corporation (the Company), Donald M. Berman, in his individual
capacity and as grantor of the Son's Trust and the Daughter's Trust (as those
terms are defined in the Merger Agreement), Richard Berman, in his capacity as
Trustee of the Son's Trust and the Daughter's Trust, B2 FIE VIII LLC, PCP CW
Aggregator Holdings, L.P., Reverence Card Co-Invest, L.P., and the Stockholders'
Representative (as that term is defined in the Merger Agreement). Under the
Merger Agreement, Merger Sub I will merge with and into the Company, with the
Company continuing as the surviving company (the Merger). Immediately following
the Merger and as part of a single integrated transaction, the Company will
merge with and into Merger Sub II, with Merger Sub II continuing as the
surviving company (the Subsequent Merger). Following the Subsequent Merger and
pursuant to the terms of a separate merger agreement, Merrick Bank, currently a
wholly owned subsidiary of CardWorks, Inc., will merge with and into Ally Bank,
with Ally Bank continuing as the surviving entity (the Bank Merger). The Merger,
the Subsequent Merger, and the Bank Merger are collectively referred to as the
Acquisition. Mr. Berman, the Son's Trust, the Daughter's Trust, B2 FIE VIII LLC,
PCP CW Aggregator Holdings, L.P., and Reverence Card Co-Invest, L.P. currently
constitute all of the stockholders of the Company (Stockholders) and are
collectively referred to as the Key Stockholders.
The Merger Agreement and the Acquisition were unanimously approved by the boards
of directors of Ally and the Company and, through their execution of the Merger
Agreement, the Key Stockholders. The Acquisition, which is subject to receipt of
regulatory approvals and the satisfaction of other customary closing conditions,
is expected to close in the third quarter of 2020. Immediately following the
closing of the Acquisition, Mr. Berman-the Company's chief executive officer and
majority stockholder-will join the boards of directors of Ally and Ally Bank,
will become a member of Ally's executive management team.
Merger Consideration
As a result of the Acquisition, each share of the Company's common stock issued
and outstanding immediately before the effective time of the Merger will be
converted into the right to receive either a specified amount in cash (the Cash
Consideration) or a specified number of shares of Ally's common stock (the Stock
Consideration and, together with the Cash Consideration, the Merger
Consideration), subject to adjustment as described in the Merger Agreement,
including a collar to re-set the exchange ratio with respect to the Stock
Consideration should the 20-day volume-weighted average stock price of Ally
common stock immediately prior to the Final Approval Date (as defined in the
Merger Agreement) exceed 120% of $32.85. Each stock appreciation right (SAR)
issued by the Company and outstanding immediately before the effective time of
the Merger will be converted into the right to receive cash, shares of Ally
common stock, or an award of time-based restricted stock units of Ally
(Substitute Award), in each case, specific to the individual holder and the
exercise price of each SAR (the SAR Conversion). With respect to Substitute
Awards, a portion of the Stock Consideration due to Mr. Berman equal to the
number of shares of Ally common stock issuable pursuant to Substitute Awards
(and any dividends or distributions paid with respect to such shares) will be
held in escrow for so long as Substitute Awards remain outstanding. Such
escrowed shares (and related dividends and distributions) will be released
(i) to Ally in connection with the issuance of Ally common stock in satisfaction
of a Substitute Award (effectively reducing the consideration paid by Ally to
Mr. Berman) or (ii) to Mr. Berman in the event that a Substitute Award is
cancelled, forfeited or terminated. Mr. Berman is expected to hold approximately
8.0% of the outstanding shares of Ally's common stock in his individual capacity
(assuming that all escrowed shares are delivered to Ally in connection with
Substitute Awards).
Net of the adjustment above, the aggregate Cash Consideration, including cash
expected to be paid in connection with the SAR Conversion, will be approximately
$1.4 billion, and the aggregate Stock Consideration, including the shares of
Ally common stock expected to be issued in connection with the SAR Conversion,
will be approximately 39.5 million shares based on Ally's closing stock price of
$32.85 on February 14, 2020, or approximately $1.3 billion. Of the aggregate
Cash Consideration including the shares of Ally common stock expected to be
issued in connection with the SAR Conversion, $75 million will be held in escrow
until the final reconciliation of the total consideration value, and at that
time, any amount in excess of $50 million
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will be released to the Stockholders. The remaining amount will be held in
escrow to satisfy any claims by Ally under the Merger Agreement, with amounts in
excess of $25 million (net of the amount of any pending indemnity claims) to be
released to the Stockholders after the first anniversary of the closing of the
Acquisition and any remaining amount (net of the amount of any pending indemnity
claims) to be released to the Stockholders after February 28, 2022.
Representations and Warranties; Covenants
The Merger Agreement includes customary representations, warranties, and
covenants by the parties, including, among others, a covenant by the Company to
use reasonable best efforts to conduct its business in the ordinary course and
consistent with past practice during the time between the execution of the
Merger Agreement and the closing of the Acquisition. The Company and the Key
Stockholders have also agreed during that period not to directly or indirectly
solicit other proposals relating to the acquisition of the Company. In addition,
Mr. Berman has agreed to certain non-competition restrictions for three years
after the closing of the Acquisition.
Closing Conditions; Termination
The completion of the Acquisition is subject to customary closing conditions for
both parties, including receipt of specified regulatory approvals or the
expiration or termination of applicable waiting periods and the absence of any
order or law prohibiting the Acquisition. The obligation of each of Ally and the
Company to complete the Acquisition is also conditioned on (i) its receipt of a
certain tax opinion from its counsel, (ii) the truth and correctness of
representations and warranties of the Company and the Key Stockholders (in the
case of Ally) and Ally (in the case of the Company) (in each case, subject to
certain "materiality" and "material adverse effect" qualifications set forth in
the Merger Agreement), (iii) performance by the Company and the Key Stockholders
(in the case of Ally) and by Ally (in the case of the Company) in all material
respects of its obligations under the Merger Agreement and (iv) in the case of
Ally only, the continued employment of certain key employees of the Company and
the absence of any notice of intent to terminate employment by such key employee
and the receipt of certain consents from contractual counterparties. The Merger
Agreement also contains customary termination rights, including a right of Ally
or the Company to terminate the Merger Agreement if the closing of the
Acquisition does not occur by December 1, 2020, as such date may be extended
pursuant to the Merger Agreement. In addition, Mr. Berman, in his personal
capacity, may terminate the Merger Agreement within a specified period under
certain circumstances in which the 20-day volume-weighted average stock price of
Ally falls below 85% of $32.85, unless Ally elects to increase the Stock
Consideration due to the Stockholders as contemplated by the Merger Agreement.
Indemnification; R&W Insurance
The Merger Agreement contains indemnification obligations of Ally and the Key
Stockholders for breaches of representations, warranties and covenants and
certain other specified matters, and each such party's indemnification
obligations are also subject to various limitations. In addition to
indemnification provisions, the Merger Agreement provides for representation and
warranty insurance, the premium for which will be shared equally by Ally and the
Company.
Investor Rights Agreement
In connection with the Acquisition, Ally, Mr. Berman, PCP CW Aggregator
Holdings, L.P. and the holders of SARs that will receive shares of Ally common
stock in exchange for such SARs pursuant to the terms of the Merger Agreement
(together, the Investors) will enter into an Investor Rights Agreement at the
closing of the Acquisition. The Investor Rights Agreement will provide that
Mr. Berman will be nominated to serve on the Ally board of directors for each of
the three years following the Acquisition closing, subject to customary
requirements. The Investor Rights Agreement will also, among other things,
(i) provide that Ally will register with the Securities and Exchange Commission
(the SEC) for resale the shares issued to the Investors in connection with the
Acquisition within 90 days following the closing
. . .
Item 3.02 Unregistered Sales of Equity Securities.
The information regarding the Merger Agreement under Item 1.01 above, including
the issuance of shares of Ally common stock, is incorporated in its entirety in
this Item 3.02 by reference. The issuance of such shares as Stock Consideration
is a private transaction exempt from registration pursuant to Section 4(a)(2) of
the Securities Act of 1933, as amended, and the rules and regulations of the
Securities and Exchange Commission promulgated thereunder.
Forward Looking Statements
This filing and related communications contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. These
statements can be identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements often use words such as
"believe," "expect," "anticipate," "intend," "pursue," "seek," "continue,"
"estimate," "project," "outlook," "forecast," "potential," "target,"
"objective," "trend," "plan," "goal," "initiative," "priorities," or other words
of comparable meaning or future-tense or conditional verbs such as "may,"
"will," "should," "would," or "could." Forward-looking statements convey our
expectations, intentions, or forecasts about future events, circumstances, or
results. All forward-looking statements, by their nature, are subject to
assumptions, risks, and uncertainties, which may change over time and many of
which are beyond our control. You should not rely on any forward-looking
statement as a prediction or guarantee about the future. Actual future
objectives, strategies, plans, prospects, performance, conditions, or results
may differ materially from those set forth in any forward-looking statement. Any
forward-looking statement made by us or on our behalf speaks only as of the date
that it was made.
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Some of the factors that may cause actual results or other future events or
circumstances to differ from those in forward-looking statements are described
in our Annual Report on Form 10-K for the year ended December 31, 2018, our
subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K, or
other applicable documents that are filed or furnished with the U.S. Securities
and Exchange Commission (collectively, our SEC filings). Factors that could
cause actual results to differ from those included in forward-looking statements
include those specifically related to our planned acquisition of the Company and
our associated outlook for various financial and operating metrics, in addition
to the factors described in our SEC filings, including: (1) the risk that
necessary regulatory approvals may not be obtained, may be delayed, or may be
obtained subject to burdensome conditions; (2) the occurrence of any other fact,
event, or circumstance that could give rise to a delay in closing the
Acquisition or the termination of the Merger Agreement, including-if the average
price of our stock declines by a specified amount during specified time
period-Mr. Berman's exercise of his right to terminate and our decision not to
correspondingly increase the stock consideration; (3) any adverse reactions or
changes to customer, counterparty, regulatory, or employee relationships,
including any adverse impact on our brand or reputation; (4) any adverse market
reactions affecting our access to the capital markets or our investor relations
generally; (5) any deterioration or weakness in economic conditions that affects
households or consumers; (6) any change in the regulatory or political
environment that adversely impacts the business of lending to households and
consumers; (7) risks and uncertainties associated with inaccurate financial and
operational assumptions, incomplete or failed due diligence, lower-than-expected
performance, higher-than-expected costs, difficulties related to integration,
the loss of key employees, and the diversion of management's attention from
other business activities; and (8) potential litigation in connection with the
Acquisition. We do not undertake to update any forward-looking statement to
reflect the impact of events, circumstances, or results that arise after the
date that the statement was made, except as required by applicable securities
laws. You, however, should consult further disclosures (including disclosures of
a forward-looking nature) that we may make in any subsequent SEC filings.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
The following exhibits are filed as part of this Report.
Exhibit
No. Description of Exhibits
2.1 Agreement and Plan of Merger, dated as of February 18, 2020*
104 The cover page from this Current Report on Form 8-K, formatted in
inline XBRL
* Certain schedules to this agreement have been omitted pursuant to Item
601(b)(2) of Regulation S-K and the registrant agrees to furnish
supplementally to the Securities and Exchange Commission a copy of any
omitted schedule upon request.
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