|12 Months Ended|
Dec. 31, 2016
|Debt Disclosure [Abstract]|
Notes payable consisted of the following:
Revolving Credit Agreement
In 2007, the Company entered into a $40,000 revolving credit agreement with Frost Gamma Investments Trust (“Frost Gamma”), an affiliate of the Company’s chairman of the board and principal shareholder. Borrowings of up to $40,000 are permitted under the Frost Gamma credit agreement and bear interest at a rate of 11% per annum, payable quarterly. The Company may repay outstanding amounts at any time prior to the maturity date of August 25, 2021, without penalty, and may re-borrow up to the full amount of the agreement. At December 31, 2016 and 2015, the Company had no outstanding balance under the revolving credit agreement. The Company borrowed and repaid $25,000 in November 2016. Interest expense amounted to $113, $0 and $364 in 2016, 2015 and 2014, respectively.
The note issued under the credit agreement contains customary events of default, which, if uncured, entitle the holder to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest on, such note. Under the revolving credit agreement, Frost Gamma received a warrant to purchase 2,000,000 shares of LTS common stock. The warrant is exercisable at any time prior to October 19, 2017 at an exercise price of $1.91 per share. The warrant, which is classified as debt issue cost, was valued at $3,200 based on the Black-Scholes option pricing model, and is being amortized under the straight-line method over the remaining term of the revolving credit agreement.
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 used the forgivable loan proceeds to fund expenses related to the Securities America acquisition. Interest on the loan 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 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 continues to expense interest under this loan agreement until such time as such interest is forgiven.
Upon meeting annual revenue targets, principal and interest, respectively, of $2,143 and $408 in 2016, $2,143 and $525 in 2015 and $2,143 and $652 in 2014, were forgiven and included in other income.
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. Also, 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. The Company expensed interest under the 2009 NFS agreement until such interest was forgiven. The principal balance of the 2009 forgivable loan was reduced to $0 in November 2015. On November 4, 2015, the final remaining principal and interest installment of $1,786 and $94, respectively, were forgiven and included in other income. The amounts of principal and interest forgiven and included in other income in 2014 were $1,786 and $187.
The forgivable loan agreements contain covenants, including limitations on the incurrence of additional indebtedness, maintenance of 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 agreements 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 agreements are secured by the Company’s, but not its subsidiaries’, deposits and accounts held at NFS or its affiliates, which amounted to $21,708 at December 31, 2016.
Premier Trust Note
On September 1, 2010, as part of the consideration paid for Premier Trust, the Company issued a five-year, non-negotiable promissory note in the aggregate principal amount of $1,161 to a subsidiary of Premier Trust’s former shareholder. The note bore interest at 6.5% per annum, payable in 20 equal quarterly installments and was fully paid in September 2015.
Securities America Notes
On November 4, 2011 (the “Closing Date”), in connection with the Securities America acquisition, the Company entered into a loan agreement with various lenders (the “Lenders”), under which the Lenders provided a loan to the Company in an aggregate principal amount of $160,700 (the "November 2011 Loan"), a portion of which was used to fund the cash purchase price payable on the Closing Date. Interest on the November 2011 Loan was payable quarterly at 11% per annum. The remaining balance of the loan, together with accrued and unpaid interest thereon, was paid on November 10, 2016. On the Closing Date, the Company paid a one-time aggregate funding fee of $804 to the Lenders and issued warrants to purchase an aggregate of 10,713,332 shares of the Company's common stock.
The warrants were valued at $9,428 utilizing the Black-Scholes option pricing model. The value of the warrants were credited to additional paid-in capital with a corresponding reduction in the carrying value of the notes as debt discount, which was amortized over the term of the notes by the interest method.
On October 26, 2016, holders of the remaining unexercised warrants to purchase an aggregate of 10,699,999 shares of our common stock exercised such warrants in full. Each holder paid the exercise price by cancellation of indebtedness represented by the remaining balance of the promissory note held by such lender. Accordingly, promissory notes with an aggregate remaining outstanding balance of $17,976 were canceled and no indebtedness related to the November 2011 Loan remains outstanding.
The Company used the net proceeds from the sale of Series A Preferred Stock during the year ended December 31, 2015 and 2014 (see Note 15) to prepay $11,852 and $20,022, respectively, principal amount of the remaining aggregate principal amount of the November 2011 Loan. In connection with the prepayment, the Company recorded a loss on extinguishment of debt for the years ended December 31, 2015 and 2014 of $252 and $548, respectively, which included unamortized discounts and the write-off of debt issuance costs.
Interest paid to Frost Nevada, Vector Group Ltd ("Vector") and the Company's president and chief executive officer and director amounted to $1,779, $198 and $0 in 2016, $2,034, $226 and $0 in 2015 and $4,334, $482 and $6 in 2014, respectively.
Bank Loans - Securities America
On November 6, 2013, SAFC, entered into a loan agreement with a third-party financial institution for a term loan in the aggregate principal amount of approximately $1,709. The term loan bears interest at 5.5%, has a 54-month term and is collateralized by Securities America’s non-forgivable financial advisor note portfolio. At December 31, 2016 and 2015 respectively, $153 and $564 were outstanding under this loan.
On November 6, 2013, SAFC entered into a revolving credit agreement with the same third-party. Pursuant to this loan agreement, up to $1,500 aggregate principal amount of lending is available, subject to certain conditions. Any additional loans would bear interest at 5.5% per annum over a 5-year term. On November 24, 2015, the loan agreement was amended to reflect an additional $1,000 in addition to any outstanding amounts at the time the amendment was executed allowing for $1,950 total borrowing. The interest rate and terms established in the original credit agreement remain unchanged. At December 31, 2016 and 2015 respectively, $620 and $950 were outstanding under this loan.
The loan agreement contains certain affirmative and negative covenants, including covenants regarding Securities America’s client asset levels and number of financial advisors.
Promissory Notes - Highland
As of July 31, 2014, the date of the Highland acquisition, Highland had $21,834 payable under a credit agreement that was repaid by the Company. As of December 31, 2016 and 2015, HCHC Acquisition, as successor in interest to Highland's parent, had outstanding $6,738 of its 10% promissory notes due February 26, 2019. Accrued interest on the promissory notes is payable quarterly.
Promissory Notes - KMS
On October 15, 2014, as part of the consideration paid for the acquisition of KMS, the Company issued four-year promissory notes to the former shareholders of KMS in the aggregate principal amount of $8,000, bearing interest at 1.84% per annum and payable in equal quarterly installments of principal and interest which were valued at $7,508 based on an imputed interest rate of 5.5%. The carrying value of promissory notes at December 31, 2016 and 2015, respectively net of $221 and $343 unamortized discount, amounts to $3,852 and $5,711. The former shareholders of KMS who hold such notes at December 31, 2016, include KMS's chairman $2,065, president $1,213, chief compliance officer $445, vice president-brokerage operations $160, chief technology officer $154 and vice president-licensing and administration $36. Total interest expense to former shareholders who are current officers of KMS was $90, $126 and $31 respectively, for the years ended 2016, 2015 and 2014.
Promissory Notes - SSN
On January 2, 2015, as part of the consideration paid for the acquisition of SSN, the Company issued four-year promissory notes to the former shareholders of SSN in the aggregate principal amount of $20,000, bearing interest at 1.74% per annum and payable in equal quarterly installments of principal and interest, which were valued at $18,697 based on an imputed interest rate of 5.1%. The carrying value of promissory notes at December 31, 2016 and 2015, respectively, net of $651 and $977 of unamortized discount, amounts to $10,769 and $15,378. The former shareholders of SSN who hold such notes include SSN's president and chief executive officer $228, chief compliance officer $57, chief financial officer $34 and vice president-trading $11. Total interest expense to former shareholders who are current officers of SSN was $7 and $9 respectively, for the years ended 2016 and 2015.
KMS had a subordinated note payable to a current officer of KMS, in the amount of $600 which was paid in August 2016 plus monthly interest at prime plus one percent.
The prime rate was 3.50% at both December 31, 2016 and 2015. Total interest paid on the note in 2016 and 2015, respectively, was $16 and $26. The note was subordinated to present and future creditors of KMS.
The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.
Reference 1: http://www.xbrl.org/2003/role/presentationRef