Notes Payable |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Payable |
Notes Payable
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, 2017 and 2016, 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 $0, $113 and $0 in 2017, 2016 and 2015, 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 was exercised on October 19, 2017 at an exercise price of $1.91 per share. The warrant, which was classified as debt issue cost, was valued at $3,200 based on the Black-Scholes option pricing model, and was amortized under the straight-line method over the remaining term of the revolving credit agreement.
NFS Forgivable Loans
On November 4, 2011, National Financial Services LLC (“NFS”), which is now known as Fidelity Clearing & Custody Solutions ("Fidelity"), a Fidelity Investments® company, provided the Company with a seven-year, $15,000 forgivable loan. The Company used the 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 is 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. The Company continues to expense interest under this loan agreement until such time as such interest is forgiven. Securities America met the annual clearing revenue target for the period ending November 4, 2012, 2013, 2014, 2015, 2016 and 2017 resulting in the forgiveness of $2,143 of the aggregate principal amount of the loan in November of each period. Upon meeting annual revenue targets, principal and interest, respectively, of $2,143 and $295 in 2017, $2,143 and $408 in 2016 and $2,143 and $525 in 2015 were forgiven and included in other income. Principal and interest, respectively, of $1,786 and $94, were also forgiven and included in other income in 2015 in connection with a prior forgivable loan with NFS.
The 2011 forgivable loan agreement contain other covenants, including limitations on the incurrence of additional indebtedness, maintaining minimum adjusted shareholders’ equity levels and a prohibition on the termination of our $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 2011 forgivable loan agreements may be accelerated and become due and payable. If the clearing agreements between Fidelity and certain of our broker-dealer subsidiaries are terminated prior to the loan maturity date, all amounts then outstanding must be repaid on demand.
The clearing agreements contain customary termination provisions. Fidelity is permitted to terminate such agreements following certain termination events, including, but not limited to, our breach of such agreements that is not cured within any applicable time periods. The Fidelity loan is conditioned upon the continuation of the clearing agreements with Fidelity and any termination of the clearing agreements by Fidelity prior to the loan maturity date wold require us to repay any outstanding amount under the Fidelity loan. The 2011 loan agreement is secured by the Company’s, but not its subsidiaries’, deposits and accounts held at Fidelity or its affiliates, which amounted to $91,975 at December 31, 2017. In November 2017, the Company amended its 2011 forgivable loan agreement with Fidelity to confirm the annual clearing revenue target for 2017 had been satisfied and to permit the incurrence of certain additional indebtedness.
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 remained outstanding.
The Company prepaid during 2015 $11,852 principal amount of the November 2011 Loan. In connection with the prepayment, the Company recorded a loss on extinguishment of debt for the year ended December 31, 2015 of $252, which included unamortized discounts and the write-off of debt issuance costs.
Interest paid to Frost Nevada and Vector Group Ltd ("Vector") amounted to $1,779 and $198 in 2016, $2,034 and $226 in 2015, respectively.
Bank Loans - Securities America
On November 6, 2013, SAFC entered into a loan agreement (the "SA Loan Agreement") with a third-party financial institution for (i) a term loan in the aggregate principal amount of approximately $1,709 and (ii) a revolving credit facility. The term loan bore interest at 5.5%, and was re-paid in full in May 2017. At December 31, 2016, $153 was outstanding under this term loan. Revolving loans bear interest at 5.5% per annum over a 5-year term. At December 31, 2017 and 2016, repectively, $216 and $620 were outstanding under the revolving credit facility. On April 21, 2017, the SA Loan Agreement was amended to modify the interest rate for new revolving loans to prime plus 2.25%. The SA Loan Agreement was also amended to provide for an additional term loan in the aggregate principal amount of $8,000, subject to certain conditions. This $8,000 term loan bears interest at 5.75% and matures on May 1, 2020. At December 31, 2017, $6,563 was outstanding under this term loan. The loans are collateralized by Securities America's assets. The SA 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 December 31, 2017 and 2016, 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 notes mature in October 2018. The carrying value of promissory notes at December 31, 2017 and 2016, respectively, net of $98 and $221 unamortized discount, amounts to $1,958 and $3,852. The former shareholders of KMS who hold such notes at December 31, 2017 include KMS's chairman $612 and president $225. Total interest expense to former shareholders who are current officers of KMS was $22, $37 and $51, respectively, for the years ended 2017, 2016 and 2015.
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 notes mature in January 2019. The carrying value of promissory notes at December 31, 2017 and 2016, respectively, net of $326 and $651 of unamortized discount, amounts to $6,074 and $10,769. The former shareholders of SSN who hold such notes include SSN's president and chief executive officer $128. Total interest expense to former shareholders who are current officers of SSN was $3 and $5, respectively, for the years ended 2017 and 2016.
Senior Notes
On November 21, 2017, the Company sold $72,500 principal amount of its 6.5% senior notes due November 2027 ("Notes"). Interest on the Notes accrues from November 21, 2017 and paid quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on December 31, 2017. The Company may redeem the Notes in whole or in part on or after November 30, 2020, at its option, at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest. On December 12, 2017, the underwriters exercised their option to purchase an additional $4,069 principal amount of the notes, which brought the total gross proceeds to $76,569, before deducting the underwriting discount paid to unaffiliated underwriters and offering expenses aggregating $3,313, including $1,187 of brokerage commissions earned by employees of Ladenburg, which served as the lead underwriter in the offering. In February 2018, the Company entered into a note distribution agreement under which the Company may sell up to $25,000 principal amount of additional senior notes in an "at the market" offering. Ladenburg is acting as agent in the at the offering and may receive commissions of up to 2% of gross sales. In connection with the offering of Notes, certain members of the Company's management and Board of Directors purchased $10,400 of the Notes offered by the Company.
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