Item 1.01 Entry into a Material Definitive Agreement.
Business Combination Agreement
On October 27, 2021, FirstCash, Inc. (“FirstCash”), FirstCash Holdings Inc., a newly formed wholly owned subsidiary of FirstCash (“New Parent”), Atlantis Merger Sub, Inc., a wholly owned subsidiary of New Parent (“Merger Sub” and together with FirstCash and New Parent, the “FirstCash Parties”), American First Finance Inc. (“AFF”) and the seller parties (as defined in the Agreement), including Doug Rippel, AFF’s founder and executive chairman (“Rippel”), entered into a Business Combination Agreement (the “Agreement”). Pursuant to the Agreement, FirstCash will acquire AFF by effecting (a) a holding company merger in accordance with Section 251(g) of the Delaware General Corporation Law whereby FirstCash will merge with and into Merger Sub, with FirstCash surviving such merger as a direct wholly owned subsidiary of New Parent (the “New Parent Merger”) and (b) immediately following the New Parent Merger, New Parent will acquire all of the equity interests of AFF from the seller parties in exchange for a base purchase price consisting of approximately 8.05 million shares of New Parent common stock and $406 million in cash, subject to certain adjustments including a net debt adjustment, and the right to receive up to an additional $300 million of consideration subject to the achievement by AFF of certain performance metrics as described below (the “AFF Acquisition” and together with the New Parent Merger, the “AFF Transactions”).
New Parent Merger
Subject to the terms and conditions set forth in the Agreement, at the effective time of the New Parent Merger (the “Effective Time”), each share of common stock of FirstCash, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time will be automatically converted into one validly issued, fully paid and nonassessable share of common stock of New Parent, par value $0.01 per share (“New Parent Common Stock”). Following the consummation of the New Parent Merger, New Parent will assume FirstCash’s listing on the Nasdaq Stock Market (“Nasdaq”) and continue to trade under the “FCFS” ticker symbol.
AFF Acquisition
Subject to the terms and conditions set forth in the Agreement, immediately after the Effective Time, New Parent will acquire all of the equity interests of AFF in exchange for a closing purchase price (the “Closing Purchase Price”) consisting of approximately 8.05 million shares of New Parent Common Stock, representing a number of shares equal to 19.9% of FirstCash’s outstanding stock (the “Stock Consideration”) and $406 million in cash, subject to certain adjustments, including the amount of AFF’s transaction expenses above or below $37.5 million and AFF’s net debt at closing (the “Cash Consideration”). On a pro forma basis following the closing, the seller parties will indirectly own approximately 16.6% of the outstanding New Parent Common Stock, and the current FirstCash stockholders will hold in the aggregate approximately 83.4% of the outstanding New Parent Common Stock. The issuance of the Stock Consideration is exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).
In addition to the Closing Purchase Price, the seller parties have the right to receive up to an additional $300 million of consideration pursuant to an earnout if AFF achieves certain adjusted EBITDA targets following the closing (the “Earnout Consideration”). In particular, the earnout provides the seller parties the right to receive up to $250 million of additional consideration if AFF achieves certain adjusted EBITDA targets for the period consisting of the fourth quarter of 2021 through the end of 2022 and up to $50 million if AFF achieves certain adjusted EBITDA targets for the first half of 2023. The Earnout Consideration is payable in cash or, at New Parent’s discretion and subject to obtaining any required stockholder approvals under the NASDAQ rules for such issuance, in New Parent Common Stock.
Consummation of the AFF Transactions is subject to satisfaction or waiver of certain customary conditions, including, among others the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and receipt of other required regulatory consents and approvals.
The Agreement contains customary representations and warranties of AFF, the seller parties and the FirstCash Parties. The Agreement also contains customary operating covenants with respect to AFF and certain indemnification rights in favor of the FirstCash Parties and the seller parties.
The Agreement contains customary termination rights, including a termination right for FirstCash and AFF under certain circumstances if the closing has not occurred by March 31, 2022 (the “Outside Date”).
Board Appointment
Pursuant to the Agreement, the FirstCash Parties have agreed to appoint Rippel to the board of directors of New Parent immediately after the Closing. Rippel will be appointed to the class of directors with a term expiring at New Parent’s 2024 annual meeting of stockholders.
The foregoing summary description of the Agreement and the AFF Transactions contemplated thereby is subject to and qualified in its entirety by reference to the Agreement, which is filed as Exhibit 2.1 hereto and incorporated by reference herein.
The Agreement has been attached as an exhibit to this Current Report on Form 8-K in order to provide investors and security holders with information regarding its terms. It is not intended to provide any other financial information about the parties thereto or their respective subsidiaries and affiliates. The representations, warranties and covenants contained in the Agreement were made only for purposes of that agreement and as of specific dates; were solely for the benefit of the parties thereto; may be subject to limitations agreed upon by such parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties thereto instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors and security holders. Investors and security holders should not rely on the representations, warranties or covenants or any description thereof as characterizations of the actual state of facts or condition of the parties to the Agreement or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties and covenants may change after the date of the Agreement, which subsequent information may or may not be fully reflected in public disclosures by the parties thereto.
Registration Rights Agreement
At Closing, New Parent and seller parties will enter into a registration rights agreement, which will grant the seller parties customary registration rights with respect to the Stock Consideration, including the ability to demand that New Parent file a shelf registration statement under the Securities Act to register the resale of all of the shares of New Parent Common Stock issued as Stock Consideration to the seller parties, provided, however, that in no event shall New Parent be required to file such registration statement prior to the six month anniversary of the closing of the AFF Transactions.