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Subsequent Events
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9 Months Ended | ||
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Sep. 30, 2011
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| Subsequent Events |
Securities America Acquisition
On
November 4, 2011 (the “Closing Date”), the Company
completed its previously announced acquisition (the
“Acquisition”) of the outstanding capital stock of
Securities America Financial Corporation, which is a holding
company and the sole owner of Securities America, Inc.
(“SAI”), Securities America Advisors, Inc.
(“SAA”), and Brecek & Young Advisors, Inc.
(“BYA”) (collectively, “Securities
America”). SAI is a registered broker-dealer which conducts
securities brokerage services and markets insurance products
nationally through a network of independent contractor financial
advisors. SAA and BYA are registered investment advisors
which provide investment advisory services through a network of
registered independent contractor representatives. The primary
reason for the acquisition was to establish the Company as a leader
in the independent brokerage and advisory services space. Under a
stock purchase agreement, dated August 16, 2011 (the
“Purchase Agreement”), between the Company and
Ameriprise Financial, Inc. (“Ameriprise”), the Company
paid Ameriprise $150,000 in cash on the Closing Date (the
“Closing Date Purchase Price”). The Company will also
pay to Ameriprise, if earned, a cash earn-out over two years,
subject to a maximum of $70,000, calculated based on a percentage
of the amount, if any, by which Securities America’s
consolidated gross revenue and cash spread for the years ending
December 31, 2012 and 2013 exceed certain
levels.
As
the initial accounting for the Acquisition is incomplete, the
allocation of purchase price, the valuation of the contingent
consideration as of the Closing Date and the supplemental pro forma
information with respect to revenue and earnings of the combined
entity as if the Acquisition had occurred as of the beginning of
the annual reporting periods is not available. Legal and other
expenses related to the Acquisition incurred in the three and nine
month periods ended September 30, 2011 amounted to $700 and were
charged to acquisition related expenses.
November 2011 Loan
In
connection with the Acquisition, on the Closing Date, the Company
entered into a loan agreement with various lenders (the "Lenders"),
under which the Lenders provided a loan (the "November 2011 Loan")
to the Company in an aggregate principal amount of $160,700, a
portion of which was used to fund the Closing Date Purchase
Price. Interest on the November 2011 Loan is payable
quarterly, commencing on December 31, 2011, at 11% per annum.
Interest is payable in cash; provided that (i) from December
31, 2011 until November 4, 2013, the Company may, without
the consent of any Lender, elect to satisfy its interest
obligations by adding such amount to the outstanding principal
balance of the note, in an amount of up to approximately 36% of
accrued and unpaid interest on each payment date, and (ii)
after November 4, 2013 until maturity, the Company may also pay
interest-in-kind with the consent of certain Lenders. This
payment-in-kind feature increases the principal sum outstanding on
the note that is due at maturity by the amount of such
payment-in-kind. Ten percent (10%) of the principal amount of the
November 2011 Loan, together with accrued and unpaid interest
thereon, is due on each of December 31, 2014 and December 31, 2015,
and the balance of the November 2011 Loan, together with
accrued and unpaid interest thereon, is due on November 4,
2016. The Company may voluntarily repay the November
2011 Loan at any time without premium or penalty. The
notes issued under the Loan rank senior in right of payment to all
of the Company's indebtedness incurred after the Closing Date and
will rank at least equal in right of payment with the claims of all
of the Company's existing unsecured and unsubordinated
creditors. Also, so long as amounts remain outstanding and
unpaid under such notes, the Company may not, without the consent
of the Lenders, create, incur or suffer to exist any indebtedness
for borrowed money (other than existing indebtedness as the same
may be amended or extended, or trade payables incurred in the
ordinary course of business) that is not subordinated in all
respects to the indebtedness under such
notes. The notes contain customary events of
default, which, if uncured, permit the Lenders to accelerate the
maturity date of the November 2011 Loan. On the Closing Date, the
Company paid a one-time aggregate funding fee of $804 to the
Lenders and issued to the Lenders warrants (“Warrants”)
to purchase an aggregate of 10,713,332 shares of the Company's
common stock. The Warrants are exercisable at any time
prior to their expiration on November 4, 2016 at $1.68 per share,
which was the closing price of the Company’s common stock on
the Closing Date, as reported by the NYSE Amex. The
Warrants may be exercised in cash, by net exercise or pursuant to a
Lender’s surrender of all or a portion of the principal
amount of such Lender’s note.
The
Lenders include Frost Nevada Investments Trust (“Frost
Nevada”), an affiliate of the Company's Chairman of the Board
and principal shareholder, Dr. Phillip Frost, M.D., Vector Group,
Ltd., (“Vector
Group”) a
principal shareholder of the Company, and Richard J. Lampen, the
Company's President and Chief Executive Officer and a director. The
principal amounts loaned by Frost Nevada, Vector Group and Richard
J. Lampen were $135,000, $15,000 and $200,
respectively. A special committee (the
“Committee”) of the Company’s Board of Directors
(the “Board”) was formed by joint action of the Board
and its audit committee to review and consider the terms of the
November 2011 Loan, the notes issued thereunder and the Warrants,
and, upon such review and consideration, which included the advice
of the Committee’s independent financial advisor, the
Committee determined that the financing is fair from a financial
point of view to the Company and its unaffiliated
shareholders.
NFS Forgivable Loans
On
November 4, 2011, the primary clearing firm of the Company's
subsidiaries, National Financial Services LLC ("NFS"), a Fidelity
Investments company, provided the Company with a seven-year,
$15,000 forgivable loan. The Company will use the
forgivable loan proceeds to fund expenses related to the
Acquisition. Interest on the loan agreement accrues at
the average annual Federal Funds effective rate plus 6% per annum,
subject to the maximum rate of 11% per annum. If
Securities America meets certain annual clearing revenue targets
set forth in the loan agreement, the principal balance of the loan
will be forgiven in seven equal yearly installments of
$2,143 commencing on November 4, 2012 and continuing on an
annual basis through November 2018. Interest payments
due with respect to each such year will also be forgiven if the
annual clearing revenue targets are met. Any principal
amounts not forgiven will be due in November 2018, and any interest
payments not forgiven are due annually. If during the loan term any
principal amount is not forgiven, the Company may have such
principal forgiven in future years if Securities America exceeds
subsequent annual clearing revenue targets. The Company
expects to expense interest under this loan agreement until such
time as such interest is forgiven.
The
forgivable loan agreement contains other covenants including
limitations on the incurrence of additional indebtedness,
maintaining minimum adjusted shareholders’ equity levels and
a prohibition on the termination of the Company’s $40,000
revolving credit agreement prior to its current maturity. Upon the
occurrence of an event of default, the outstanding principal and
interest under the loan agreement may be accelerated and become due
and payable. If the clearing agreements are terminated prior to the
loan maturity date, all amounts then outstanding must be repaid on
demand. The loan agreement is secured by the Company’s (but
not its broker-dealer subsidiaries’) deposits and accounts
held at NFS or its affiliates.
In
connection with the entering into the new forgivable loan,
Securities America and the Company’s other broker
–dealer subsidiaries amended their clearing agreements with
NFS to, among other things, extend the term of those agreements
through November 2018. In addition, the Company and NFS amended the
terms of the 2009 forgivable loan made by NFS to the Company such
that the remaining principal balance of $7,143 and the related
accrued interest will be forgiven, subject to the terms and
conditions of the loan, in four equal annual installments
commencing in November 2012 without the Company being required to
satisfy the annual clearing revenue targets previously
established.
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