Item 1.01 Entry into a Material Definitive Agreement.
Merger Agreement
On August 9, 2022, S CarLotz, Inc., a Delaware corporation ("CarLotz") entered
into an Agreement and Plan of Merger (the "Merger Agreement") with Shift
Technologies, Inc., a Delaware corporation ("Shift"), and Shift Remarketing
Operations, Inc., a Delaware corporation and direct wholly owned subsidiary of
Shift ("Merger Sub"), pursuant to which, among other things and subject to the
terms and conditions contained therein, Merger Sub will be merged with and into
CarLotz, with CarLotz continuing as the surviving corporation and as a direct
wholly owned subsidiary of Shift (the "Merger"). The Merger Agreement and the
transactions contemplated thereby (including the Merger, the "Contemplated
Transactions") have been unanimously approved by each of the board of directors
of Shift (the "Shift Board") and the board of directors of CarLotz (the "CarLotz
Board").
Consideration to CarLotz Shareholders
The Merger Agreement provides that, at the effective time of the Merger (the
"Effective Time"), each issued and outstanding share of Class A common stock,
par value $0.0001 per share, of CarLotz ("CarLotz common stock") (other than
CarLotz common stock owned or held in treasury by CarLotz, which will be
cancelled for no consideration) will be converted into the right to receive a
number of shares of Shift common stock as determined by the Exchange Ratio (the
"Merger Consideration"), rounded up to the nearest whole share for any
fractional shares of Shift common stock that would be issued to any stockholder
resulting from the calculation. The "Exchange Ratio" is equal to 0.692158;
provided, however, that as of immediately prior to the Effective Time the
Exchange Ratio will be adjusted to a ratio equal to (i) the product of (A) the
number of issued and outstanding shares of Shift common stock immediately prior
to the Effective Time and (B) 99.99%, divided by (ii) the number of shares of
CarLotz common stock outstanding immediately prior to the Effective Time
expressed on a fully-diluted and as-converted to CarLotz common stock basis (but
excluding (1) any Earnout Shares or Earnout Acquiror RSUs (each as defined
below), (2) any CarLotz warrants, (3) any options to purchase CarLotz common
stock that have an exercise price higher than the implied price per share of
CarLotz common stock, determined at the Effective Time based on the Exchange
Ratio, and (4) any performance-based restricted stock unit award that will be
terminated as of the Effective Time, in each case as described in more detail in
the Merger Agreement), subject to the terms and conditions set forth in the
Merger Agreement. Shift stockholders will continue to own their existing shares
of Shift common stock.
Treatment of CarLotz Equity Awards, Earnout Shares and Warrants
At the Effective Time, (i) each vested time-based and performance-based
restricted stock unit award (including any such awards that vest at the
Effective Time) will be converted into the right to receive the Merger
Consideration in respect of each underlying share of CarLotz common stock, less
applicable tax withholding, and (ii) each other restricted stock unit award will
be assumed and converted into an award relating to Shift common stock, with
appropriate adjustments to the numbers of shares and share price thresholds to
reflect the Exchange Ratio, in each case in accordance with the terms set forth
the Merger Agreement. In addition, at the Effective Time each option to purchase
CarLotz common stock and warrant to purchase CarLotz common stock will be
assumed and converted into an option or warrant, as the case may be, to purchase
Shift common stock, in each case with appropriate adjustments to the numbers of
shares and exercise prices to reflect the Exchange Ratio, in accordance with the
terms set forth in the Merger Agreement.
Additionally, each Earnout Share and Earnout Acquiror RSU (each as defined in
the SPAC Merger Agreement) outstanding as of the Effective Time will be assumed
and converted into a right to acquire shares of Shift common stock, with
appropriate adjustments to the number of shares and share price thresholds to
reflect the Exchange Ratio; provided, however, in the event the Contemplated
Transactions constitute an Acceleration Event (as defined in the SPAC Merger
Agreement), the terms and conditions set forth in the SPAC Merger Agreement will
apply and such Earnout Shares and Earnout Acquiror RSUs will be converted into
the right to receive the Merger Consideration in respect of each underlying
share of CarLotz common stock, less applicable tax withholding. The "SPAC Merger
Agreement" means that certain Agreement and Plan of Merger dated as of
October 21, 2020, by and among CarLotz, Inc. (f/k/a Acamar Partners Acquisition
Corp.), Acamar Partners Sub, Inc. and CarLotz Group, Inc. (f/k/a CarLotz, Inc.),
as amended.
Board of Directors of Shift
Pursuant to the Merger Agreement, Shift and CarLotz have agreed that, prior to
the closing of the Merger, Shift will take all necessary action so that
immediately following the Effective Time (i) the size of the Shift Board will be
increased by one director (to a total of ten directors) and (ii) the Shift Board
will be composed of five current directors of the Shift Board designated by
Shift (the "Designated Shift Directors"), three current directors of the CarLotz
board designated by CarLotz (the "Designated CarLotz Directors"), the Chief
Executive Officer of Shift as of the Effective Time and one independent director
to be mutually agreed upon by Shift and CarLotz.
Conditions to the Merger
The consummation of the Merger is subject to the satisfaction or waiver of
customary closing conditions, including: (i) a registration statement on
Form S-4 to be filed in connection with the Merger shall be effective; (ii) the
receipt of the required approvals from Shift's stockholders and CarLotz's
stockholders, as applicable; (iii) to the extent applicable, the expiration or
termination of any applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended; (iv) the absence of any court
order or regulatory injunction preventing the consummation of the Merger;
(v) subject to specified materiality standards, the accuracy of the
representations and warranties of each party; (vi) compliance by each party in
all material respects with its covenants; (vii) since the date of the Merger
Agreement, there shall not have occurred a material adverse effect with respect
to either party, as such term is defined in the Merger Agreement; (viii) the
authorization for listing of shares of Shift common stock to be issued in
connection with the Merger; and (ix) the receipt of a certificate from the other
party certifying the satisfaction of certain closing conditions. In addition,
the consummation of the Merger is subject to the satisfaction or waiver of
certain minimum cash conditions, whereby immediately prior to the Effective Time
each of Shift and CarLotz must have an aggregate amount of cash, cash
equivalents and marketable investments, less its aggregate indebtedness
outstanding pursuant to its respective floorplan arrangement, and plus certain
other amounts to the extent paid prior to or at Closing (in each case as further
detailed in the Merger Agreement) in an aggregate amount equal to or greater
than the following:
Shift Minimum Cash CarLotz Minimum Cash
Closing Date Amount Amount
During 2022 $ (10,416,596 ) $ 58,330,299
During January 2023 $ (15,416,596 ) $ 53,330,299
During February 2023 $ (20,416,596 ) $ 48,330,299
During March 2023 $ (25,416,596 ) $ 43,330,299
During April 2023 $ (30,416,596 ) $ 38,330,299
During May 2023 $ (35,416,596 ) $ 33,330,299
Each party's respective minimum cash amount would decrease by $5,000,000 with
each additional month in which Closing occurs after May 31, 2023. For the
avoidance of doubt, each party's minimum cash amount is not, and should not be
interpreted as, guidance for actual results with respect to such party.
Representations, Warranties and Covenants
The Merger Agreement contains customary representations and warranties of Shift,
Merger Sub and CarLotz relating to, among other things, their respective
businesses, financial statements and public filings, in each case generally
subject to customary materiality qualifiers. Additionally, the Merger Agreement
provides for customary covenants of Shift, Merger Sub and CarLotz, including
covenants regarding the conduct of their respective businesses during the
pendency of the transactions contemplated by the Merger Agreement, public
disclosures and other matters. In addition, each of Shift and CarLotz is
required, among other things, not to solicit an alternative acquisition proposal
and, subject to certain exceptions, not to engage in discussions or negotiations
regarding an alternative acquisition proposal.
Termination
The Merger Agreement may be terminated and the Merger and the other Contemplated
Transactions may be abandoned at any time before the Closing by mutual written
consent of Shift and CarLotz. In addition, either Shift or CarLotz may terminate
the Merger Agreement if: (i) the consummation of the Merger does not occur on or
before February 9, 2023 (the "Outside Date"), subject to extension for 90 days
for the sole purpose of obtaining any required antitrust approvals (to the
extent applicable); (ii) a governmental authority issues a final, non-appealable
order, injunction, decree or ruling that restrains, enjoins or otherwise
prohibits the consummation of the Merger; or (iii) if Shift and/or CarLotz does
not obtain the required approvals at the meeting of their respective
stockholders, subject to certain exceptions set forth in the Merger Agreement.
Further, subject to the terms and conditions of the Merger Agreement, each of
Shift and CarLotz may terminate the Merger Agreement in the event that, prior to
other party obtaining the required approvals of its respective stockholders,
(i) the other party's board of directors (A) withdraws or modifies its
recommendation to its stockholders in connection with the Merger in a manner
adverse to the terminating party, (B) causes or permits any subsidiary to
executive an alternative acquisition agreement, or (C) resolves, agrees or
publicly proposes to, or permits a subsidiary to resolve, agree or publicly
propose to, take any of the actions set forth in clauses (A) and (B), (ii) the
other party fails to include its board of directors' unanimous recommendation in
the joint proxy statement, (iii) a tender or exchange offer relating to the
shares of the other party's common stock shall have commenced and the other
party shall not have sent to its stockholders within ten business days a
statement recommending the rejection of such offer and reaffirming its board of
directors' unanimous recommendation with respect to the Contemplated
Transactions, (iv) the other party's board of directors (or committee thereof)
shall, or publicly propose to, recommend, adopt or approve an alternative
acquisition proposal, or (v) the other party or its subsidiaries shall have
materially breached their non-solicitation or certain other obligations in the
Merger Agreement (each of clauses (i) through (v), a "Triggering Event"). In
addition, subject to the terms and conditions of the Merger Agreement, each of
Shift and CarLotz may terminate the Merger Agreement in the event that (i) the
other party has breached, failed to perform or violated their respective
covenants or agreements under the Merger Agreement or any of its respective
representations and warranties set forth in the Merger Agreement will have
become inaccurate, in each case, in a manner that would give rise to the failure
of certain closing conditions, as set forth in the Merger Agreement, and such
breach, failure to perform, violation or inaccuracy is not capable of being
cured by the applicable time set forth in the Merger Agreement; or (ii) prior to
the other party obtaining the required approvals of its respective stockholders,
in order to enter into a definitive agreement relating to a superior offer, as
described in the Merger Agreement, providedthat the terminating party must pay
the applicable termination fee described below.
Termination Fees; Expense Reimbursement Fees
Shift will be required to pay CarLotz a termination fee equal to $4.25 million
in the event (i) (A) the Merger Agreement is terminated because Shift's
stockholders do not approve the issuance of Merger Consideration shares, (B) an
alternative acquisition proposal with respect to Shift was publicly known or
made and not publicly withdrawn at least two business days prior to Shift's
stockholder meeting, and (C) within twelve months of such termination, Shift
enters into a definitive agreement relating to an alternative acquisition
transaction, or (ii) the Merger Agreement is terminated (A) by CarLotz due to a
Triggering Event with respect to Shift, (B) by Shift at any time in which
CarLotz has the right to terminate the Merger Agreement due to a Triggering
Event with respect to Shift, or (C) by Shift in order to accept a superior
offer, in accordance with the terms set forth in the Merger Agreement. In
addition, if the Merger Agreement is terminated pursuant to clause (i)(A), Shift
will be required to pay CarLotz certain transaction expenses in an amount not to
exceed $1.21 million (with such expense reimbursement amount being credited
against the termination fee, if payable pursuant to clause (i)).
CarLotz will be required to pay Shift a termination fee equal to $4.25 million
in the event (i) (A) the Merger Agreement is terminated because CarLotz's
stockholders do not approve the Merger Agreement and Contemplated Transactions,
(B) an alternative acquisition proposal with respect to CarLotz was publicly
known or made and not publicly withdrawn at least two business days prior to
CarLotz's stockholder meeting, and (C) within twelve months of such termination,
CarLotz enters into a definitive agreement relating to an alternative
acquisition transaction, or (ii) the Merger Agreement is terminated (A) by Shift
due to a Triggering Event with respect to CarLotz, (B) by CarLotz at any time in
which Shift has the right to terminate the Merger Agreement due to a Triggering
Event with respect to CarLotz, or (C) by CarLotz in order to accept a superior
. . .
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