UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of
1934
Date of Report (Date of earliest event reported): May 26,
2020
KAR AUCTION SERVICES, INC.
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction
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11299 N. Illinois Street
Carmel, Indiana 46032
(Address of principal executive offices)
(Zip Code)
(800) 923-3725
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant
under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under
the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under
the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth
company as defined in Rule 405 of the Securities Act of 1933
(Sec.230.405 of this chapter) or Rule 12b-2 of the Securities
Exchange Act of 1934 (Sec.240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
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Trading symbol
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Name of each exchange on which registered
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Common Stock, par value $0.01 per share
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KAR
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New York Stock Exchange
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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.
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, immediately prior to
such change of control, converted such share of Series A Preferred
Stock into Common Stock and (y) a purchase price per share of
Series A Preferred Stock, payable in cash, equal to the product of
(A) 105% multiplied by (B) the sum of the liquidation preference
and accrued dividends with respect to such share of Series A
Preferred Stock, or (iii) unless the consideration in such change
of control event is payable entirely in cash, retain all or a
portion of such holder’s shares of Series A Preferred Stock.
Pursuant to the Apax Investment Agreement, the Company has agreed
to increase the size of its board of directors (the “Board”)
in order to appoint one individual designated by Apax (the
“Apax
Designee”) to the Board. Such Apax Designee will
serve on the Board for a term expiring at next year’s annual
meeting of the Company’s stockholders, effective immediately
following the Initial Closing Date. For so long as Apax or its
affiliates beneficially own at least 25% of the shares of Series A
Preferred Stock purchased in the Apax Issuance on an as-converted
basis, (i) Apax will have the right to designate the Apax Designee
for election to the Board or, so long as Apax also holds shares of
Series A Preferred Stock, appoint the Apax Designee to the Board
and (ii) the Company has agreed to nominate and recommend an Apax
Designee for election as a director at each annual meeting of the
Company's stockholders. Additionally, so long as Apax or its
affiliates beneficially own at least 50% of the shares of Series A
Preferred Stock purchased in the Apax Issuance on an as-converted
basis, Apax will have the right to appoint one non-voting Board
observer. Pursuant to the Periphas Investment Agreement, Periphas
will have the right to appoint one non-voting Board observer so
long as Periphas or its affiliates beneficially own at least 50% of
the shares of Series A Preferred Stock purchased in the Periphas
Issuance on an as-converted basis.
Apax will be subject to certain standstill restrictions, until the
later of the three-year anniversary of the Initial Closing Date and
the date on which Apax no longer owns 25% of the shares of Series A
Preferred Stock purchased in the Apax Issuance on an as-converted
basis. Periphas will also be subject to certain standstill
restrictions, until the later of the three-year anniversary of the
Initial Closing Date and the date on which Periphas no longer owns
50% of the shares of Series A Preferred Stock purchased in the
Periphas Issuance on an as-converted basis. Subject to certain
customary exceptions, the Investors will be restricted from
transferring the Series A Preferred Stock until the one-year
anniversary of the Initial Closing Date.
Apax and its affiliates will have certain customary registration
rights with respect to shares of the Series A Preferred Stock and
the shares of the Common Stock held by it issued upon any future
conversion of the Series A Preferred Stock pursuant to the terms of
a registration rights agreement, a form of which is attached as
Exhibit B to the Apax Investment Agreement.
If Periphas exercises its option to purchase at least 20,000 shares
of Series A Preferred Stock in connection with the second issuance,
Periphas will have the right with respect to shares of the Series A
Preferred Stock and the shares of the Common Stock held by it
issued upon any future conversion of the Series A Preferred Stock
to cause its registrable securities to be included in any Company
initiated registration, pursuant to the terms of a registration
rights agreement, a form of which is attached as Exhibit B to the
Periphas Investment Agreement.
The foregoing description of the terms of the Series A Preferred
Stock, the Investment Agreements and the Certificate of
Designations and the transactions contemplated thereby does not
purport to be complete and is subject to, and qualified in its
entirety by, the full text of the Investment Agreements and the
exhibits and schedules thereto, which are attached hereto as
Exhibit 10.1 and Exhibit 10.2, and are incorporated herein by
reference.
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.
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.
Item 9.01
Financial Statements and Exhibits.
(d)
Exhibits
EXHIBIT NO.
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DESCRIPTION OF EXHIBIT
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Investment Agreement, dated May 26, 2020, by and between KAR
Auction Services, Inc. and Ignition Parent LP.
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Investment Agreement, dated May 26, 2020, by and between KAR
Auction Services, Inc. and Periphas Capital GP, LLC.
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Press Release, dated May 26, 2020.
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104
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Interactive Data File.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized.
Dated: May 27, 2020
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KAR Auction Services, Inc.
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/s/ Eric M. Loughmiller
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Eric M. Loughmiller
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Executive Vice President and Chief Financial Officer
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