Item 1.01. Entry Into a Material Definitive Agreement.
On May 26, 2020, KAR Auction Services, Inc. (the "Company"), a Delaware
corporation, entered into an Investment Agreement (the "Apax Investment
Agreement") with Ignition Parent LP ("Apax"), a Delaware limited partnership and
affiliate fund of Apax Partners, L.P., relating to the issuance and sale to Apax
of up to an aggregate of 530,000 shares of the Company's Series A Convertible
Preferred Stock, par value $0.01 per share (the "Series A Preferred Stock"), for
an aggregate purchase price of up to $530 million (the "Apax Issuance").
Substantially simultaneously with the execution of the Apax Investment
Agreement, the Company entered into an Investment Agreement (the "Periphas
Investment Agreement" and together with the Apax Investment Agreement, the
"Investment Agreements") with Periphas Capital GP, LLC ("Periphas" and together
with Apax, the "Investors"), a Delaware limited liability company, relating to
the issuance and sale to Periphas of up to an aggregate of 50,000 shares of
Series A Preferred Stock for an aggregate purchase price of up to $50 million
(the "Periphas Issuance" and together with the Apax Issuance, the "Issuances").
The Issuances may be issued in two tranches as follows:
An initial issuance of 500,000 shares of Series A Preferred Stock to Apax and
20,000 shares of Series A Preferred Stock to Periphas, at a price of $1,000 per
share. The initial closing of the Series A Preferred Stock is conditioned upon
satisfaction or waiver of certain customary closing conditions and will not
occur prior to June 10, 2020, unless otherwise agreed to by the Investors, as
applicable (the date on which the initial closing occurs, the "Initial Closing
Date").
A second issuance of shares of Series A Preferred Stock in an amount up to $30
million, at a price of $1,000 plus the amount of dividends accrued on a share of
Series A Preferred Stock from and including the Initial Closing Date through to
but excluding the Second Closing Date (as defined herein). With respect to the
second issuance, Periphas will have the option, in its sole discretion, to
purchase up to 30,000 shares of Series A Preferred Stock by providing notice to
the Company of such intention no later than June 17, 2020. The Company will have
the option, in its sole discretion, to sell to Apax shares of Series A Preferred
Stock in an amount up to $30 million less the amount (if any) invested by
Periphas on the Second Closing Date by delivering to Apax a notice of the
Company's intention to exercise such option no later than June 17, 2020. The
second closing of the Series A Preferred Stock is conditioned upon satisfaction
or waiver of certain customary closing conditions and will not occur prior to
June 29, 2020, unless otherwise agreed to by the Investors, as applicable, but
in no event after June 30, 2020 (the date on which the second closing occurs,
the "Second Closing Date" and together with the Initial Closing Date, the
"Closing Dates").
The Series A Preferred Stock will rank senior to the shares of the Company's
common stock, par value $0.01 per share (the "Common Stock"), with respect to
dividend rights and rights on the distribution of assets on any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Company. The Series A Preferred Stock will have a liquidation preference of
$1,000 per share. The holders of the Series A Preferred Stock will be entitled
to a cumulative dividend at the rate of 7% per annum, payable quarterly in
arrears, as set forth in the Certificate of Designations designating the Series
A Preferred Stock, a form of which is attached as Exhibit A to each Investment
Agreement (the "Certificate of Designations"). Dividends will be payable in kind
through the issuance of additional shares of Series A Preferred Stock for the
first eight dividend payments following the initial issuance of Series A
Preferred Stock, and thereafter, in cash or in kind, or in any combination of
both, at the option of the Company.
The Series A Preferred Stock will be convertible at the option of the holders
thereof at any time after the one-year anniversary of the Initial Closing Date
into shares of Common Stock at an initial conversion price of $17.75 per share
of Series A Preferred Stock and an initial conversion rate of 56.3380 shares of
Common Stock per share of Series A Preferred Stock, subject to certain
anti-dilution adjustments. At any time after the three-year anniversary of the
Initial Closing Date, if the closing price of the Common Stock exceeds $31.0625
per share, as may be adjusted pursuant to the Certificate of Designations, for
at least 20 trading days in any period of 30 consecutive trading days, at the
election of the Company, all or any portion of the Series A Preferred Stock will
be convertible into the relevant number of shares of Common Stock.
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Under the Certificate of Designations, after the expiration or earlier
termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended with respect to any conversion of
the Series A Preferred Stock, the holders of the Series A Preferred Stock will
be entitled to vote with the holders of the Common Stock as a single class. The
holders of the Series A Preferred Stock will be entitled to vote as a separate
class with respect to, among other things, amendments to the Company's
organizational documents that have an adverse effect on the Series A Preferred
Stock, authorizations or issuances by the Company of securities that are senior
to, or equal in priority with, the Series A Preferred Stock, increases or
decreases in the number of authorized shares of Series A Preferred Stock and
issuances of shares of the Series A Preferred Stock after the Initial Closing
Date, other than shares issued on the Second Closing Date, and any shares issued
as dividends in kind with respect to shares of the Series A Preferred Stock
issued on any of the Closing Dates or with respect to such shares issued as
dividends in kind.
At any time after the six-year anniversary of the Initial Closing Date, the
Company may redeem some or all of the Series A Preferred Stock for a per share
amount in cash equal to: (i) the sum of (x) the liquidation preference thereof,
plus (y) all accrued and unpaid dividends, multiplied by (ii) (A) 105% if the
redemption occurs at any time after the six-year anniversary of the Initial
Closing Date and prior to the seven-year anniversary of the Initial Closing Date
or (B) 100% if the redemption occurs at any time after the seven-year
anniversary of the Initial Closing Date.
Upon certain change of control events involving the Company, and subject to
certain limitations set forth in the Certificate of Designations, each holder of
the Series A Preferred Stock will either (i) receive such number of shares of
Common Stock into which such holder is entitled to convert all or a portion of
such holder's shares of Series A Preferred Stock at the then-current conversion
price, (ii) receive, in respect of all or a portion of such holder's shares of
Series A Preferred Stock, the greater of (x) the amount per share of Series A
Preferred Stock that such holder would have received had such holder,
. . .
Item 3.02. Unregistered Sales of Equity Securities.
The information contained in Item 1.01 is incorporated herein by reference.
As described in Item 1.01, pursuant to the terms of the Investment Agreements,
the Company has agreed to issue shares of the Series A Preferred Stock to the
Investors. These Issuances and sales will be exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to Section
4(a)(2) of the Securities Act. Each of the Investors represented to the Company
that it is an "accredited investor" as defined in Rule 501 of the Securities Act
and that the Series A Preferred Stock is being acquired for investment purposes
and not with a view to, or for sale in connection with, any distribution
thereof, and appropriate legends will be affixed to any certificates evidencing
shares of the Series A Preferred Stock or shares of the Common Stock issued in
connection with any future conversion of the Series A Preferred Stock.
Item 8.01. Other Events.
On May 26, 2020, the Company issued a press release (the "Press Release")
announcing the execution of the Investment Agreements. A copy of the Press
Release is attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
Forward Looking Statements
Certain statements contained in this report include "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
which are subject to certain risks, trends and uncertainties. In particular,
statements made that are not historical facts may be forward-looking statements.
Words such as "should," "may," "will," "anticipates," "expects," "intends,"
"plans," "believes," "seeks," "estimates," and similar expressions identify
forward-looking statements. Such statements are based on management's current
expectations, are not guarantees of future performance and are subject to risks
and uncertainties that could cause actual results to differ materially from the
results projected, expressed or implied by these forward-looking statements.
Factors that could cause or contribute to such differences include those
uncertainties regarding the impact of the COVID-19 virus on our business and the
economy generally, and those other matters disclosed in the Company's Securities
and Exchange Commission filings. The Company does not undertake any obligation
to update any forward-looking statements.
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Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT
10.1 Investment Agreement, dated May 26, 2020, by and between KAR Auction
Services, Inc. and Ignition Parent LP.
10.2 Investment Agreement, dated May 26, 2020, by and between KAR Auction
Services, Inc. and Periphas Capital GP, LLC.
99.1 Press Release, dated May 26, 2020.
104 Interactive Data File.
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