UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

 

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Rule 14a-101)

 

Filed by the Registrant [X] Filed by a Party other than the Registrant [  ]

 

Check the appropriate box:

 

[X] Preliminary Proxy Statement
[  ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[  ] Definitive Proxy Statement
[  ] Definitive Additional Materials
[  ] Soliciting Material Pursuant to §240.14a-12

 

LADENBURG THALMANN FINANCIAL SERVICES INC.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

[  ] No fee required.
   
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
   
  (1) Title of each class of securities to which transaction applies:
     
    Common Stock, par value $0.0001 per share
     
  (2) Aggregate number of securities to which transaction applies:
     
    The maximum number of shares of common stock to which this transaction applies is estimated to be 166,135,095, which consists of (a) 149,130,442 shares of common stock (including 5,281,000 shares of restricted stock) outstanding as of December 2, 2019 and (b) 17,004,653 shares of common stock underlying options to purchase shares of common stock outstanding as of December 2, 2019.
     
  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
     
    Solely for the purpose of calculating the filing fee, the underlying value of the transaction was calculated based on the sum of (a) the product of 149,130,442 shares of common stock, which is the estimated maximum number of shares of common stock (including 5,281,000 shares of restricted stock but excluding 17,004,653 shares of common stock underlying options to purchase shares of common stock) to which this transaction applies, multiplied by the per share merger consideration of  $3.50 in cash and (b) the product of 15,603,653 shares of common stock underlying options to purchase shares of common stock with an exercise price below $3.50 outstanding as of December 2, 2019 multiplied by $1.39 (the per share merger consideration of $3.50 less the $2.11 weighted average exercise price per share of such options), and the filing fee was calculated in accordance with Section 14(g) of the Exchange Act, as amended, by multiplying such sum by 0.0001298.
     
  (4) Proposed maximum aggregate value of transaction:
     
    $543,645,624.67
     
  (5) Total fee paid:
     
    $70,565.20
   
[  ] Fee paid previously with preliminary materials.
   
[  ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing.
   
  (1) Amount Previously Paid:
     
     
  (2) Form, Schedule or Registration Statement No.:
     
     
  (3) Filing Party:
     
     
  (4) Date Filed:
     

 

 

 

 
 

 

PRELIMINARY PROXY STATEMENT – SUBJECT TO COMPLETION
DATED DECEMBER 6, 2019

 

 

________, ________

 

Dear Shareholder,

 

It is our pleasure to invite you to attend a special meeting of the shareholders of Ladenburg Thalmann Financial Services Inc., a Florida corporation, which we refer to as the Company, we, us or our, to be held on ________, 2020, at ________ a.m., Eastern Time, at ________, New York, New York, which we refer to as the special meeting.

 

On November 11, 2019, the Company entered into an Agreement and Plan of Merger, which we refer to as the merger agreement, by and among the Company, Advisor Group Holdings, Inc., a Delaware corporation, which we refer to as Advisor Group, and Harvest Merger Sub, Inc., a Florida corporation and a wholly owned subsidiary of Advisor Group, which we refer to as Merger Sub. Pursuant to the merger agreement, Merger Sub will be merged with and into the Company, which we refer to as the merger, with the Company continuing as the surviving corporation and a subsidiary of Advisor Group. At the special meeting you will be asked, among other things, to consider and vote upon a proposal to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, which we refer to as the merger proposal.

 

If the merger is completed, you will be entitled to receive $3.50 in cash, without interest, for each share of our common stock owned by you. Our board of directors, which we refer to as the Board, has unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are fair to, advisable and in the best interests of the Company and its shareholders and has adopted, approved and declared advisable the execution, delivery and performance of the merger agreement, the merger and the other transactions contemplated by the merger agreement. The Board made its determination after consultation with its legal and financial advisors and consideration of a number of factors as described in the accompanying proxy statement. Approval of the merger proposal requires the affirmative vote of holders of a majority of the shares of common stock outstanding at the close of business on December ____, 2019, the record date for determination of shareholders entitled to notice of, and to vote at, the special meeting and any adjournments or postponements thereof. Our Board recommends that you vote “FOR” the merger proposal.

 

In connection with the merger agreement, on November 11, 2019, (1) the directors of the Company (solely in their capacities as shareholders of the Company) and (2) Vector Group, Ltd., a greater than 10% shareholder of the Company, each entered into a voting agreement with Advisor Group and Merger Sub, which we refer to as the voting agreements. Such shareholders beneficially own and are entitled to vote shares of our common stock representing approximately 21% of the outstanding shares entitled to vote at the special meeting in the aggregate. The voting agreements require such shareholders to, among other things, vote their shares of common stock in favor of the merger proposal and against alternative transactions. However, the voting agreements will terminate, and such shareholders will immediately and automatically be relieved of their voting obligations under the voting agreements, if the merger agreement is terminated before the special meeting in accordance with its terms (including if the Company terminates the merger agreement to enter into an alternative acquisition agreement with respect to a superior proposal, as described in the accompanying proxy statement).

 

 
 

 

Your vote is very important. The merger cannot be completed unless the merger proposal is approved by the affirmative vote of holders of a majority of the shares of common stock outstanding at the close of business on the record date. Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or over the Internet. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. The failure to return your proxy or vote at the special meeting in person will have the same effect as a vote “AGAINST” the merger proposal.

 

If your shares of common stock are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of common stock without instructions from you. You should instruct your bank, brokerage firm or other nominee to vote your shares of common stock in accordance with the procedures provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares of common stock “FOR” the merger proposal will have the same effect as voting “AGAINST” the merger proposal.

 

The accompanying proxy statement provides you with detailed information about the special meeting and the merger agreement. A copy of the merger agreement is attached as Annex A to the proxy statement, a copy of the form of director voting agreement is attached as Annex B to the proxy statement, a copy of the Vector voting agreement is attached as Annex C to the proxy statement, and each is incorporated by reference therein. We encourage you to read the entire proxy statement and its annexes, including the merger agreement, carefully. You may also obtain additional information about the Company from documents we have filed with the Securities and Exchange Commission. If you have any questions or need assistance voting your shares, please contact our proxy solicitor:

 

Georgeson LLC
1290 Avenue of the Americas, 9th Floor
New York, New York 10104
Call Toll-Free (North America): (866) 357-4029

 

Thank you in advance for your cooperation and continued support.

 

  Sincerely,
   
  Richard J. Lampen
  Chairman, President and CEO

 

*                *                *

 

This proxy statement and a proxy card are first being mailed on or about ________, ________ to shareholders who owned shares of the common stock as of the close of business on December ____, 2019.

 

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THE ACCOMPANYING PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

 

 
 

 

 

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

To Be Held on ________, 2020

 

To the Shareholders of Ladenburg Thalmann Financial Services Inc.:

 

Notice is hereby given that a special meeting of the shareholders of Ladenburg Thalmann Financial Services Inc., a Florida corporation, which we refer to as the Company, we, us or our, will be held on ________, 2020, at ________ a.m., Eastern Time, at ________, New York, New York, which we refer to as the special meeting, for the following purposes:

 

  1. To consider and vote on a proposal to approve the Agreement and Plan of Merger, dated as of November 11, 2019, as it may be amended from time to time, which we refer to as the merger agreement, by and among the Company, Advisor Group Holdings, Inc., a Delaware corporation, which we refer to as Advisor Group, and Harvest Merger Sub, Inc., a Florida corporation and a wholly owned subsidiary of Advisor Group, which we refer to as Merger Sub, and the merger and other transactions contemplated by the merger agreement, which proposal we refer to as the merger proposal. The merger agreement provides for the acquisition by Advisor Group of all of the outstanding shares of the Company’s common stock, par value $0.0001 per share, which we refer to as common stock, through the merger of Merger Sub with and into the Company, which we refer to as the merger, with the Company continuing as the surviving corporation. A copy of the merger agreement is attached as Annex A to the accompanying proxy statement.
     
  2. To consider and vote on a proposal to approve, by a non-binding advisory vote, certain compensation arrangements for the Company’s named executive officers in connection with the merger, which compensation arrangements we refer to as the merger-related compensation.
     
  3. To consider and vote on any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock, present or represented by proxy at the special meeting to constitute a quorum.

 

The merger agreement and the merger, along with the other transactions that would be effected in connection with the merger, are described more fully in the attached proxy statement, and we urge you to read it carefully and in its entirety.

 

Approval of the merger proposal requires the affirmative vote of holders of a majority of the shares of common stock outstanding at the close of business on the record date. Approval of (i) the merger-related compensation and (ii) any proposal to adjourn the special meeting, each requires the affirmative vote of holders of a majority of the votes cast by the holders entitled to vote thereon at the special meeting.

 

In connection with the merger agreement, on November 11, 2019, (1) the directors of the Company (solely in their capacities as shareholders of the Company) and (2) Vector Group, Ltd., a greater than 10% shareholder of the Company, each entered into a voting agreement with Advisor Group and Merger Sub, which we refer to as the voting agreements. Such shareholders beneficially own and are entitled to vote shares of our common stock representing approximately 21% of the outstanding shares entitled to vote at the special meeting in the aggregate. The voting agreements require such shareholders to, among other things, vote their shares of common stock in favor of the merger proposal and against alternative transactions. However, the voting agreements will terminate, and such shareholders will immediately and automatically be relieved of their voting obligations under the voting agreements, if the merger agreement is terminated before the special meeting in accordance with its terms (including if the Company terminates the merger agreement to enter into an alternative acquisition agreement with respect to a superior proposal, as described in the accompanying proxy statement).

 

 
 

 

The Company’s board of directors, which we refer to as the Board, has determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are fair to, advisable and in the best interests of the Company and its shareholders and has adopted, approved and declared advisable the execution, delivery and performance of the merger agreement, the merger and the other transactions contemplated by the merger agreement. The Board recommends that you vote “FOR” the merger proposal, “FOR” the proposal to approve, by a non-binding advisory vote, the merger-related compensation and “FOR” any proposal to adjourn the special meeting.

 

Your vote is very important, regardless of the number of shares of common stock you own. The merger cannot be completed unless the merger proposal is approved by the affirmative vote of holders of a majority of the shares of common stock outstanding at the close of business on the record date. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or submit your proxy by telephone or over the Internet prior to the special meeting to ensure that your shares of common stock will be represented at the special meeting if you are unable to attend. If you fail to return your proxy card or fail to submit your proxy by phone or over the Internet, it will have the same effect as a vote “AGAINST” the merger proposal. If you are a shareholder of record, voting in person at the special meeting will revoke any proxy previously submitted. If you hold your shares of common stock through a bank, brokerage firm or other nominee, you should follow the procedures provided by your banker, brokerage firm or other nominee in order to vote.

 

The Board has fixed the close of business on December ____, 2019, as the record date for determination of shareholders entitled to notice of, and to vote at, the special meeting and any adjournments or postponements thereof. Only shareholders of record at the close of business on the record date are entitled to notice of, and to vote (in person or by proxy) at, the special meeting and at any adjournment or postponement thereof. You will be entitled to one vote for each share of common stock that you owned on the record date. A complete list of our shareholders of record entitled to vote at the special meeting will be available at the special meeting for inspection by any shareholder present at the special meeting.

 

Shareholders whose shares are registered directly with the Company’s transfer agent are considered, with respect to those shares, to be the shareholder of record. The Company has engaged Georgeson LLC, which we refer to as Georgeson, to send this notice of special meeting, the proxy statement and the proxy card directly to shareholders of record. Shareholders of record have the right to vote online, vote by telephone, submit a proxy directly to Georgeson, or to vote in person at the special meeting. Shareholders whose shares are held in a brokerage account, or by another nominee, are considered the beneficial owners of shares held in “street name.” Materials for those shareholders are being forwarded to beneficial owners, together with a voting instruction card. Beneficial owners have the right to direct their bank, brokerage firm or other nominee as to how to vote and also are invited to attend the special meeting. Since a beneficial owner is not the shareholder of record, he or she may not vote those shares in person at the special meeting without a proxy from the bank, brokerage firm or other nominee that holds the shares, giving the beneficial owner the right to vote the shares at the meeting.

 

 
 

 

If you have any questions or need assistance voting your shares, please contact our proxy solicitor:

 

Georgeson LLC
1290 Avenue of the Americas, 9th Floor
New York, New York 10104
Call Toll-Free (North America): (866) 357-4029

 

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR OVER THE INTERNET. IF YOU WILL ATTEND THE SPECIAL MEETING AND VOTE IN PERSON, YOUR VOTE BY BALLOT WILL REVOKE ANY PROXY PREVIOUSLY SUBMITTED. IF YOU HOLD YOUR SHARES OF COMMON STOCK THROUGH A BANK, BROKERAGE FIRM OR OTHER NOMINEE, YOU SHOULD FOLLOW THE PROCEDURES PROVIDED BY YOUR BANK, BROKERAGE FIRM OR OTHER NOMINEE IN ORDER TO VOTE.

 

  By Order of the Board of Directors
   
________, ________ Richard J. Lampen
  Chairman, President and CEO

 

 
 

 

TABLE OF CONTENTS

 

SUMMARY 1
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER 11
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 19
PARTIES TO THE MERGER 21
  Ladenburg Thalmann Financial Services Inc. 21
  Advisor Group Holdings, Inc. 22
  Harvest Merger Sub, Inc. 22
THE SPECIAL MEETING 23
  Date, Time and Place of the Special Meeting 23
  Purpose of the Special Meeting 23
  Record Date and Quorum 23
  Attendance 23
  Vote Required 24
  Proxies and Revocation 25
  Adjournments 26
  Anticipated Date of Completion of the Merger 26
  No Appraisal Rights 26
  Solicitation of Proxies; Payment of Solicitation Expenses 26
  Questions and Additional Information 26
THE MERGER (PROPOSAL 1) 27
  Merger Consideration 27
  Background of the Merger 27
  Reasons for the Merger; Recommendation of the Company’s Board of Directors 32
  Certain Unaudited Company Forecasts 36
  Opinion of the Company’s Financial Advisor 37
  Financing of the Merger 43
  Closing and Effective Time of the Merger 44
  Payment of Merger Consideration and Surrender of Stock Certificates 45
  Interests of the Company’s Directors and Executive Officers in the Merger 45
  Material U.S. Federal Income Tax Consequences of the Merger 48
  Regulatory Approvals 50
THE MERGER AGREEMENT 51
  Explanatory Note Regarding the Merger Agreement 51
  Effects of the Merger (Directors and Officers; Articles of Incorporation and Bylaws) 51
  Treatment of Company Securities 51
  Exchange and Payment Procedures 52
  Representations and Warranties 53
  Conduct of Our Business Pending the Merger 57
  Acquisition Proposals 60
  Change of Board Recommendation 62
  Shareholder Meeting 62
  Financing Cooperation 63
  Employee Benefits Matters 64
  Delisting and Deregistration of the Common Stock 64
  Conditions to the Merger 64
  Indemnification 66
  Termination 66
  Termination Fees 68
  Remedies 69
  Fees and Expenses 70
  Amendments; Waiver 70
  Governing Law 70
THE VOTING AGREEMENTS 71
ADVISORY VOTE ON MERGER-RELATED COMPENSATION (PROPOSAL 2) 72
VOTE ON ADJOURNMENT (PROPOSAL 3) 72
MARKET PRICE OF COMMON STOCK 73
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 74
NO APPRAISAL RIGHTS 77
HOUSEHOLDING OF PROXY MATERIALS 77
SUBMISSION OF SHAREHOLDER PROPOSALS 77
WHERE YOU CAN FIND MORE INFORMATION 77

 

Annex A Agreement and Plan of Merger, dated as of November 11, 2019.
Annex B Form of Director Voting Agreement, dated November 11, 2019.
Annex C Vector Voting Agreement, dated November 11, 2019.
Annex D Opinion of Jefferies LLC, dated as of November 11, 2019.

 

 
 

 

 

SUMMARY

 

The following summary highlights selected information in this proxy statement and may not contain all the information that may be important to you. Accordingly, we encourage you to read carefully this entire proxy statement, its annexes and the documents referred to in this proxy statement. Each item in this summary includes a page reference directing you to a more complete description of that topic. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page 77.

 

Parties to the Merger (Page 21)

 

Ladenburg Thalmann Financial Services Inc. (NYSE American: LTS, LTS PrA, LTSL, LTSF, LTSK, LTSH), which we refer to as the Company, we, us or our, is a publicly-traded, diversified financial services holding company serving over 4,400 advisors and overseeing $181 billion in client assets with its principal executive offices located at 4400 Biscayne Boulevard, 12th Floor, Miami, Florida 33137. The Company’s subsidiaries include industry-leading independent advisory and brokerage firms Securities America, Triad Advisors, Securities Service Network, Investacorp and KMS Financial Services, as well as Premier Trust, Ladenburg Thalmann Asset Management, Highland Capital Brokerage, a leading independent life insurance brokerage company and full-service annuity processing and marketing company, and Ladenburg Thalmann & Co. Inc., an investment bank which has been a member of the New York Stock Exchange for over 135 years. Our telephone number is (305) 572-4100.

 

Advisor Group Holdings, Inc., which we refer to as Advisor Group, is a Delaware corporation and is one of the nation’s largest networks of independent financial advisors serving over 7,000 advisors and overseeing $271 billion in client assets. Headquartered in Phoenix, Arizona, Advisor Group is mission-driven to support the heroic role that advisors can play in the lives of their clients, offering securities and investment advisory services through its subsidiaries FSC Securities Corp., Royal Alliance Associates Inc., SagePoint Financial, Inc. and Woodbury Financial Services, Inc., as broker/dealers, registered investment advisors and members of the Financial Industry Regulatory Authority, which we refer to as FINRA, and the Securities Investor Protection Corporation. The principal executive offices of Advisor Group are located at 20 East Thomas Road, Suite 2000, Phoenix, Arizona 85012 and its telephone number is (800) 530-2818.

 

Harvest Merger Sub, Inc., which we refer to as Merger Sub, is a Florida corporation. Merger Sub is a wholly owned subsidiary of Advisor Group and was formed solely for the purpose of engaging in the merger with the Company, which we refer to as the merger, and other related transactions. Merger Sub has not engaged in any business other than in connection with the merger and other related transactions. Upon the completion of the merger, Merger Sub will cease to exist and the Company will continue as the surviving corporation.

 

The principal executive offices of Merger Sub are located at 20 East Thomas Road, Suite 2000, Phoenix, Arizona 85012 and its telephone number is (800) 530-2818.

 

The Special Meeting (Page 23)

 

Date, Time and Place of the Special Meeting (Page 23)

 

A special meeting of the Company’s shareholders will be held on ________, 2020, at ________ a.m., Eastern Time, at ________, New York, New York, which we refer to as the special meeting.

 

At the special meeting, holders of our common stock, par value $0.0001 per share, which we refer to as common stock, will be asked to vote on the proposal to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement, which we refer to as the merger proposal, and the proposal to approve, by a non-binding advisory vote, certain compensation arrangements for the Company’s named executive officers in connection with the merger, which compensation arrangements we refer to as the merger-related compensation. If there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum at the special meeting, the special meeting may be adjourned, if necessary or appropriate, by the affirmative vote of holders of a majority of the votes cast by the holders entitled to vote thereon at the special meeting.

 

 

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Record Date and Quorum (Page 23)

 

You are entitled to receive notice of, and to vote at, the special meeting if you own shares of common stock at the close of business on December ____, 2019, which the Company has set as the record date for the special meeting and which we refer to as the record date. You will be entitled to one vote for each share of common stock that you owned on the record date. As of the close of business on the record date, there were ________ shares of common stock outstanding and entitled to vote at the special meeting, held by ________ holders of record.

 

The shareholders present at the special meeting in person or by proxy who, as of the record date for the special meeting, were holders of a majority of the outstanding shares of the common stock entitled to vote at the special meeting will constitute a quorum. Abstentions and broker non-votes (as described below) are counted as present for the purpose of determining whether a quorum is present.

 

Vote Required (Page 24)

 

Approval of the merger proposal requires the affirmative vote of holders of a majority of the shares of common stock outstanding at the close of business on the record date. Abstentions and broker non-votes (as described below) will have the same effect as a vote “AGAINST” the merger proposal.

 

The proposal to approve, by a non-binding advisory vote, the merger-related compensation requires the affirmative vote of the holders of a majority of the votes cast by the holders entitled to vote thereon at the special meeting. Abstentions and broker non-votes will have no effect on the outcome of the vote. The vote on this proposal is separate and apart from the vote to approve the merger proposal. Accordingly, you may vote not to approve the merger-related compensation proposal and vote to approve the merger proposal. Because the vote on the merger-related compensation proposal is advisory only, it will not be binding on either the Company or Advisor Group. Accordingly, if the merger proposal is approved and the merger is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the non-binding advisory vote of our shareholders.

 

Approval of any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum, requires the affirmative vote of the holders of a majority of the votes cast by the holders entitled to vote thereon at the special meeting. Abstentions and broker non-votes will have no effect on the outcome of the vote.

 

As of the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, 16,936,912 shares of common stock (not including any shares of common stock deliverable upon exercise of any Company stock option awards, which we refer to as Company options, but including any shares of common stock subject to vesting restrictions, which we refer to as Company restricted shares), representing approximately 11% of the outstanding shares of common stock as of the record date.

 

In connection with the merger agreement, on November 11, 2019, (1) the directors of the Company (solely in their capacities as shareholders of the Company) and (2) Vector Group, Ltd., a greater than 10% shareholder of the Company, each entered into a voting agreement with Advisor Group and Merger Sub, which we refer to as the voting agreements. Such shareholders beneficially own and are entitled to vote shares of our common stock representing approximately 21% of the outstanding shares entitled to vote at the special meeting in the aggregate. The voting agreements require such shareholders to, among other things, vote their shares of common stock in favor of the merger proposal and against alternative transactions. However, the voting agreements will terminate, and such shareholders will immediately and automatically be relieved of their voting obligations under the voting agreements, if the merger agreement is terminated before the special meeting in accordance with its terms (including if the Company terminates the merger agreement to enter into an alternative acquisition agreement with respect to a superior proposal, as described in the accompanying proxy statement).

 

 

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Proxies and Revocation (Page 25)

 

Any shareholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet or by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote in person by appearing at the special meeting. If your shares of common stock are held in “street name” through a bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of common stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or to vote in person at the special meeting, or do not provide your bank, brokerage firm or other nominee with instructions, as applicable, your shares of common stock will not be voted on the merger proposal, which will have the same effect as a vote “AGAINST” the merger proposal, and your shares of common stock will not be counted in respect of, and will not have an effect on, the proposal to approve, by a non-binding advisory vote, the merger-related compensation or any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of our common stock, present or represented by proxy at the special meeting to constitute a quorum.

 

A proxy may be revoked at any time before it is voted by (i) delivering a written notice of revocation to our Corporate Secretary at Ladenburg Thalmann Financial Services Inc., 277 Park Avenue, 26th Floor, New York, New York 10172, Attn: Corporate Secretary, (ii) subsequently submitting a duly executed proxy bearing a later date than that of the previously submitted proxy (including by submission over the telephone, Internet or by mail) or (iii) attending the special meeting and voting in person. Attending the special meeting without voting will not revoke your previously submitted proxy.

 

Solicitation of Proxies; Payment of Expenses (Page 26)

 

The Board is soliciting your proxy, and the Company will bear the cost of this solicitation of proxies. This includes the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of the outstanding common stock. The Company has also made arrangements with Georgeson LLC, which we refer to as Georgeson, to solicit proxies by personal interview, mail, telephone and e-mail, and will request brokerage houses and other custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of common stock held of record by such persons. We will pay Georgeson a customary fee, anticipated to be approximately $12,500, plus reasonable expenses, for its services in connection with the special meeting.

 

The Merger (Page 27)

 

The merger agreement provides that Merger Sub will merge with and into the Company. The merger will be effective as of the time the articles of merger have been duly filed with and accepted by the Secretary of State of the State of Florida or at such later date and time as may be agreed by the parties in writing and specified in the articles of merger, which time we refer to as the effective time.

 

The Company will be the surviving corporation in the merger. As a result of the merger, the common stock will cease to be publicly traded and the Company will become a subsidiary of Advisor Group. If the merger is completed, you will not own any shares of common stock of the surviving corporation.

 

Merger Consideration (Page 27)

 

In the merger, each share of common stock issued and outstanding at the effective time (other than (i) shares owned by Advisor Group or any of its direct or indirect wholly owned subsidiaries or the Company (and in each case not held on behalf of third parties) and (ii) Company restricted shares) will be converted into the right to receive cash in the amount of $3.50 per share, without interest, which we refer to as the per share merger consideration.

 

At the effective time, (i) each share owned by Advisor Group or any of its direct or indirect wholly owned subsidiaries or the Company (and in each case not held on behalf of third parties) will be cancelled and will cease to exist, and no consideration will be payable for such shares and (ii) all outstanding Company restricted shares will be accelerated and entitle the holder to receive cash equal to the product of (A) the number of Company restricted shares held by such holder and (B) the per share merger consideration, less applicable withholding taxes.

 

 

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Reasons for the Merger; Recommendation of the Company’s Board of Directors (Page 32)

 

After careful consideration of various factors described in the section titled “The Merger—Reasons for the Merger; Recommendation of the Company’s Board of Directors” beginning on page 32, the Company’s board of directors, which we refer to as the Board, (i) has unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are fair to, advisable and in the best interests of the Company and its shareholders, (ii) has adopted, approved and declared advisable the execution, delivery and performance of the merger agreement, the merger and the other transactions contemplated by the merger agreement and (iii) has recommended that the shareholders of the Company approve the merger proposal. The Board made its determination after consultation with its legal and financial advisors and consideration of a number of factors as described in the accompanying proxy statement.

 

In considering the recommendation of the Board with respect to the merger proposal, you should be aware that our directors and executive officers have interests in the merger that are different from, or in addition to, yours. The Board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the transactions contemplated by the merger agreement, and in recommending that the merger proposal be approved by the shareholders of the Company. See the section titled “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 45.

 

The Board recommends that you vote “FOR” the merger proposal, “FOR” the proposal to approve, by a non-binding advisory vote, the merger-related compensation and “FOR” any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum at the special meeting.

 

Opinion of the Company’s Financial Advisor (Page 37)

 

Jefferies LLC, which we refer to as Jefferies, delivered its opinion to the Board that as of November 11, 2019, and based on and subject to the various assumptions made, procedures followed, matters considered and limitations and qualifications on the scope of review undertaken as described in its opinion, the per share merger consideration to be received by the holders of shares of common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

 

The full text of Jefferies’ opinion, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the scope of review undertaken by Jefferies in rendering its opinion, is attached as Annex D to the proxy statement. The Jefferies opinion is for the use and benefit of the Board (in its capacity as such) in its consideration of the merger and did not address the relative merits of the merger contemplated by the merger agreement as compared to any alternative transaction or opportunity that might be available to the Company, nor did it address the underlying business decision by the Company to engage in the merger or the terms of the merger agreement or the documents referred to therein. Jefferies’ opinion did not constitute a recommendation to any holder of shares of common stock as to how any such shareholder should vote in the merger or how any such holder should act with respect to the merger or any matter related thereto. The Company has agreed to pay Jefferies for its financial advisory services in connection with the Merger an aggregate fee of approximately $13.0 million, of which $1.5 million became payable upon delivery of Jefferies’ opinion and approximately $11.5 million of which is payable contingent upon consummation of the merger. The Company has also agreed to reimburse Jefferies for expenses, including fees and expenses of counsel, reasonably incurred in connection with Jefferies’ engagement, and to indemnify Jefferies and related parties against liabilities arising out of or in connection with the services rendered and to be rendered by Jefferies under its engagement.

 

Financing of the Merger (Page 43)

 

Advisor Group will finance its payment obligations under the merger agreement with a combination of cash on hand, equity financing pursuant to an equity commitment letter with funds sponsored by Reverence Capital Partners, the private investment firm that indirectly controls Advisor Group, which we refer to as the equity financing, and debt financing pursuant to a debt commitment letter with the debt financing sources (as defined in “The Merger—Financing of the Merger” beginning on page 43), which we refer to as the debt financing. We refer to the debt financing together with the equity financing as the financing. The obligations of Advisor Group and Merger Sub to complete the merger are not contingent upon the receipt of any financing.

 

 

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Interests of the Company’s Directors and Executive Officers in the Merger (Page 45)

 

In considering the recommendations of the Board with respect to the merger proposal and the proposals to approve, by a non-binding advisory vote, the merger-related compensation and to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum at the special meeting, you should be aware that executive officers and directors of the Company may have certain interests in the merger that may be different from, or in addition to, the interests of the shareholders generally. The Board was aware of these interests and considered them at the time it evaluated and approved the merger agreement and the merger and other transactions contemplated by the merger agreement, and in recommending that the merger proposal be approved by the shareholders of the Company. Company shareholders should take these interests into account in deciding whether to approve the merger agreement. These interests include, but are not limited to, the following:

 

  Each Company option that is outstanding when the merger is completed will be cancelled and entitle the holder thereof to receive an amount in cash equal to the product of (i) the number of shares of common stock subject to such Company option and (ii) the excess, if any, of the per share merger consideration over the exercise price per share of such Company option, less applicable withholding taxes;
     
    All Company restricted shares outstanding as of the effective time will be accelerated and entitle the holder to receive an amount in cash equal to the product of (i) the number of Company restricted shares held by such holder and (ii) the per share merger consideration, less applicable withholding taxes;
     
  Certain of the Company’s executive officers have existing employment agreements with the Company that provide for severance entitlements in the event of a qualifying termination after the merger is completed, and certain executive officers have entered into severance letter agreements with the Company in connection with the merger that provide for new or additional severance entitlements; and
     
  The Company’s directors and executive officers are entitled to continued indemnification and insurance coverage after the merger is completed.

 

For further information with respect to the arrangements between the Company and its directors and executive officers, see the section titled “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 45.

 

Material U.S. Federal Income Tax Consequences of the Merger (Page 48)

 

The exchange of shares of common stock for cash pursuant to the merger generally will be a taxable transaction to U.S. holders (as defined in “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” on page 48) for U.S. Federal income tax purposes. Shareholders who are U.S. holders and who exchange their shares of common stock in the merger for cash will generally recognize gain or loss in an amount equal to the difference, if any, between the amount of cash received with respect to such shares of common stock and their adjusted tax basis in their shares of common stock. Backup withholding may also apply to the cash payments paid to a non-corporate U.S. holder pursuant to the merger unless the U.S. holder or other payee provides a taxpayer identification number, certifies that such number is correct and otherwise complies with the backup withholding rules. You should read “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 48 for a more detailed discussion of the U.S. Federal income tax consequences of the merger. You should also consult your tax advisor for a complete analysis of the effect of the merger on your federal, state and local and/or foreign taxes.

 

 

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Regulatory Approvals (Page 50)

 

The Company, Advisor Group and Merger Sub have made certain filings and taken other actions, and will continue to make filings and take actions, necessary to obtain approvals from all appropriate governmental entities in connection with the merger pursuant to the terms of the merger agreement, including approval of FINRA of a change of control of each of the Company’s broker-dealer subsidiaries, which we refer to as the FINRA approvals, as well as the expiration of any waiting periods applicable to the consummation of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which we refer to as the HSR Act. You should read “The Merger—Regulatory Approvals” beginning on page 50 for a more detailed discussion of the regulatory approvals required with respect to the merger.

 

The Merger Agreement (Page 51)

 

Treatment of Company Securities (Page 51)

 

Common Stock. At the effective time, each share of common stock issued and outstanding at the effective time (other than (i) shares owned by Advisor Group or any of its direct or indirect wholly owned subsidiaries or the Company (and in each case not held on behalf of third parties) and (ii) Company restricted shares) will be converted into the right to receive the per share merger consideration, without interest.

 

Company Options. At the effective time, each Company option outstanding as of the effective time will be accelerated and entitle the holder to receive an amount in cash equal to the product of (i) the number of shares of common stock subject to such Company option and (ii) the excess, if any, of the per share merger consideration over the exercise price per share of the Company option, less applicable withholding taxes.

 

Company Restricted Shares. At the effective time, all Company restricted shares outstanding as of the effective time will be accelerated and entitle the holder to receive an amount in cash equal to the product of (i) the number of Company restricted shares held by such holder and (ii) the per share merger consideration, less applicable withholding taxes.

 

Company Preferred Shares. Each share of the Company’s 8.00% Series A Cumulative Redeemable Preferred Stock, par value $0.0001 per share, which we refer to as the preferred shares, will remain outstanding at the effective time, but the closing of the merger will constitute a “Change of Control” within the meaning of the Company’s articles of incorporation, as amended. At the effective time, upon the occurrence of such Change of Control, each holder of preferred shares will have the right to convert some or all of such holder’s preferred shares into cash (unless, prior to the change of control conversion date, the surviving corporation in the merger has provided notice of its election to redeem some or all of the preferred shares for cash) in accordance with the Company’s articles of incorporation, as amended.

 

Company Debt Securities. At the effective time, the debt securities issued by the Company, including the 6.5% Senior Notes due 2027, the 7.0% Senior Notes due 2028, the 7.25% Senior Notes due 2028, and the 7.75% Senior Notes due 2029, which we refer to as the debt securities, will remain outstanding as debt securities of the surviving corporation in the merger.

 

Acquisition Proposals (Page 60)

 

Concurrently with the signing of the merger agreement, (i) the Company was required to cease all discussions with any person regarding an acquisition proposal (as defined in “The Merger Agreement—Acquisition Proposals” beginning on page 60) and terminate access to the data room by, and request destruction of confidential information provided to, such person and (ii) the Company and its subsidiaries, and their respective directors, officers and representatives, are prohibited from directly or indirectly (A) initiating, soliciting or knowingly encouraging any third party to make an acquisition proposal or making any inquiry that could reasonably be expected to lead to an acquisition proposal, (B) discussing or negotiating, or providing any non-public information or data relating to any acquisition proposals with a third party or (C) knowingly facilitating the efforts of a third party to make an acquisition proposal.

 

 

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Notwithstanding these restrictions, prior to the time the merger proposal is approved by our shareholders, we may provide information in response to a request by a third party that has made an unsolicited bona fide written acquisition proposal and may participate in discussions and negotiations with such third party, in each case if such third party has executed a confidentiality agreement and the Board determines in good faith after consultation with outside legal counsel and its financial advisor that such acquisition proposal either constitutes a superior proposal or could reasonably be expected to result in a superior proposal (as defined in “The Merger Agreement—Acquisition Proposals” beginning on page 60) and that failure to take such action would reasonably be expected to be inconsistent with the Board’s fiduciary duties under applicable law.

 

Change of Board Recommendation (Page 62)

 

The Board may not (i) withdraw, withhold, modify, qualify in a manner adverse to Advisor Group its recommendation, (ii) fail to reaffirm its recommendation or fail to publicly state that the merger is in the best interest of its shareholders, within 10 business days after Advisor Group requests it take such action (or within one day if the special meeting called to vote on the merger is scheduled to be held within two days), (iii) fail to publicly announce that, within 10 business days after a tender offer or exchange relating to the Company’s securities has been commenced, it recommends rejecting the tender offer or exchange offer or (iv) approve, endorse, recommend or publicly propose to take those actions toward any acquisition proposal, any of the actions described above which we refer to as a change of Board recommendation.

 

Notwithstanding the foregoing, the Board may change its recommendation, subject to the terms and conditions set forth in the merger agreement, in the event the Company receives an unsolicited acquisition proposal that the Board determines in good faith after consultation with outside legal counsel and its financial advisor that such acquisition proposal constitutes a superior proposal and that failure to effect a change of Board recommendation would be inconsistent with the directors’ fiduciary duties under applicable law, so long as the Board intends to terminate the merger agreement with Advisor Group to enter into an alternative acquisition agreement with respect to a superior proposal. Before the Company may change its recommendation, it must inform Advisor Group of the material terms of the superior proposal and give Advisor Group three business days to match the superior proposal (in which case, the Company would no longer have a right to terminate the merger agreement to enter into the alternative acquisition agreement).

 

Conditions to the Merger (Page 64)

 

The respective obligations of the Company, Advisor Group and Merger Sub to consummate the merger are subject to the satisfaction or waiver of certain customary conditions, including the approval of the merger proposal by our shareholders, receipt of certain regulatory approvals, the absence of any legal prohibitions and the accuracy of the representations and warranties of the parties set forth in the merger agreement, subject in most cases to “materiality” and “material adverse effect” qualifications. Additionally, each of the parties shall have performed in all material respects all material obligations required to be performed by such party. See “The Merger Agreement—Conditions to the Merger” beginning on page 64.

 

Termination (Page 66)

 

We and Advisor Group may, by mutual written consent, terminate the merger agreement and abandon the merger at any time prior to the effective time, notwithstanding any approval of the merger agreement by our shareholders.

 

The merger agreement may also be terminated and the merger abandoned at any time prior to the effective time as follows:

 

  by either Advisor Group or the Company, if:

 

  the merger has not been consummated by May 11, 2020, which we refer to as the outside date; provided, however, that if all conditions to the consummation of the merger, other than with respect to the FINRA approvals, have been satisfied or waived as of such date (except those conditions which by their nature are to be satisfied at the consummation of the merger), the outside date will automatically be extended for up to one additional 30-day period to allow for the FINRA approval to be obtained;

 

 

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  our shareholders do not approve the merger proposal as described in “The Merger Agreement— Termination” beginning on page 66; or
     
  any government order permanently restrains, enjoins or prohibits or makes illegal the consummation of the merger, and such government order becomes effective (and final and non-appealable) or any law becomes enacted, entered, promulgated or enforced by any government authority that prohibits or makes illegal consummation of the merger, provided that the terminating party must have complied in all material respects with its obligations under the merger agreement.

 

  by Advisor Group, if:

 

  there has been a breach of any representation, warranty, covenant or agreement made by the Company in the merger agreement or if any representation or warranty of the Company becomes untrue after the date of the merger agreement, and such breach or failure to be true gives rise to the failure of the condition to the closing of the merger relating to the accuracy of the representations and warranties of the Company or compliance by the Company with its obligations under the merger agreement, and such breach or failure to be true cannot be cured or, if curable, is not cured within 30 days after Advisor Group provides written notice of such breach or failure to be true; or
     
  prior to the approval by our shareholders of the merger agreement, the Board has made a change of Board recommendation in light of its intentions to enter into an alternative acquisition agreement with respect to a superior proposal.

 

  by the Company, if:

 

  there has been a breach of any representation, warranty, covenant or agreement made by Advisor Group or Merger Sub in the merger agreement or if any representation or warranty of Advisor Group or Merger Sub becomes untrue after the date of the merger agreement, and such breach or failure to be true gives rise to the failure of the condition to the closing of the merger relating to the accuracy of the representations and warranties of Advisor Group and Merger Sub or compliance by Advisor Group and Merger Sub with their respective obligations under the merger agreement, and such breach or failure to be true cannot be cured or, if curable, is not cured within 30 days after the Company provides written notice of such breach or failure to be true; or
     
  prior to the approval by our shareholders of the merger agreement, the Board authorizes the Company to enter into an alternative acquisition agreement with respect to a superior proposal in compliance with the terms of the merger agreement, including its notice obligations and giving Advisor Group the opportunity to match the superior proposal.

 

Termination Fees Payable by the Company (Page 68)

 

A termination fee of $19 million would be payable to Advisor Group by us in the event the merger agreement were terminated:

 

  by either Advisor Group or the Company if (i) the merger has not been consummated by the outside date or our shareholders do not approve the merger proposal at the special meeting or at any adjournment or postponement of the special meeting, (ii) at the time of such termination, a third party has publicly announced (and not withdrawn) a proposed acquisition transaction with the Company and (iii) within 12 months of such termination, the Company enters into an agreement with respect to an alternative transaction that results in a change in control of at least 50% of the total voting power of any class of equity securities of the Company or at least 50% of the net revenues, net income or total assets of the Company, in which case, the termination fee would be payable prior to or concurrently with entering into an agreement with respect to such alternative transaction;

 

 

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  by Advisor Group if the Board has made a change of Board recommendation in favor of the merger agreement, in which case, the termination fee would be payable within five business days of such termination; or
     
  by the Company if, prior to the approval by our shareholders of the merger proposal, the Board authorizes the Company to enter into an alternative acquisition agreement in compliance with the terms of the merger agreement, including the requirements described under “The Merger Agreement—Acquisition Proposals” beginning on page 60, in which case the termination fee would be payable within five business days of such termination.

 

In each case, the Company will be required to reimburse Advisor Group’s documented transaction-related third-party expenses, which reimbursement is capped at $10 million and will be applied as credit to any required payment of the termination fee. If the merger agreement is terminated by either Advisor Group or the Company because our shareholders do not approve the merger proposal at the special meeting or at any adjournment or postponement of the special meeting, then the Company is required to reimburse Advisor Group’s expenses up to the $10 million cap.

 

Reverse Termination Fees Payable by Advisor Group (Page 68)

 

A reverse termination fee of $35,300,000 million would be payable to us by Advisor Group in the event that (i) Advisor Group and its affiliates have complied with their obligations to obtain the debt financing and (ii) there occurs and remains until the outside date a refusal on the part of Advisor Group’s debt financing sources representing in the aggregate more than 10% of the debt financing to fund their respective portions of the debt financing, which we refer to as a financing failure, provided that no financial failure is deemed to have occurred in the event of a Company causation exception (as defined in “The Merger Agreement—Termination Fees” beginning on page 68).

 

Remedies (Page 69)

 

Each of the parties is entitled to seek specific performance of the terms and provisions of the merger agreement and to obtain or to seek an injunction restraining any breach or violation or threatened breach or violation of the provisions of the merger agreement.

 

The Company is entitled to seek specific performance and monetary damages if Advisor Group does not close when it is otherwise obligated to close (i.e., when the Company has satisfied its obligations and all closing conditions have been satisfied other than those conditions that by their nature are to be satisfied at the closing), except in the event of a financing failure, where the parties have agreed that Advisor Group may pay liquidated damages to the Company of $35,300,000 in lieu of closing.

 

In the event the termination fee becomes payable by the Company or the reverse termination fee becomes payable by Advisor Group, such termination fees will be the sole and exclusive remedy for monetary damages to which Advisor Group and Merger Sub or the Company, as applicable, will be entitled.

 

However, no payment of liquidated damages, including either the Company termination fee or the Advisor Group reverse termination fee, will relieve any party of any liability or damages incurred or suffered by the Company or Advisor Group or Merger Sub, as applicable, to the extent such liability or damages are the result of or arise out of any fraud or willful breach of any provision of the merger agreement. In the event that Advisor Group or Merger Sub commits any fraud of willful breach of any provision of the merger agreement, the Company will be entitled to recover damages that will be determined by reference to the total amount that would have been recoverable by the Company’s shareholders if all such shareholders brought an action against Advisor Group and were recognized as third-party beneficiaries under the merger agreement.

 

 

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Fees and Expenses (Page 70)

 

All fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring such fees and expenses whether or not the merger is completed, subject to exceptions for expenses (i) incurred by Advisor Group if the merger agreement is terminated in specified circumstances, as described above, (ii) incurred by the Company as a result of cooperating with Advisor Group in order to obtain or assist Advisor Group in obtaining any actions, consents, undertakings, approvals or waivers by or from any person for or in connection with, and to reasonably assist Advisor Group in litigating or otherwise contesting any objections to or proceedings or other actions challenging, the consummation of the merger or (iii) incurred by the Company and its subsidiaries in connection with the performance of its financing cooperation covenant (other than with respect to the preparation of audited and other historical financial statements).

 

Voting Agreements (Page 71)

 

In connection with the merger agreement, on November 11, 2019, (1) the directors of the Company (solely in their capacities as shareholders of the Company) and (2) Vector Group, Ltd., a greater than 10% shareholder of the Company, each entered into a voting agreement with Advisor Group and Merger Sub. Such shareholders beneficially own and are entitled to vote shares of our common stock representing approximately 21% of the outstanding shares entitled to vote at the special meeting in the aggregate (not including any shares of common stock deliverable upon exercise of any Company options, but including any Company restricted shares). The voting agreements require such shareholders to, among other things, vote their shares of common stock in favor of the merger proposal and against alternative transactions. However, the voting agreements will terminate, and such shareholders will immediately and automatically be relieved of their voting obligations under the voting agreements, if the merger agreement is terminated before the special meeting in accordance with its terms (including if the Company terminates the merger agreement to enter into an alternative acquisition agreement with respect to a superior proposal, as described in the accompanying proxy statement).

 

Market Price of Common Stock (Page 73)

 

The closing price of our common stock on the NYSE American on October 28, 2019, the last full trading day prior to the publication of a Bloomberg News article disclosing that the Company was considering a sale of the Company, was $2.01 per share. The closing price of our common stock on the NYSE American on November 8, 2019, the last full trading day prior to the announcement of the execution of the merger agreement, was $2.85 per share. On ________, ________, the most recent practicable date before this proxy statement was mailed to our shareholders, the closing price of our common stock on the NYSE American was $________ per share. You are encouraged to obtain current market quotations for common stock in connection with voting your shares of common stock.

 

No Appraisal Rights (Page 77)

 

Under Section 607.1302 of the Florida Business Corporation Act, as amended, which we refer to as the FBCA, no shareholder of the Company is entitled to appraisal rights in connection with the merger.

 

Delisting and Deregistration of the Common Stock (Page 64)

 

If the merger is completed, our common stock will be delisted from the NYSE American and deregistered under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act.

 

 

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

 

The following questions and answers are intended to briefly address some commonly asked questions regarding the merger, the merger agreement and the special meeting. These questions and answers may not address all questions that may be important to you as a Company shareholder. Please refer to the “Summary” beginning on page 1 and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to in this proxy statement, which you should read carefully and in their entirety. You may obtain the information incorporated by reference in this proxy statement without charge by following the instructions under “Where You Can Find More Information” beginning on page 77.

 

Q. Why am I receiving this proxy statement and proxy card or voting instruction form?
   
A. You are receiving this proxy statement and proxy card or voting instruction form because you own shares of our common stock. This proxy statement describes matters on which we urge you to vote and is intended to assist you in deciding how to vote your shares of common stock with respect to such matters.
   
Q. When and where is the special meeting?
   
A. The special meeting of the shareholders will be held on ________, 2020, at ________ a.m., Eastern Time, at ________, New York, New York.
   
Q. What am I being asked to vote on at the special meeting?
   
A. You are being asked to consider and vote on:

 

  Merger Proposal. A proposal to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement.
     
  Merger-Related Compensation Proposal. A proposal to approve, by a non-binding advisory vote, the merger-related compensation.
     
  Adjournment Proposal. Any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum.

 

Q. What is the proposed merger and what effects will it have on the Company?
   
A. The merger will result in Advisor Group’s acquisition of all of the outstanding shares of common stock pursuant to the terms and subject to the conditions of the merger agreement. If the merger proposal is approved by our shareholders and the other closing conditions set forth in the merger agreement are satisfied or waived and the merger closes, Merger Sub will merge with and into the Company, with the Company being the surviving corporation. As a result of the merger, the common stock will cease to be publicly traded, and you, as a holder of common stock, will no longer have any interest in our future earnings or growth. In addition, following the merger, our common stock will be delisted from the NYSE American and deregistered under the Exchange Act.
   
Q. What will I receive if the merger is completed?
   
A.

In the merger, each share of common stock issued and outstanding at the effective time (other than (i) shares owned by Advisor Group or any of its direct or indirect wholly owned subsidiaries or the Company (and in each case not held on behalf of third parties) and (ii) Company restricted shares) will be converted into the right to receive the per share merger consideration, without interest.

 

At the effective time, (i) each share owned by Advisor Group or any of its direct or indirect wholly owned subsidiaries or the Company (and in each case not held on behalf of third parties) will be cancelled and will cease to exist, and no consideration will be payable for such shares and (ii) all outstanding Company restricted shares will be accelerated and entitle the holder to receive cash equal to the product of (A) the number of Company restricted shares held by such holder and (B) the per share merger consideration, without interest, less applicable withholding taxes.

 

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Q. How does the Board recommend that I vote?
   
A. The Board recommends that you vote “FOR” the merger proposal, “FOR” the proposal to approve, by a non-binding advisory vote, the merger-related compensation and “FOR” any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum.
   
Q. How do the Company’s directors and officers intend to vote?
   
A.

Subject to earlier termination of the voting agreements as described in this proxy statement, the directors of the Company are obligated to vote in favor of the merger proposal.

 

We currently expect that in addition to the Company’s directors, the executive officers who are not directors will vote their shares in favor of the merger proposal, the proposal to approve, by a non-binding advisory vote, the merger-related compensation and any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum.

 

As of the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, 16,936,912 shares of common stock (not including any shares of common stock deliverable upon exercise of any Company options, but including any Company restricted shares), representing approximately 11% of the outstanding shares of common stock as of the record date.

   
Q. When do you expect the merger to be completed?
   
A. We and Advisor Group are working towards completing the merger as soon as possible. Assuming timely receipt of required regulatory approvals and the satisfaction or waiver of other closing conditions, including approval by our shareholders of the merger proposal, we anticipate that the merger will be completed by the end of the first half of 2020.
   
Q. What happens if the merger is not completed?
   
A.

If the merger agreement is not approved by the shareholders or if the merger is not completed for any other reason, the shareholders will not receive any payment for their shares of our common stock in connection with the merger. Instead, the Company will remain an independent public company and our common stock will continue to be listed and traded on the NYSE American.

 

Under certain circumstances, upon termination of the merger agreement, either we may be obligated to pay to Advisor Group a termination fee of $19 million or to reimburse Advisor Group’s documented transaction-related third-party expenses in an amount of up to the $10 million cap, or Advisor Group may be obligated to pay us a reverse termination fee of $35.3 million. In certain limited situations, we are entitled to seek uncapped monetary damages, and in other instances, we will not be entitled to any damages upon termination of the merger agreement. More information can be found in the section titled “The Merger Agreement—Remedies” beginning on page 69.

 

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Q. What conditions must be satisfied to complete the merger?
   
A. There are several conditions which must be satisfied to complete the merger, including, among others, customary conditions relating to the approval of the merger agreement by the requisite vote of the Company’s shareholders and the expiration or early termination of the applicable waiting period under the HSR Act, as well as the FINRA approvals. The obligation of each party to consummate the merger is also conditioned on the other party’s representations and warranties being true and correct (generally, in the case of the Company’s representations and warranties, subject to a material adverse effect threshold, although certain fundamental Company representations and warranties must be true and correct in all respects) and the other party having performed in all material respects its obligations under the merger agreement. Consummation of the merger is not subject to any financing condition.
   
Q. Is the merger expected to be taxable to me?
   
A. Yes. The exchange of shares of common stock for cash pursuant to the merger generally will be a taxable transaction to U.S. holders (as defined in “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” on page 48) for U.S. Federal income tax purposes. If you are a U.S. holder and you exchange your shares of our common stock in the merger for cash, you will generally recognize gain or loss in an amount equal to the difference, if any, between the amount of cash received with respect to such shares and your adjusted tax basis in such shares of our common stock. Backup withholding may also apply to the cash payments paid to a non-corporate U.S. holder pursuant to the merger unless the U.S. holder or other payee provides a taxpayer identification number, certifies that such number is correct and complies with the backup withholding rules or otherwise establishes a basis for exemption from backup withholding. You should read “The Merger—Material U.S. Federal Income Tax Consequences of the Merger” beginning on page 48 for a more detailed discussion of the U.S. Federal income tax consequences of the merger. You should also consult your tax advisor for a complete analysis of the effect of the merger on your federal, state and local and/or foreign taxes.
   
Q. Why am I being asked to consider and vote on a proposal to approve, by a non-binding advisory vote, the merger-related compensation?
   
A. Under SEC rules, we are required to seek a non-binding advisory vote with respect to the compensation that may be paid or become payable to our named executive officers in connection with the merger, or “golden parachute” compensation.
   
Q. What will happen if the Company’s shareholders do not approve the merger-related compensation?
   
A. Approval of the merger-related compensation is not a condition to completion of the merger. The vote to approve the merger-related compensation is an advisory vote and will not be binding on the Company or the surviving corporation. Because the merger-related compensation is based on contractual arrangements with the named executive officers, such compensation may be payable, regardless of the outcome of this advisory vote, if the merger proposal is approved and the merger is consummated (subject only to the contractual obligations applicable thereto).
   
Q. What vote is required for the Company’s shareholders to approve the merger proposal?
   
A.

Approval of the merger proposal requires the affirmative vote of holders of a majority of the shares of common stock outstanding at the close of business on the record date. A failure to vote your shares of common stock or an abstention from voting will have the same effect as a vote “AGAINST” the merger proposal. If your shares are held in “street name” by your bank, brokerage firm or other nominee and you do not instruct the nominee how to vote your shares, the failure to instruct your nominee will have the same effect as a vote “AGAINST” the merger proposal.

 

The shareholders subject to the voting agreements beneficially own and are entitled to vote shares of our common stock representing approximately 21% of the outstanding shares entitled to vote at the special meeting in the aggregate. The voting agreements require such shareholders to, among other things, vote their shares of common stock in favor of the merger proposal and against alternative transactions. However, the voting agreements will terminate, and such shareholders will immediately and automatically be relieved of their voting obligations under the voting agreements, if the merger agreement is terminated before the special meeting in accordance with its terms (including if the Company terminates the merger agreement to enter into an alternative acquisition agreement with respect to a superior proposal, as described in the accompanying proxy statement).

 

-13-
 

 

Q. What vote of our shareholders is required to approve, by a non-binding advisory vote, the merger-related compensation?
   
A. Approving merger-related compensation requires the affirmative vote of holders of a majority of the votes cast by the holders entitled to vote thereon at the special meeting. Abstentions and broker non-votes will have no effect on the outcome of the vote.
   
Q. What vote of our shareholders is required to approve any proposal to adjourn the special meeting, if necessary or appropriate?
   
A. Approval of any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of our common stock, present or represented by proxy at the special meeting to constitute a quorum, requires the affirmative vote of holders of a majority of the votes cast by the holders entitled to vote thereon at the special meeting.
   
Q. Do any of the Company’s directors or officers have interests in the merger that may differ from or be in addition to my interests as a shareholder?
   
A. In considering the recommendation of the Board with respect to the merger proposal, you should be aware that our directors and executive officers have certain interests in the merger that may be different from, or in addition to, the interests of our shareholders generally. The Board was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and the merger, and in recommending that the merger agreement be approved by the shareholders of the Company. See “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger” beginning on page 45 and “Advisory Vote on Merger-Related Compensation” beginning on page 72.
   
Q. What is the difference between holding shares as a shareholder of record and as a beneficial owner?
   
A.

Shareholder of Record. If your shares are registered directly in your name with our transfer agent, you are considered the shareholder of record with respect to those shares. As the shareholder of record, you have the right to vote, grant your voting rights directly to the Company or to a third party or to vote in person at the special meeting.

 

Beneficial Owner of Shares Held in “Street Name.” If your shares of common stock are held by your bank, brokerage firm or other nominee, you are considered the beneficial owner of shares held in “street name,” and your bank, brokerage firm or other nominee, or their intermediary, is considered the shareholder of record with respect to those shares. Your bank, brokerage firm or other nominee should send you, as the beneficial owner, a package describing the procedure for voting your shares of common stock. You should follow the instructions provided by them to vote your shares of common stock. You may not vote these shares of common stock in person at the special meeting unless you obtain a “legal proxy” from your bank, brokerage firm or other nominee that holds your shares of common stock, giving you the right to vote the shares of common stock at the special meeting.

 

-14-
 

 

Q. If my shares of common stock are held in “street name” by my bank, brokerage firm or other nominee, will my bank, brokerage firm or other nominee vote my shares of common stock for me?
   
A. Your bank, brokerage firm or other nominee will only be permitted to vote your shares of common stock if you instruct your bank, brokerage firm or other nominee how to vote. You should follow the procedures provided by your bank, brokerage firm or other nominee regarding the voting of your shares of common stock. Banks, brokerage firms or other nominees who hold shares in “street name” for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokerage firms and other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters, such as the merger proposal, and, as a result, absent specific instructions from the beneficial owner of such shares of common stock, banks, brokerage firms or other nominees are not empowered to vote those shares of common stock on non-routine matters. If you do not instruct your bank, brokerage firm or other nominee to vote your shares of common stock, your shares of common stock will not be voted, which we refer to as broker non-votes, and the effect will be the same as a vote “AGAINST” the merger proposal, and your shares of common stock will not be voted and will not have an effect on the proposal to approve by a non-binding advisory vote, certain compensation arrangements for the Company’s named executive officers in connection with the merger or any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum.
   
Q. Who can vote at the special meeting?
   
A. All of the shareholders of record as of the close of business on December ____, 2019, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting.
   
Q. How many votes do I have?
   
A. You are entitled to one vote for each share of common stock held of record by you as of the record date, December ____, 2019. As of the close of business on the record date, there were ________ outstanding shares of common stock.
   
Q. What is a quorum?
   
A. The shareholders present at the special meeting in person or by proxy who, as of the record date for the special meeting, were holders of a majority of the outstanding shares of the common stock entitled to vote at the special meeting will constitute a quorum. Abstentions and broker non-votes are counted as present for the purpose of determining whether a quorum is present.
   
Q. How do I vote?
   
A. Shareholder of Record. If you are a shareholder of record, you may have your shares of common stock voted on matters presented at the special meeting in any of the following ways:

 

  In Person. You may attend the special meeting and cast your vote there.
     
  Via Our Internet Voting Site. If you received printed proxy materials, follow the instructions for Internet voting printed on your proxy card.
     
  By Telephone. Call the toll-free number specified on your proxy card. You can vote by telephone by following the instructions provided on the Internet voting site or, if you received printed proxy materials, by following the instructions provided on your proxy card.
     
  In Writing. You can vote by completing, signing, dating and returning the proxy card in the enclosed prepaid reply envelope.

 

-15-
 

 

 

Beneficial Owner. If you are a beneficial owner, please refer to the instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you. Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee at the special meeting. To attend the special meeting in person (regardless of whether you intend to vote your shares in person at the special meeting), you must bring with you to the special meeting a valid photo identification and proof of your beneficial ownership. For more information, see the instructions under “The Special Meeting—Attendance” beginning on page 23 of this proxy statement.

 

IT IS IMPORTANT THAT YOU PROMPTLY VOTE YOUR SHARES OF COMMON STOCK. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR OVER THE INTERNET. SHAREHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

   
Q. How can I change or revoke my vote?
   
A. If you own shares in your own name, you may revoke any prior proxy or voting instructions, regardless of how your proxy or voting instructions were originally submitted, by:

 

  sending a written statement to that effect to our Corporate Secretary, which must be received by us before the special meeting;
     
  submitting a properly signed proxy card or voting instruction form dated a later date;
     
  submitting a later-dated proxy or providing new voting instructions via the Internet or by telephone; or
     
  attending the special meeting in person and voting your shares.

 

If you hold shares in “street name,” you should contact the intermediary for instructions on how to change your vote.

 

Q. What is a proxy?
   
A. A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of common stock. The written document describing the matters to be considered and voted on at the special meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of common stock is called a “proxy card.”
   
Q. If a shareholder gives a proxy, how are the shares of common stock voted?
   
A.

Regardless of the method you choose to vote, the individuals named on the enclosed proxy card will vote your shares of common stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of common stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

 

If you own shares that are registered in your own name and return a signed proxy card or grant a proxy via the Internet or by telephone, but do not indicate how you wish your shares to be voted, the shares represented by your properly signed proxy will be voted “FOR” the merger proposal, “FOR” the proposal to approve, by a non-binding advisory vote, certain compensation arrangements for the Company’s named executive officers in connection with the merger and “FOR” any proposal to adjourn the special meeting.

   
Q. How are votes counted?
   
A.

For the merger proposal, each of the “FOR,” “AGAINST” or “ABSTAIN” categories will be tabulated separately. Abstentions and broker non-votes will have the same effect as votes “AGAINST” the merger proposal.

 

For the proposals to approve certain compensation arrangements for the Company’s named executive officers in connection with the merger and to adjourn the meeting, if necessary or appropriate, each of the “FOR,” “AGAINST” or “ABSTAIN” categories will be tabulated separately. Abstentions and broker non-votes will have no effect on the outcome of the vote.

 

-16-
 

 

Q. What do I do if I receive more than one proxy or set of voting instructions?
   
A. If you received more than one proxy card, your shares are likely registered in different names or with different addresses or are in more than one account. You must separately vote the shares shown on each proxy card that you receive in order for all of your shares to be voted at the special meeting.
   
Q. What happens if I sell my shares of common stock before the special meeting?
   
A. The record date for shareholders entitled to vote at the special meeting is earlier than both the date of the special meeting and the consummation of the merger. If you transfer your shares of common stock after the record date but before the special meeting, unless special arrangements (such as provision of a proxy) are made between you and the person to whom you transfer your shares and each of you notifies the Company in writing of such special arrangements, you will retain your right to vote such shares at the special meeting but will transfer the right to receive the per share merger consideration to the person to whom you transfer your shares.
   
Q. What happens if I sell my shares of common stock after the special meeting but before the effective time?
   
A. If you transfer your shares after the special meeting but before the effective time, you will have transferred the right to receive the per share merger consideration to the person to whom you transfer your shares. In order to receive the per share merger consideration, you must hold your shares of common stock through completion of the merger.
   
Q.  What do I need to do now?
   
A. Even if you plan to attend the special meeting, after carefully reading and considering the information contained in this proxy statement, please vote promptly to ensure that your shares are represented at the special meeting. If you hold your shares of common stock in your own name as the shareholder of record, you may submit a proxy to have your shares of common stock voted at the special meeting in one of three ways (i) using the Internet in accordance with the instructions set forth on the enclosed proxy card, (ii) calling the toll-free number specified on your proxy card or (iii) completing, signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope. If you decide to attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. If you are a beneficial owner, please refer to the instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you.
   
Q. Should I send in my stock certificates now?
   
A. No. If the merger proposal is approved by shareholders, the other conditions to the merger are satisfied or waived and the merger closes, you will be sent a letter of transmittal promptly after the completion of the merger, describing how you may exchange your shares of common stock for the per share merger consideration. If your shares of common stock are held in “street name” through a bank, brokerage firm or other nominee, you should contact your bank, brokerage firm or other nominee for instructions as to how to effect the surrender of your “street name” shares of common stock in exchange for the per share merger consideration. Please do NOT return your stock certificate(s) with your proxy.

 

-17-
 

 

Q. Am I entitled to exercise appraisal rights under the FBCA, instead of receiving the per share merger consideration for my shares of common stock?
   
A. No. Under Section 607.1302 of the FBCA, no shareholder of the Company is entitled to appraisal rights in connection with the merger.
   
Q. What is householding and how does it affect me?
   
A. The SEC permits companies to send a single set of proxy materials to any household at which two or more shareholders reside, unless contrary instructions have been received, but only if the company provides advance notice and follows certain procedures. In such cases, each shareholder continues to receive a separate notice of the meeting and proxy card. Certain brokerage firms may have instituted householding for beneficial owners of common stock held through brokerage firms. If your family has multiple accounts holding common stock, you may have already received householding notification from your broker. Please contact your broker directly if you have any questions or require additional copies of this proxy statement. The broker will arrange for delivery of a separate copy of this proxy statement promptly upon your written or oral request. You may decide at any time to revoke your decision to household, and thereby receive multiple copies.
   
Q. Where can I find more information about the Company?
   
A. You can find more information about the Company from various sources described in the section titled “Where You Can Find More Information” beginning on page 77.

 

-18-
 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This proxy statement contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, which we refer to as the Securities Act, and Section 21E of the Exchange Act, and are subject to the safe harbor created thereby under the Private Securities Litigation Reform Act of 1995.

 

These statements are based on management’s current expectations or beliefs and on currently available competitive, financial and economic data and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the forward-looking statements herein due to changes in economic, business, competitive, technological and/or regulatory factors, and other risks and uncertainties affecting the operation of the business of the Company, including many factors beyond our control. These risks and uncertainties include, but are not limited to, those associated with:

 

  the timing to consummate the merger,
     
  the risk that a regulatory approval that may be required for the merger is delayed, is not obtained or is obtained subject to conditions that are not anticipated,
     
  the risk that a sufficient number of shares are not voted in favor of the merger,
     
  the occurrence of any event, change or other circumstance that would give rise to the termination of the merger agreement,
     
  the failure to satisfy each of the conditions to the consummation of the merger,
     
  the disruption of the current operations of the Company,
     
  the disruption of management’s attention from ongoing business operations due to the merger,
     
  the effect of the announcement of the merger on the Company’s relationships with its customers as well as its operating results and business generally,
     
  the outcome of any legal proceedings related to the merger,
     
  the amount of the costs, fees, expenses and other charges related to the merger,
     
  employee and financial advisor retention as a result of the merger,
     
  the status of our relationships with and condition of third parties, such as our key customers, upon whom we rely in the conduct of our business,
     
  our dependence on our key employees,
     
  general economic or market conditions and the impact of changes in regulation applicable to the Company and to political instability generally,
     
  the risk that Advisor Group may fail to obtain the financing it needs to complete the merger, and
     
  other risks and uncertainties affecting the operations of our business, including those described in our filings with the SEC, including our annual report on Form 10-K and our quarterly reports on Form 10-Q.

 

-19-
 

 

The forward-looking statements speak only as of the date such statements are made. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, changes in assumptions or otherwise, except as required by applicable law.

 

For a discussion of the various factors that may cause actual plans implemented and actual results achieved to differ materially from those set forth in the forward-looking statements, please refer to the risk factors and other disclosures contained in the Company’s Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC, on March 15, 2019, Form 10-Q for the quarterly period ended September 30, 2019, filed with the SEC on November 8, 2019, and other filings made with the SEC after the date thereof. See the section titled “Where You Can Find More Information” for additional information.

 

The cautionary statements referred to above also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by the Company or persons acting on the Company’s behalf. The Company undertakes no obligation to publicly update or revise any forward-looking statements for any facts, events or circumstances after the date hereof that may bear upon forward-looking statements except as required by law. Furthermore, the Company cannot guarantee future results, events, levels of activity, performance or achievements.

 

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this document or, in the case of documents referred to or incorporated by reference, the dates of those documents.

 

-20-
 

 

PARTIES TO THE MERGER

 

Ladenburg Thalmann Financial Services Inc.

 

Ladenburg Thalmann Financial Services Inc. is a publicly-traded, diversified financial services holding company serving over 4,400 advisors and overseeing $181 billion in client assets with its principal executive offices located at 4400 Biscayne Boulevard, 12th Floor, Miami, Florida 33137. The Company’s principal operating subsidiaries are Securities America, Triad Advisors, Investacorp, KMS Financial Services, Securities Service Network, Ladenburg Thalmann & Co., Ladenburg Thalmann Asset Management, Premier Trust and Highland Capital Brokerage.

 

Securities America, Triad Advisors, Investacorp, KMS Financial Services and Securities Service Network are registered investment advisors and broker-dealers that serve the independent financial advisor community. The independent financial advisors of these independent advisory and brokerage firms primarily serve retail clients. Such entities derive revenue from advisory fees and commissions, primarily from the sale of mutual funds, variable annuity products and other financial products and services.

 

Ladenburg Thalmann & Co. is a full service registered broker-dealer that has been a member of the New York Stock Exchange since 1879. Broker-dealer activities include sales and trading and investment banking. Ladenburg provides its services principally to middle-market and emerging growth companies and high net worth individuals through a coordinated effort among corporate finance, capital markets, brokerage and trading professionals.

 

Ladenburg Thalmann Asset Management is a registered investment advisor. It offers various asset management products utilized by Ladenburg Thalmann & Co. and Premier Trust’s clients, as well as clients of the Company’s independent financial advisors. Premier Trust, a Nevada trust company, provides wealth management services, including administration of personal trusts and retirement accounts, estate and financial planning and custody services.

 

Highland Capital Brokerage is an independent insurance broker that delivers life insurance, fixed and equity indexed annuities and long-term care solutions to investment and insurance providers. Highland Capital Brokerage provides specialized point-of-sale support along with advanced marketing and estate and business planning techniques, delivering customized insurance solutions to both institutional clients and independent producers. Highland Capital Brokerage also provides marketing strategies, product expertise, and back-office processing for fixed and equity-indexed annuities.

 

Securities America’s, Triad Advisor’s, Investacorp’s, KMS Financial Services’, Securities Service Network’s and Ladenburg Thalmann & Co.’s customer transactions are cleared through clearing brokers on a fully-disclosed basis and such entities are subject to regulation by, among others, the SEC, FINRA and the Municipal Securities Rulemaking Board. Each entity is a member of the Securities Investor Protection Corporation. Highland Capital Brokerage is subject to regulation by various regulatory bodies, including state attorneys general and insurance departments. Premier Trust is subject to regulation by the Nevada Department of Business and Industry Financial Institutions Division.

 

-21-
 

 

For more information about the Company and its subsidiaries, visit the Company’s website at https://www. ladenburg.com. Our website address is provided as an inactive textual reference only. The information contained on our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC. See also “Where You Can Find More Information” beginning on page 77.

 

Advisor Group Holdings, Inc.

 

Advisor Group is a Delaware corporation headquartered in Phoenix, Arizona and is one of the nation’s largest networks of independent financial advisors serving over 7,000 advisors and overseeing $271 billion in client assets. Advisor Group offers securities and investment advisory services through its subsidiaries FSC Securities Corp., Royal Alliance Associates Inc., SagePoint Financial, Inc. and Woodbury Financial Services, Inc., as broker/dealers, registered investment advisors and members of FINRA, and the Securities Investor Protection Corporation. The principal executive offices of Advisor Group are located at 20 East Thomas Road, Phoenix, Suite 2000, Arizona 85012 and its telephone number is (800) 530-2818.

 

Advisor Group is indirectly controlled by Reverence Capital Partners, a private investment firm focused on thematic investing in leading global, middle-market financial services businesses through control and influence oriented investments in 5 sectors: (1) Depositories and Finance Companies, (2) Asset and Wealth Management, (3) Insurance, (4) Capital Markets and (5) Financial Technology/Payments. The firm was founded in 2013, by Milton Berlinski, Peter Aberg and Alex Chulack, after distinguished careers advising and investing in a broad array of financial services businesses. The Partners collectively bring over 90 years of advisory and investing experience across a wide range of financial services sectors.

 

Harvest Merger Sub, Inc.

 

Merger Sub is a Florida corporation. Merger Sub is a wholly owned subsidiary of Advisor Group and was formed solely for the purpose of engaging in the merger and other related transactions. Merger Sub has not engaged in any business other than in connection with the merger and other related transactions. Upon the completion of the merger, Merger Sub will cease to exist and the Company will continue as the surviving corporation.

 

The principal executive offices of Merger Sub are located at 20 East Thomas Road, Suite 2000, Phoenix, Arizona 85012, and its telephone number is (800) 530-2818.

 

 -22- 
 

 

THE SPECIAL MEETING

 

Date, Time and Place of the Special Meeting

 

This proxy statement is being furnished to shareholders as part of the solicitation of proxies by the Board for use at the special meeting to be held on ________, 2020, at ________ a.m., Eastern Time, at ________, New York, New York, or at any postponement or adjournment thereof.

 

Purpose of the Special Meeting

 

At the special meeting, shareholders will be asked to:

 

  consider and vote on a proposal to approve the merger agreement, the merger and the other transactions contemplated by the merger agreement (Proposal 1 on your proxy card);
     
  consider and vote on a proposal to approve, by a non-binding advisory vote, the merger-related compensation (Proposal 2 on your proxy card); and
     
  consider and vote on any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum (Proposal 3 on your proxy card).

 

The Board recommends that you vote “FOR” each of the above proposals.

 

Our shareholders must approve the merger proposal in order for the merger to occur. If our shareholders fail to approve the merger proposal, the merger will not occur. A copy of the merger agreement is attached as Annex A to this proxy statement and is incorporated herein by reference. We encourage you to read the merger agreement carefully and in its entirety.

 

Record Date and Quorum

 

You are entitled to receive notice of, and to vote at, the special meeting if you own of record shares of common stock at the close of business on December ____, 2019, which the Company has set as the record date for the special meeting. You will be entitled to one vote for each share of common stock that you owned on the record date. As of the close of business on the record date, there were ________ shares of common stock outstanding and entitled to vote at the special meeting, held by ________ holders of record.

 

The shareholders present at the special meeting in person or by proxy who, as of the record date for the special meeting, were holders of a majority of the outstanding shares of the common stock entitled to vote at the special meeting will constitute a quorum. Abstentions and broker non-votes are counted as present for the purpose of determining whether a quorum is present.

 

Attendance

 

Only shareholders of record, their duly authorized proxy holders and beneficial shareholders with proof of ownership as of the record date may attend the special meeting. To attend the special meeting in person (regardless of whether you intend to vote your shares in person at the special meeting), you must bring with you to the special meeting a valid photo identification and, if you are a beneficial owner, proof of your beneficial ownership.

 

Attendees will not be permitted to bring food or beverages, cameras, camera phones, cell phones, recording equipment, electronic devices, computers, large bags, briefcases, weapons (including any item we may deem to be a weapon in our sole discretion) or packages into the meeting. If you bring any of these prohibited items to the meeting, you will be required to leave them outside the meeting room until the meeting has concluded. Furthermore, no weapons are permitted anywhere on our property, including in your vehicle if it is parked on our property.

 

 -23- 
 

 

Vote Required

 

Approval of the merger proposal requires the affirmative vote of holders of a majority of the shares of common stock outstanding at the close of business on the record date. For the merger proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN. Abstentions will not be counted as votes cast in favor of the merger proposal, but will count for the purpose of determining whether a quorum is present. If you fail to submit a proxy or to vote in person at the special meeting, or abstain, it will have the same effect as a vote “AGAINST” the merger proposal.

 

If your shares of common stock are registered directly in your name with our transfer agent, you are considered, with respect to those shares of common stock, the “shareholder of record.” This proxy statement and proxy card have been sent directly to you by the Company.

 

If your shares of common stock are held through a bank, brokerage firm or other nominee, you are considered the “beneficial owner” of shares of common stock held in “street name.” In that case, this proxy statement has been forwarded to you by your bank, brokerage firm or other nominee who is considered, with respect to those shares of common stock, the shareholder of record. As the beneficial owner, you have the right to direct your bank, brokerage firm or other nominee how to vote your shares by following their instructions for voting.

 

Banks, brokerage firms or other nominees who hold shares in “street name” for customers generally have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokerage firms and other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters such as the merger proposal and, as a result, absent specific instructions from the beneficial owner of such shares of common stock, banks, brokerage firms or other nominees are not empowered to vote those shares of common stock on non-routine matters. These broker non-votes will be counted for purposes of determining a quorum, and will have the same effect as a vote “AGAINST” the merger proposal.

 

The proposal to approve, by a non-binding advisory vote, the merger-related compensation requires the affirmative vote of holders of a majority of the votes cast by the holders entitled to vote thereon at the special meeting. For this proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN. Abstentions and broker non-votes will have no effect on the outcome of the vote.

 

Any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum, requires the affirmative vote of holders of a majority of the votes cast by the holders entitled to vote thereon at the special meeting. For this proposal, you may vote “FOR,” “AGAINST” or “ABSTAIN. Abstentions and broker non-votes will have no effect on the outcome of the vote.

 

If you are a shareholder of record, you may have your shares of common stock voted on matters presented at the special meeting in any of the following ways:

 

  by proxy—shareholders of record have a choice of voting by proxy:

 

  by telephone or over the Internet, by accessing the telephone number or website specified on the enclosed proxy card. The control number provided on your proxy card is designed to verify your identity when voting by telephone or by Internet. Please be aware that if you vote over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible.
     
  by signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope; or

 

  in person—you may attend the special meeting and cast your vote there.

 

If you are a beneficial owner, you should receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of common stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted. Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee at the special meeting.

 

 -24- 
 

 

Please refer to the instructions on your proxy or voting instruction card to determine the deadlines for voting over the Internet or by telephone. If you choose to submit a proxy by mailing a proxy card, your proxy card should be mailed in the accompanying prepaid reply envelope, and your proxy card must be filed with our Corporate Secretary by the time the special meeting begins. Please do not send in your stock certificates with your proxy card. When the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the per share merger consideration in exchange for your stock certificates.

 

If you vote by proxy, regardless of the method you choose to vote, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, will vote your shares of common stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of common stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

 

If you properly sign your proxy card but do not mark the boxes showing how your shares of common stock should be voted on a matter, the shares of common stock represented by your properly signed proxy will be voted “FOR” the merger proposal, “FOR” the proposal to approve, by a non-binding advisory vote, the merger-related compensation and “FOR” any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of our common stock, present or represented by proxy at the special meeting to constitute a quorum.

 

IT IS IMPORTANT THAT YOU PROMPTLY VOTE YOUR SHARES OF COMMON STOCK. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN, AS PROMPTLY AS POSSIBLE, THE ENCLOSED PROXY CARD IN THE ACCOMPANYING PREPAID REPLY ENVELOPE, OR SUBMIT YOUR PROXY BY TELEPHONE OR THE INTERNET. SHAREHOLDERS WHO ATTEND THE SPECIAL MEETING MAY REVOKE THEIR PROXIES BY VOTING IN PERSON.

 

As of the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, 16,936,912 shares of common stock (not including any shares of common stock deliverable upon exercise of any Company options, but including any Company restricted shares), representing approximately 11% of the outstanding shares of common stock as of the record date.

 

Shareholders subject to the voting agreements beneficially own and are entitled to vote shares of our common stock representing approximately 21% of the outstanding shares entitled to vote at the special meeting in the aggregate. The voting agreements require such shareholders to, among other things, vote their shares of common stock in favor of the merger proposal and against alternative transactions. However, the voting agreements will terminate, and such shareholders will immediately and automatically be relieved of their voting obligations under the voting agreements, if the merger agreement is terminated before the special meeting in accordance with its terms (including if the Company terminates the merger agreement to enter into an alternative acquisition agreement with respect to a superior proposal, as described in the accompanying proxy statement).

 

Proxies and Revocation

 

Any shareholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet or by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote in person by appearing at the special meeting. If your shares of common stock are held in “street name” through a bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of common stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or to vote in person at the special meeting, or do not provide your bank, brokerage firm or other nominee with instructions, as applicable, your shares of common stock will not be voted on the merger proposal, which will have the same effect as a vote “AGAINST” the merger proposal, and your shares of common stock will not be counted in respect of, and will not have an effect on, the proposal to approve, by a non-binding advisory vote, certain compensation arrangements for the Company’s named executive officers in connection with the merger or any proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of our common stock, present or represented by proxy at the special meeting to constitute a quorum.

 

 -25- 
 

 

A proxy may be revoked by a shareholder of record at any time prior to the vote at the special meeting by (i) delivering a written notice of revocation to our Corporate Secretary at Ladenburg Thalmann Financial Services Inc., 277 Park Avenue, 26th Floor, New York, New York 10172, Attn: Corporate Secretary, (ii) subsequently submitting a duly executed proxy bearing a later date than that of the previously submitted proxy (including by submission over the telephone or Internet) or (iii) attending the special meeting and voting in person. Attending the special meeting without voting will not revoke your previously submitted proxy. If your shares of common stock are held in “street name” through a bank, brokerage firm or other nominee, you should contact your bank, brokerage firm or other nominee with questions about how to change or revoke your voting instructions.

 

Adjournments

 

Under the merger agreement, the Company may, after consultation with Advisor Group, adjourn, recess or postpone the special meeting only (i) to the extent required by applicable law to ensure that any required supplement or amendment to this proxy statement is provided to the Company shareholders within a reasonable amount of time in advance of the special meeting, (ii) to the extent required by a court of competent jurisdiction in connection with any action in connection with the merger agreement or the merger, (iii) if, as of the time for which the special meeting is originally scheduled, there are insufficient shares of common stock represented, either in person or by proxy, to constitute a quorum necessary to conduct the business of the special meeting, provided that the Company shall not be required to adjourn the special meeting under this provision on more than two occasions and shall not be required to adjourn the special meeting past the outside date or (iv) with the prior written consent of Advisor Group, in each case for the minimum duration reasonably necessary to remedy the circumstances giving rise to such adjournment, recess or postponement.

 

Anticipated Date of Completion of the Merger

 

We and Advisor Group are working towards completing the merger as soon as possible. Assuming receipt of required regulatory approvals and timely satisfaction or waiver of other closing conditions, including the approval by our shareholders of the merger proposal, we anticipate that the merger will be completed by the end of the first half of 2020. If our shareholders vote to approve the merger proposal, the merger will become effective as promptly as practicable following the satisfaction or waiver of the other conditions to the merger, subject to the terms of the merger agreement. See “The Merger—Closing and Effective Time of the Merger” beginning on page 44.

 

No Appraisal Rights

 

Under Section 607.1302 of the FBCA, no shareholder of the Company is entitled to appraisal rights in connection with the merger.

 

Solicitation of Proxies; Payment of Solicitation Expenses

 

The Board is soliciting your proxy, and the Company will bear the cost of this solicitation of proxies. This includes the charges and expenses of brokerage firms and others for forwarding solicitation material to beneficial owners of the outstanding common stock. The Company has also made arrangements with Georgeson to solicit proxies by personal interview, mail, telephone and e-mail, and will request brokerage houses and other custodians, nominees and fiduciaries to forward soliciting material to the beneficial owners of common stock held of record by such persons. We will pay Georgeson a customary fee, anticipated to be approximately $12,500, plus reasonable expenses, for its services in connection with the special meeting.

 

Questions and Additional Information

 

See “Where You Can Find More Information” beginning on page 77. If you have any questions or need assistance voting your shares, please contact our proxy solicitor:

 

Georgeson LLC

1290 Avenue of the Americas, 9th Floor

New York, New York 10104

Call Toll-Free (North America): (866) 357-4029

 

 -26- 
 

 

THE MERGER (PROPOSAL 1)

 

This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A and incorporated herein by reference. You should read the entire merger agreement carefully as it is the legal document that governs the merger.

 

The merger agreement provides that Merger Sub will merge with and into the Company and the Company will be the surviving corporation in the merger. As a result of the merger, the common stock will cease to be publicly traded and the Company will become a subsidiary of Advisor Group.

 

Merger Consideration

 

In the merger, each share of common stock issued and outstanding at the effective time, (other than (i) shares owned by Advisor Group or any of its direct or indirect wholly owned subsidiaries or the Company (and in each case not held on behalf of third parties) and (ii) Company restricted shares) will be converted into the right to receive cash in the amount of $3.50 per share, without interest.

 

At the effective time, (i) each share owned by Advisor Group or any of its direct or indirect wholly owned subsidiaries or the Company (and in each case not held on behalf of third parties) will be cancelled and will cease to exist, and no consideration will be payable for such shares and (ii) all outstanding Company restricted shares will be accelerated and entitle the holder to receive cash equal to the product of (A) the number of Company restricted shares held by such holder and (B) the per share merger consideration, less applicable withholding taxes.

 

Background of the Merger

 

The Board regularly reviews the near-term and long-term strategy, performance, positioning, and operating prospects of the Company with a view toward enhancing shareholder value. Beginning in early 2019, the Board focused on the Company’s share price, outlook and long-term prospects on a standalone basis.

 

In February 2019, a third party, which we refer to as Party B, suggested to Company management that the Company consider a potential sale of the Company to Party B. After updating the Board on this outreach, Company management asked Jefferies, an investment banking firm with expertise in the financial services industry and familiarity with the Company, to assist the Company in its evaluation of a potential sale of the Company to Party B.

 

On February 25, 2019, Party B signed a non-disclosure agreement with the Company and began receiving confidential Company information. This led to further discussions regarding a potential strategic transaction.

 

On March 26, 2019, Party B communicated to Company management that it was interested in acquiring all of the outstanding shares of common stock of the Company at purchase price range of $4.75-$5.00 per share. The Company’s common stock price closed at $2.87 per share on the NYSE American on March 26, 2019. Representatives of Jefferies, on behalf of the Company, asked Party B to submit a written indication of interest for consideration by the Board.

 

One week later, on April 2, 2019, Party B informed Company management and representatives of Jefferies that, despite its initial indication, it was not prepared to proceed with an acquisition of the Company at that time, but that it may be interested in resuming discussions in the next several months. Party B indicated that it was withdrawing its interest because its management team did not then have the bandwidth to devote the necessary resources to pursue an acquisition of the Company. Company management then updated the Board on the latest development.

 

On April 23, 2019, the Board held a meeting with members of management present. At the meeting, the Board and management discussed the Company’s strategic plans going forward and reviewed a management presentation provided to the Board in advance of the meeting, which included new cost-savings initiatives to better position the Company given the changing industry dynamics. The Company’s common stock price closed at $3.91 per share on the NYSE American on April 23, 2019.

 

 -27- 
 

 

Following the Board meeting on April 23, 2019, Company management began implementing cost-cutting and other efficiency initiatives as discussed with the Board.

 

In early July 2019, at the request of the Board, management asked Jefferies to assist it in a preliminary evaluation of whether the Company should more broadly consider potential strategic alternatives, including a sale of the Company at that time in light of continued consolidation in the industry and the need for greater scale in order to compete effectively. Management asked Jefferies to give its preliminary perspective on a potential process at an upcoming meeting of the Board scheduled for July 8, 2019. The Company’s common stock price closed at $3.14 per share on the NYSE American on July 8, 2019.

 

On July 8, 2019, the Board held a meeting with representatives of Sullivan & Cromwell LLP, which we refer to as Sullivan & Cromwell, the Company’s outside legal counsel, present. The Board convened to consider whether the Board should initiate a formal process for the consideration of potential strategic alternatives for the Company, including a potential sale of the Company. At the meeting, representatives of Sullivan & Cromwell discussed the legal framework governing the Board’s consideration of a sale of the Company and gave a presentation on the directors’ fiduciary duties in a change of control context. The Board discussed the Company’s growth, performance, recent consolidation in the industry, and the risks of remaining independent, among others, as reasons for exploring a sale process, and also discussed the potential retention of Jefferies to advise on a strategic review. Representatives of Jefferies joined the meeting and discussed current market conditions and certain preliminary perspectives on its recommendation with respect to the process and timeline for exploring the potential sale of the Company, including Jefferies’ perspectives on companies that the Board could consider including in a potential outreach.

 

At the conclusion of the meeting on July 8, 2019, the Board determined (i) that it would be advisable and in the best interests of the shareholders of the Company for the Board to initiate a process for the consideration of potential strategic alternatives for the Company, including a potential sale of the Company, (ii) to engage Jefferies to act as the Company’s financial advisor in connection with the exploratory process and (iii) to establish a transaction committee of the Board, which we refer to as the transaction committee, to oversee and manage the process on behalf of the Board and to provide regular updates to the Board regarding the status of the process. The Board adopted resolutions to authorize and approve the foregoing, including authorizing the officers of the Company, subject to the oversight of the transaction committee, to solicit third parties to determine their interest in a potential strategic transaction with the Company, to enter into customary non-disclosure agreements with any interested parties, to negotiate definitive transaction documents with one or more interested parties (subject to Board approval), and to take any other actions consistent with such resolutions of the Board and approved by the transaction committee.

 

Between July 8, 2019 and September 5, 2019, the date of the next meeting of the Board, management, with the assistance of Jefferies, established a process for interested parties to submit indications of interest and to conduct due diligence on the Company and populated a virtual data room for due diligence purposes, which we refer to as the virtual data room.

 

On July 9, 2019, the transaction committee approved the execution of an engagement letter with Jefferies, as discussed with the Board.

 

On July 19, 2019, Company management updated the transaction committee on the process, including providing a summary of developments.

 

On July 26, 2019, Company management updated the Board on the process, including providing a summary of developments.

 

On August 9, 2019, Company management updated the Board on the process, including providing a summary of developments, status of management’s efforts to populate the virtual data room, which was expected to be completed by August 26, 2019 or the week thereafter, and preliminary perspectives of Company management and representatives of Jefferies on next steps to launch the outbound process.

 

 -28- 
 

 

From July 8, 2019 to September 5, 2019, the Company’s common stock price declined, reaching a low of $1.81 per share on the NYSE American on August 27, 2019 and closing at $2.09 per share on the NYSE American on September 5, 2019.

 

On September 5, 2019, the Board held a meeting with representatives of Jefferies and Sullivan & Cromwell present. At the meeting, Jefferies updated the Board on progress made by the Company in preparation for a potential outbound process since the July 8, 2019 meeting of the Board. Jefferies also presented its perspectives on process and timing considerations, and the parties (including a mix of strategic and financial parties) who could be interested in a potential acquisition of the Company, including Advisor Group and Party B. The Board determined that the 13 parties discussed with Jefferies should be contacted on a no-names basis regarding the opportunity, with interested parties (and their financing sources, if applicable) obtaining access to the virtual data room after executing a non-disclosure agreement with the Company. The Board authorized Jefferies to begin the outreach to potentially interested parties.

 

Between September 6, 2019 and the end of September 2019, Jefferies, acting at the instruction of the Board, contacted the 13 parties previously discussed with the Board. An additional six parties either reached out directly to Jefferies or management to inquire about the process based on rumors in the market or were determined by management to be potentially interested parties. Representatives of Jefferies engaged in preliminary, confidential discussions with each of these 19 parties to determine whether there was an interest in pursuing a potential transaction with the Company.

 

On September 16, 2019, Company management updated the transaction committee on the process, including providing a summary of initial outreach to the previously identified third parties.

 

On September 18, 2019, Jefferies and Company management updated the transaction committee, including that Jefferies had received inbound inquiries from parties that were not among the 13 parties previously identified at the September 5, 2019 meeting of the Board.

 

On September 25, 2019, Company management updated the transaction committee on the process, including providing a summary of developments.

 

On October 7, 2019, Company management updated the Board on the process, including providing a summary of developments.

 

Of the 19 parties who discussed the opportunity with Jefferies or management, 15 signed non-disclosure agreements with the Company and obtained access to the virtual data room, which included confidential Company information and a bid instruction letter requesting that preliminary indications of interest be submitted by October 14, 2019. On October 10, 2019, two of the 19 parties, Advisor Group and Party B, attended in-person meetings in New York, New York with Company management. A third strategic party was invited to an in-person meeting with management but such party declined the invitation and ultimately did not submit a preliminary indication of interest. Only these three parties were invited to management meetings as they were believed to be the most likely to be in a position to pay the highest value in a transaction with the Company given the potential for synergies.

 

On October 14, 2019, four of the 19 parties, including Advisor Group, Party B and two other parties, which we refer to as Party C and Party D, respectively, submitted preliminary indications of interest for a strategic transaction involving the Company. One of the 19 parties, which we refer to as Party E, communicated an interest to partner with another bidder but did not submit a written proposal.

 

Advisor Group’s preliminary indication of interest proposed that the Company enter into exclusivity with Advisor Group to accelerate its ability to finalize a transaction on an expedited timeline. Along with its preliminary indication of interest, Advisor Group also submitted “highly confident” letters from Barclays, Credit Suisse, Deutsche Bank, RBC and UBS to demonstrate its ability to finance a transaction.

 

 -29- 
 

 

On October 15, 2019, the Board held a meeting with representatives of Jefferies and Sullivan & Cromwell present. At the meeting, Jefferies provided an update to the Board on the status of discussions with the 19 parties and described the preliminary indications of interest submitted on October 14, 2019 by Advisor Group, Party B, Party C and Party D, each proposing to acquire all of the outstanding shares of common stock of the Company: Advisor Group at a purchase price of $3.75 per share; Party B at a purchase price of $2.50 per share; Party C at a purchase price range of $2.30-$2.60 per share; and Party D at a purchase price range of $2.30-$2.91 per share. Jefferies noted that Party B verbally communicated on a call with Jefferies on October 15, 2019, prior to the Board meeting, that there was potential room to raise its offer price per share if it was invited into the second round of the process. Party B and its financial advisor also noted that there were a number of constraints that informed its $2.50 offer price per share and would limit its ability to raise the price significantly with a likely maximum price in the low $3.00 per share range. The Company’s common stock price closed at $2.10 per share on the NYSE American on October 14, 2019. Jefferies discussed its perspectives on the preliminary indications of interest. In light of the price per share offered by Advisor Group and Party B, respectively, including Party B’s verbal communication that it could potentially raise its offer price per share if invited to the second round and that, of the 19 parties, Advisor Group and Party B had conducted the most in-depth due diligence to date, including meeting with management, the Board determined, after discussions with its financial and legal advisors, to invite only Advisor Group and Party B into the second round of the process. The Board also determined not to grant exclusivity to Advisor Group in order to give Party B more time to conduct its due diligence and potentially increase its offer. The Board discussed with Jefferies the fact that Party C, Party D and Party E were financial bidders that would be unable to generate synergies or the returns that strategic bidders, including Advisor Group and Party B, would be able to generate and thus were unlikely to increase their bids to the level proposed by Advisor Group if invited to the second round. The Board also discussed with Jefferies the likelihood that inclusion of Party C, Party D and/or Party E in the second round would require even more time from management since these parties were not as far along in their due diligence of the Company as either of Advisor Group or Party B and would increase the risk of information leakage with respect to the process and level of the bids. After further discussion of the preliminary indications of interest, as well as the risks described above concerning potential diversion of management resources and information leaks, the Board determined to pursue a limited second round process with Advisor Group and Party B only and to have Jefferies contact Advisor Group and Party B to inform them they were each invited into the second round.

 

Between October 16, 2018 and October 26, 2018, management, with the assistance of Jefferies, continued due diligence discussions and negotiations with Advisor Group and Party B and continued to make available in the virtual data room additional confidential information about the Company. On October 18, 2019, an initial draft of the merger agreement prepared by Sullivan & Cromwell was uploaded to the virtual data room.

 

On October 25, 2019, Advisor Group’s legal counsel, Eversheds Sutherland (US) LLP, which we refer to as Eversheds, sent to Sullivan & Cromwell an initial draft of an exclusivity agreement along with a revised draft of the merger agreement.

 

On October 26, 2019, Advisor Group communicated to Company management and Jefferies that, based on its due diligence, it was reducing its proposed purchase price from $3.75 to $3.25. Company management directed Jefferies to inform Advisor Group that the Company was unwilling to enter into exclusivity at $3.25 per share.

 

Later on October 26, 2019, Advisor Group submitted to Jefferies a revised indication of interest, proposing to acquire all of the outstanding shares of common stock of the Company at a purchase price of $3.50 per share, up $0.25 per share from the purchase price that Advisor Group had proposed earlier on October 26, 2019, but down $0.25 per share from the purchase price per share set forth in Advisor Group’s preliminary indication of interest. Advisor Group noted that its revised indication of interest was conditioned on the Company entering into an exclusivity agreement with Advisor Group by no later than 1:00 p.m., Eastern Time, on October 27, 2019. The Company’s common stock price closed at $1.98 per share on the NYSE American on October 25, 2019.

 

Also on October 26, 2019, the Board met with representatives of Jefferies and Sullivan & Cromwell present. At the meeting, representatives of Sullivan & Cromwell summarized key issues in the draft exclusivity agreement and revised draft of the merger agreement provided by Eversheds on October 25, 2019, and Jefferies provided an update to the Board on the status of discussions with Advisor Group and Party B. After carefully analyzing Advisor Group’s written proposal, considering the $2.50 price per share previously submitted by Party B, taking into account Party B’s communication to Jefferies that its ability to raise the offer price significantly was constrained by a number of factors, as well as consulting with representatives of Sullivan & Cromwell and Jefferies, the Board determined to enter into exclusivity with Advisor Group at a price of $3.50 per share.

 

 -30- 
 

 

On October 27, 2019, the Company entered into the exclusivity agreement with Advisor Group, which provided for a 19-day period of exclusivity through November 15, 2019, which would automatically be extended an additional seven-day period through November 22, 2019 if, upon expiration of the initial 19-day period, the parties continued to engage in good faith discussions regarding a proposed transaction at a price of $3.50 per share and upon terms and conditions that were at least as favorable to the Company and its shareholders as the terms and conditions reflected in the revised draft of the merger agreement that Eversheds sent to Sullivan & Cromwell on October 25, 2019.

 

Later on October 27, 2019, representatives of Jefferies, at the direction of the Board, communicated to Party B that the Company had entered into exclusivity with another party. Party B indicated its continuing interest but did not increase its offer to acquire all of the outstanding shares of common stock of the Company above a purchase price of $2.50 per share.

 

On October 29, 2019, Sullivan & Cromwell sent Eversheds comments to the latest draft of the merger agreement that had been provided by Eversheds on October 25, 2019.

 

Also on October 29, 2019, various news outlets including Bloomberg News published articles disclosing that the Company was exploring a sale. The Company’s common stock price closed at $2.01 per share on the NYSE American on October 28, 2019, the day before the publication of the Bloomberg News article, and at $2.25 per share on the NYSE American on October 29, 2019, the day of publication of the Bloomberg News article.

 

On October 30, 2019, Eversheds sent Sullivan & Cromwell a list of open issues in the merger agreement and initial drafts of the equity commitment letter and a form of voting agreement that Advisor Group would require from each director of the Company as well as Vector Group, Ltd., a greater than 10% shareholder of the Company, in connection with the signing of the merger agreement. Sullivan & Cromwell and Eversheds discussed changes to various provisions in the merger agreement during the remainder of the week.

 

From November 1, 2019 through November 11, 2019, representatives of the Company, Advisor Group and their respective advisors extensively negotiated and exchanged drafts of the transaction documents, including the merger agreement, the disclosure letter to the merger agreement, the form of voting agreement to be entered into by the Company’s directors and Advisor Group, and Advisor Group’s equity commitment letter and debt commitment letter. Negotiated issues included, among other things, the amount of the termination fee payable by the Company in the event of a superior proposal, the elimination of a “force-the-vote” provision proposed by Advisor Group that the Company still hold a shareholder vote in the event of a superior proposal, the amount of and circumstances under which a reverse break fee would become payable by Advisor Group and remedies available to the Company upon a breach or failure to close by Advisor Group, and the elimination of a requirement proposed by Advisor Group that the voting obligations under the director voting agreements would survive the termination of the merger agreement. The Board was focused on an effective “fiduciary-out” in the event of a superior proposal and certainty of closing if a transaction were announced. Concurrently, Advisor Group, Vector Group, Ltd., and their respective counsel negotiated and exchanged drafts of the Vector voting agreement, which were always provided to the Company’s counsel.

 

On November 8, 2019, Company management updated the transaction committee on the status of negotiations, including with respect to Advisor Group’s debt commitment.

 

On November 10, 2019, just prior to a scheduled meeting of the Board to approve the merger, Advisor Group communicated to Company management and Jefferies that, based on its due diligence, it was reducing its proposed purchase price from $3.50 to $3.23 per share. Advisor Group indicated a willingness to allow for recovery of up to half of the $0.27 per share reduction two years after the closing through a contingent value structure.

 

The Board then met with representatives of Jefferies and Sullivan & Cromwell present. At the meeting, Company management and representatives of Jefferies described Advisor Group’s proposed reduction in the purchase price. After carefully analyzing Advisor Group’s revised proposal, considering the timing of the revised proposal and consulting with representatives of Sullivan & Cromwell and Jefferies, the Board determined to reject Advisor Group’s revised proposal and directed Jefferies to communicate to Advisor Group that the Company was prepared to approve the transaction with Advisor Group at a price of $3.50 per share in cash but otherwise would wait for Advisor Group’s exclusivity to expire on November 15, 2019 and reopen the process to other interested parties.

 

 -31- 
 

 

On November 11, 2019, Advisor Group communicated to Company management and Jefferies that it was prepared to proceed with the transaction at a price of $3.50 per share in cash.

 

Later on November 11, 2019, the Board, together with members of management, and representatives of Sullivan & Cromwell and Jefferies, met to discuss and review the draft definitive merger agreement and other transaction documents and to consider the proposed transaction. Representatives of Sullivan & Cromwell reviewed the fiduciary duties of the directors and the terms of the transaction documents. Representatives of Jefferies then reviewed its financial analyses with respect to the proposed per share merger consideration and rendered an oral opinion, which was confirmed by delivery of a written opinion, dated November 11, 2019, to the effect that, as of such date, and based on and subject to the various assumptions made, procedures followed, matters considered and limitations and qualifications on the scope of the review undertaken as described in its opinion, the cash consideration of $3.50 per share of common stock to be received by the holders of common stock pursuant to the merger agreement was fair from a financial point of view to such holders, which opinion is summarized in “—Opinion of the Company’s Financial Advisor” beginning on page 37. The Board also discussed the risks and uncertainties facing the Company as a standalone entity. Following extensive discussion, the Board unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement were fair to, advisable and in the best interests of the Company and its shareholders and adopted, approved and declared advisable the execution, delivery and performance of the merger agreement, the merger and the other transactions contemplated by the merger agreement and resolved to submit the merger agreement to the Company’s shareholders to approve the merger agreement, the merger and the other transactions contemplated thereby.

 

Following the Board meeting, the parties executed the definitive merger agreement and other transaction documents and the Company and Advisor Group issued a joint press release on November 11, 2019, announcing the proposed transaction.

 

Reasons for the Merger; Recommendation of the Company’s Board of Directors

 

The Board has unanimously determined that the merger agreement, the merger and the other transactions contemplated by the merger agreement are fair to, advisable and in the best interests of the Company and its shareholders and adopted, approved and declared advisable the execution, delivery and performance of the merger agreement, the merger and the other transactions contemplated by the merger agreement, resolved to submit the merger agreement to the Company’s shareholders at a special meeting of shareholders to approve the merger agreement, the merger and the other transactions contemplated thereby and recommended that the shareholders of the Company vote to approve the merger agreement, the merger and the other transactions contemplated thereby.

 

The Board unanimously recommends that you vote (1) “FOR” the merger proposal; (2) “FOR” the non-binding, advisory proposal to approve compensation that will or may become payable to the Company’s named executive officers in connection with the merger; and (3) “FOR” approval of the proposal to adjourn the special meeting, if necessary or appropriate, including if there are not holders of a sufficient number of shares of common stock present or represented by proxy at the special meeting to constitute a quorum.

 

In the course of reaching its determination and recommendation, the Board consulted with and received the advice and assistance of its legal and financial advisors. In recommending that shareholders vote in favor of approval of the merger agreement, the Board considered a number of factors, including the following (which factors are not necessarily presented in order of relative importance):

 

  Per Share Merger Consideration. The Board considered the $3.50 per share merger consideration relative to the current and historical trading prices and anticipated future trading prices of the common stock, including the fact that the per share merger consideration constituted a premium of approximately:

 

 -32- 
 

 

  74% to the closing price per share of $2.01 on October 28, 2019, which was the last full trading day prior to the publication of the Bloomberg News article disclosing that the Company was considering a sale;
     
  22.8% to the closing price per share of $2.85 on November 8, 2019, which was the last full trading day prior to the announcement of the transaction; and
     
  56% to the volume-weighted average price during the two months ended November 8, 2019 and 26% to the volume-weighted average price during the four months ended November 8, 2019, which two-month and four-month periods include eight full trading days after publication of the Bloomberg News article disclosing that the Company was considering a sale.

 

  Thorough Process. The Board considered the Company’s thorough exploratory process covering 19 potentially interested parties, including a mix of strategic and financial buyers, of which 15 signed non-disclosure agreements with the Company and four submitted preliminary indications of interest for a strategic transaction involving the Company, and that Advisor Group’s per share offer price substantially exceeded the other three offers received. The Board also considered that the Company’s exploratory process was made public in the Bloomberg News article published on October 29, 2019 and no additional parties indicated interest for a strategic transaction involving the Company following such publication.
     
  Business and Financial Condition of the Company. The Board considered, after discussions with its financial advisor and members of management, the per share merger consideration relative to other alternatives reasonably available to the Company, including the continued standalone operation of the Company as an independent public company and especially in light of the current environment in the industry as well as broader economic and commercial trends affecting the Company’s business and financial results, including:

 

  the Board’s assessment of the Company’s business, assets and prospects, its competitive position and historical and projected financial performance and the nature of the industry in which the Company operates, including anticipated industry consolidation trends and changing competitive dynamics;
     
  the strategic alternatives reasonably available to the Company and the risks and uncertainties associated with those alternatives;
     
  the risks and uncertainties relating to possible future headwinds for companies operating in the industry in which the Company operates, including the potential need for greater scale to be able to compete effectively in the markets in which the Company operates;
     
  the risks and uncertainties relating to anticipated structural changes in the Company’s industry due to technological changes and regulatory uncertainties; and
     
  the impact of interest rate policy tightening by the Board of Governors of the Federal Reserve System on the Company’s outlook, including the impact of interest rate cuts in July 2019, September 2019 and October 2019, which could adversely impact service fee revenues received from our clearing firms and from cash sweep programs.

 

  Certainty of Consideration. The Board considered that the all-cash merger consideration provides the shareholders with certainty of value and, upon closing, immediate liquidity for their shares, especially when viewed against the potential risks and uncertainties inherent in the Company’s business, including risks associated with remaining a standalone entity and changing competitive dynamics.

 

 -33- 
 

 

  Receipt of Fairness Opinion from Jefferies. The Board considered that in connection with the merger, Jefferies rendered its oral opinion, subsequently confirmed in writing, to the effect that, as of November 11, 2019, and based on and subject to the various assumptions made, procedures followed, matters considered and limitations and qualifications on the scope of the review undertaken as described in its opinion, the merger consideration of $3.50 per share in cash to be received by the holders of shares of common stock pursuant to the merger agreement, was fair, from a financial point of view, to such holders, as more fully described below in the section titled “—Opinion of the Company’s Financial Advisor” and which written opinion is attached in its entirety as Annex D hereto. The summary of the opinion of Jefferies herein is qualified in its entirety by reference to the full text of the opinion.
     
  Likelihood of Completion; Certainty of Payment. The Board considered its belief that, absent a superior proposal, the merger represented a transaction that would likely be consummated based on, among other factors:

 

  the absence of any financing condition to consummation of the merger and the fact that Advisor Group provided evidence of committed sources of equity and debt financing that would enable it to consummate the merger;
     
  Advisor Group’s reputation and its credibility as an acquiror;
     
  the fact that there are not expected to be significant antitrust or other regulatory impediments to completing the merger; and
     
  the fact that the conditions to the closing of the merger are specific and limited in scope and which, in the case of the condition related to the accuracy of the Company’s representations and warranties, are generally subject to a “material adverse effect” qualification.

 

  Other Terms of the Merger Agreement. The Board considered other terms and conditions of the merger agreement and related transaction documents, including:

 

  the provision of the merger agreement allowing the Board to change its recommendation prior to obtaining the company shareholder approval in order to enter into an alternative agreement with respect to a superior proposal, subject to (i) the Company’s notification and good faith negotiation obligations in relation to Advisor Group’s matching rights and (ii) Advisor Group’s right to terminate the merger agreement and receive payment of the applicable termination fee;
     
  the provisions of the merger agreement entitling the Company to seek specific performance of Advisor Group’s obligation to consummate the merger and, if not specific performance, uncapped monetary damages or, in the event that, despite Advisor Group’s compliance with its covenants to obtain debt financing, Advisor Group fails to obtain financing to consummate the merger, a reverse termination fee of $35.3 million;
     
  the provisions of the merger agreement requiring Advisor Group to use its commercially reasonable efforts to obtain applicable regulatory approvals to consummate the merger;
     
  the termination date of the merger agreement on which date either party, subject to certain exceptions, can terminate the merger agreement, and the Board’s view that the termination date, and the provisions of the merger agreement providing for an extension of the termination date under certain circumstances, allow for sufficient time to consummate the merger; and
     
  the Board’s belief that the other terms of the merger agreement, taken as a whole, are reasonable.

 

 -34- 
 

 

  Support of the Company’s Largest Shareholders. The Board considered the fact that the Company’s directors and its largest shareholder entered into voting agreements with Advisor Group and agreed to support the merger, subject to certain exceptions, including in the event that the merger agreement is terminated by the Company in order to enter into an alternative agreement with respect to a superior proposal.

 

In the course of reaching its recommendation, the Board also considered a variety of risks and potentially negative factors concerning the merger and the merger agreement, including the following:

 

  that the shareholders will have no ongoing equity participation in the Company following the merger and the shareholders will cease to participate in the Company’s future earnings or growth, if any, and will not benefit from increases, if any, in the value of the Company following the merger;
     
  the risk that the merger will be delayed or will not be completed, including the failure to satisfy the conditions to the completion of the merger, as well as the potential loss of value to the shareholders and the potential negative impact on the operations and prospects of the Company if the merger agreement is terminated or the merger is not completed for any reason;
     
  the significant effort and cost involved in connection with negotiating the merger agreement and completing the merger (including certain costs and expenses if the merger is not consummated), the substantial management time and effort required to effectuate the merger and the related disruption to the Company’s day-to-day operations during the pendency of the merger;
     
  the possibility that the financing contemplated by Advisor Group will not be obtained, resulting in Advisor Group not having sufficient funds to complete the merger;
     
  the risk, if the merger is not consummated, that the pendency of the merger could affect adversely the relationship of the Company and its subsidiaries with their respective employees and financial advisors (including making it more difficult to attract and retain key personnel and the possible loss of key personnel) and customers;
     
  the requirement that the Company pay Advisor Group a termination payment of $19 million under certain circumstances following termination of the merger agreement, including if Advisor Group terminates the merger agreement as a result of the Board changing its recommendation or the Company terminates the merger agreement to enter into an alternative agreement with respect to a superior proposal;
     
  the restrictions imposed by the terms of the merger agreement on the conduct of the Company’s business prior to completion of the merger, which may delay or prevent the Company from undertaking business opportunities that may arise pending completion of the merger, and the resultant risk if the merger is not consummated;
     
  as the transaction has a potential outside date as late as June 10, 2020, that the shareholders could be asked to vote on approval of the merger agreement in advance of completion of the transaction, depending on when the transaction actually closes;
     
  the receipt of cash in exchange for the common stock pursuant to the merger will be a taxable transaction for U.S. federal income tax purposes for many of the shareholders; and
     
  the Company’s officers and directors may have interests in the merger that are different from, or in addition to, the interests of the shareholders, including the acceleration of Company options and Company restricted shares held by officers and directors, change of control and retention bonuses that will be payable to certain officers at or following the closing, the payment of severance to officers if a termination of employment were to occur in connection with the merger, and the interests of the Company’s directors and officers in being entitled to continued indemnification, advancement of expenses and insurance coverage from the surviving corporation under the merger agreement.

 

 -35- 
 

 

The above discussion of the information and factors considered by the Board is not intended to be exhaustive, but indicates the material matters considered. In reaching its determination and recommendation, the Board did not quantify, rank or assign any relative or specific weight to any of the foregoing factors, and individual members of the Board may have considered various factors differently. The Board did not undertake to make any specific determination as to whether any specific factor, or any particular aspect of any factor, supported or did not support its ultimate recommendation. Moreover, in considering the information and factors described above, individual members of the Board each applied his or her own personal business judgment to the process and may have given differing weights to differing factors. The Board based its unanimous recommendation on the totality of the information presented. The explanation of the factors and reasoning set forth above contain forward-looking statements that should be read in conjunction with the section of this proxy statement entitled “Cautionary Statements Regarding Forward-Looking Information.”

 

Certain Unaudited Company Forecasts

 

The Company does not, as a matter of course, publicly disclose long-term forecasts or projections as to future revenues, earnings or other results due to, among other reasons, the uncertainty, unpredictability and subjectivity of the underlying assumptions and estimates. However, the Company is including in this proxy statement certain unaudited prospective financial information that was included in the unaudited prospective financial information made available to the Board for purposes of evaluating the merger and to representatives of Jefferies for purposes of rendering its fairness opinion and performing its related financial analyses, as described in the section titled “—Opinion of the Company’s Financial Advisor” beginning on page 37. Such unaudited prospective financial information included, among other things, consolidated total revenue, total expenses, income before income taxes and adjusted EBITDA for the years 2019 through 2023 that were prepared by management of the Company and not for public disclosure, which we refer to as the Management Projections. The Company also made available certain unaudited prospective financial information to Advisor Group in connection with the merger. The unaudited prospective financial information made available to Advisor Group was the same as the Management Projections except with respect to public company costs, which were excluded from the information made available to Advisor Group but were included in the Management Projections.

 

The Management Projections were prepared by management in good faith based on management’s best available estimates, judgments and assumptions with respect to the Company’s future financial performance at the time they were prepared and speak only as of that time. The summaries of the Management Projections are not included in this proxy statement to induce any shareholder of the Company to vote in favor of the merger proposal or any other proposals to be voted on at the special meeting.

 

The Management Projections were prepared by the Company’s management in August 2019 based on certain assumptions that management then believed to be potentially achievable. While the Management Projections were prepared in good faith by management, no assurance can be made regarding future events and actual results may be significantly higher or lower than forecasted by the Management Projections. The Management Projections also reflect assumptions as of their respective time of preparation as to certain business decisions that are subject to change. Although presented with numerical specificity, the Management Projections are based upon a variety of estimates and numerous assumptions made by management with respect to, among other matters, cost-savings (including from the cost-savings initiatives discussed in the section titled “The Merger—Background of the Merger” beginning on page 27), interest rate cuts by the Board of Governors of the Federal Reserve System, financial advisor growth and attrition and costs of being a public company. Furthermore, the Management Projections do not take into account any failure of the merger to be completed and should not be viewed as reflective of management’s expectations under those circumstances. In addition, because the Management Projections cover multiple years, such information by its nature becomes less reliable with each successive year. As a result, there can be no assurance that the estimates and assumptions made in preparing the Management Projections will prove accurate, that the projected results will be realized or that actual results will not be significantly higher or lower than projected results. The Management Projections cannot, therefore, be considered a guaranty of future operating results, and this information should not be relied on as such.

 

 -36- 
 

 

Except to the extent required by law, the Company does not intend to update or otherwise revise the Management Projections to reflect circumstances existing after the date they were prepared or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying such prospective financial information are no longer appropriate.

 

The Management Projections were not prepared with a view toward public disclosure, soliciting proxies or complying with U.S. Generally Accepted Accounting Principles, which we refer to as GAAP, the published guidelines of the SEC regarding financial projections and forecasts or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial projections and forecasts. Neither the Company’s independent registered public accounting firm nor any other independent registered public accounting firm has examined, compiled or otherwise performed any procedures with respect to the prospective financial information contained in the Management Projections and, accordingly, neither the Company’s independent registered public accounting firm nor any other independent registered public accounting firm has expressed any opinion or given any other form of assurance on such information or its achievability, and assumes no responsibility for, and disclaims any association with, the prospective financial information.

 

The Management Projections include “non-GAAP financial measures,” which are financial measures that are not calculated in accordance with GAAP. These non-GAAP financial measures should not be viewed as a substitute for GAAP financial measures and may be different from non-GAAP financial measures used by other companies. Furthermore, there are limitations inherent in non-GAAP financial measures because they exclude items, including charges and credits, that are required to be included in a GAAP presentation.

 

The following table summarizes the Management Projections:

 

    2019E   2020E   2021E   2022E   2023E
    

($ in millions)

 
Total Revenues  $1,466.8   $1,594.3   $1,695.0   $1,818.6   $1,984.7 
% Growth Y/Y   5.4%   8.7%   6.3%   7.3%   9.1%
Total Expenses  $1,418.3   $1,531.8   $1,606.8   $1,710.9   $1,858.6 
% Growth Y/Y   5.5%   8.0%   4.9%   6.5%   8.6%
Income Before Income Taxes  $48.2   $62.3   $88.2   $107.7   $126.0 
Adjusted EBITDA  $113.5   $129.9   $154.7   $178.4   $199.2 

 

Opinion of the Company’s Financial Advisor

 

Opinion of Jefferies LLC

 

The Company retained Jefferies as its financial advisor in connection with the potential sale of the Company. In connection with this engagement, the Company requested that Jefferies evaluate the fairness, from a financial point of view, of the per share merger consideration to be received by holders of shares of common stock pursuant to the merger agreement. At a meeting of the Board held on November 11, 2019, Jefferies rendered an oral opinion, subsequently confirmed by delivery of a written opinion dated November 11, 2019, to the Board to the effect that, as of that date and based on and subject to the various assumptions made, procedures followed, matters considered and limitations and qualifications on the scope of review undertaken as described in its opinion, the per share merger consideration to be received by the holders of shares of common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

 

 -37- 
 

 

The full text of Jefferies’ opinion, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the scope of review undertaken by Jefferies in rendering its opinion, is attached as Annex D to this proxy statement and is incorporated herein by reference. Jefferies’ opinion is for the use and benefit of the Board (in its capacity as such) in its consideration of the merger, and Jefferies’ opinion did not address the relative merits of the merger contemplated by the merger agreement as compared to any alternative transaction or opportunity that might be available to the Company, nor did it address the underlying business decision by the Company to engage in the merger or the terms of the merger agreement or the documents referred to therein. Jefferies’ opinion did not constitute a recommendation to any holder of shares of common stock as to how any such shareholder should vote in the merger or how any such holder should act with respect to the merger or any matter related thereto. The following summary is qualified in its entirety by reference to the full text of Jefferies’ opinion.

 

In arriving at its opinion, Jefferies, among other things:

 

  (i) reviewed a draft dated November 10, 2019 of the merger agreement;
     
  (ii) reviewed certain publicly available financial and other information about the Company;
     
  (iii) reviewed certain information furnished to it by the Company’s management, including financial forecasts and analyses under various business assumptions, relating to the business, operations and prospects of the Company;
     
  (iv) held discussions with members of senior management of the Company concerning the matters described in clauses (ii) and (iii) above;
     
  (v) reviewed the share trading price history and valuation multiples for the common stock and compared them with those of certain publicly traded companies that Jefferies deemed relevant;
     
  (vi) reviewed the proposed financial terms of the merger and compared them with the publicly available financial terms of certain other transactions that Jefferies deemed relevant; and
     
  (vii) conducted such other financial studies, analyses and investigations as Jefferies deemed appropriate.

 

In its review and analysis and in rendering its opinion, Jefferies assumed and relied upon, but did not assume any responsibility to independently investigate or verify, the accuracy and completeness of all financial and other information that was supplied or otherwise made available by the Company or that was publicly available to Jefferies (including, without limitation, the information described above), or that was otherwise reviewed by Jefferies. Jefferies relied on assurances of the management of the Company that it is not aware of any facts or circumstances that would make such information inaccurate or misleading. In its review, Jefferies did not obtain any independent evaluation or appraisal of any of the assets or liabilities of, nor did Jefferies conduct a physical inspection of any of the properties or facilities of, the Company, and Jefferies was not furnished with, and assumed no responsibility to obtain, any such evaluations, appraisals or physical inspections.

 

With respect to the financial forecasts provided to and examined by Jefferies, Jefferies noted that projecting future results of any company is inherently subject to uncertainty. The Company informed Jefferies, however, and Jefferies assumed, that such financial forecasts were reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of the Company as to the future financial performance of the Company under various business assumptions. Jefferies expressed no opinion as to the Company’s financial forecasts or the assumptions on which they are made.

 

Jefferies’ opinion is based on economic, monetary, regulatory, market and other conditions existing and which could be evaluated as of the date of Jefferies’ opinion. Jefferies expressly disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion of which Jefferies becomes aware after the date of its opinion.

 

 -38- 
 

 

Jefferies made no independent investigation of any legal or accounting matters affecting the Company or the merger, and Jefferies assumed the correctness in all respects material to its analysis of all legal and accounting advice given to the Company and its Board, including, without limitation, advice as to the legal, accounting and tax consequences of the terms of, and transactions contemplated by, the merger agreement to the Company and its shareholders. In addition, in preparing the opinion, Jefferies did not take into account any tax consequences of the merger to any holder of shares of common stock. Jefferies assumed that the final form of the merger agreement would be substantially similar to the last draft reviewed by it in all respects material to its opinion. Jefferies assumed that the merger will be consummated in accordance with the terms of the merger agreement without waiver, modification or amendment of any term, condition or agreement and in compliance with applicable laws, documents and other requirements. Jefferies also assumed that in the course of obtaining the necessary regulatory or third party approvals, consents and releases for the merger, no delay, limitation, restriction or condition would be imposed that would have an adverse effect on the Company or the contemplated benefits of the merger in any respect material to its opinion.

 

Jefferies’ opinion was provided for the use and benefit of the Board (in its capacity as such) in its consideration of the merger, and its opinion did not address the relative merits of the transactions contemplated by the merger agreement as compared to any alternative transaction or opportunity that might be available to the Company, nor did it address the underlying business decision by the Company to engage in the merger or the terms of the merger agreement or the documents referred to therein. Jefferies’ opinion does not constitute a recommendation to any holder of shares of common stock as to how any such holder should vote in the merger or how any such holder should act with respect to the merger or any matter related thereto. In addition, Jefferies was not asked to address, and its opinion did not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of the Company, other than the holders of shares of common stock. Jefferies expressed no opinion as to the price at which shares will trade at any time. Furthermore, Jefferies did not express any view or opinion as to the fairness, financial or otherwise, of the amount or nature of any compensation payable or to be received by any of the Company’s officers, directors or employees, or any class of such persons, in connection with the merger relative to the per share merger consideration to be received by the holders of shares of common stock or otherwise. Jefferies’ opinion was authorized by the Fairness Committee of Jefferies LLC.

 

In connection with rendering its opinion to the Board, Jefferies performed a variety of financial and comparative analyses, which are summarized below. The following summary is not a complete description of all analyses performed and factors considered by Jefferies in connection with its opinion. The preparation of a fairness opinion is a complex process involving various determinations as to the most appropriate and relevant quantitative and qualitative methods of financial analysis and the applications of those methods to the particular circumstances and, therefore, is not necessarily susceptible to partial analysis or summary description. Jefferies believes that its analyses must be considered as a whole. Considering any portion of Jefferies’ analyses or the factors considered by Jefferies or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying Jefferies’ analyses and opinion. Jefferies did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion, but rather arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole.

 

With respect to the selected public companies and selected transactions analyses summarized below, no company or transaction used as a comparison was identical or directly comparable to the Company or the merger. These analyses necessarily involved complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading, acquisition or other values of the companies or transactions concerned.

 

The estimates of the future performance of the Company in or underlying Jefferies’ analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than those estimates. In performing its analyses, Jefferies considered industry performance, general business, economic, monetary, regulatory, market and other conditions and other matters, many of which were beyond the control of the Company. Estimates of the financial value of companies do not purport to be appraisals or necessarily reflect the prices at which companies or securities actually may be sold or acquired. Accordingly, the estimates used in, and the range of the valuations resulting from, any particular analysis described below are inherently subject to substantial uncertainty and should not be taken as Jefferies’ view of the actual value of the Company or its securities.

 

 -39- 
 

 

The per share merger consideration to be received by the holders of shares of common stock pursuant to the merger agreement was determined through negotiations between the Company and Advisor Group, and the decision by the Company to enter into the merger agreement was solely that of the Board. Jefferies’ opinion and financial analyses were only one of many factors considered by the Board in its evaluation of the per share merger consideration and should not be viewed as determinative of the views of the Board or management with respect to the merger or the per share merger consideration payable in the merger.

 

Financial Analyses

 

The following is a summary of the material financial analyses provided to the Board and performed by Jefferies in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand Jefferies’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Jefferies’ financial analyses.

 

Selected Public Companies Analysis. Jefferies reviewed publicly available financial, stock market and operating information of the Company and the following six selected publicly traded companies in the wealth management or securities brokerage industries that, given business and financial characteristics, Jefferies considered generally relevant for purposes of its analysis, which, collectively, we refer to as the selected companies.

 

Selected Companies

Blucora, Inc.

Focus Financial Partners, LLC

LPL Financial Holdings Inc.

Raymond James Financial

Stifel Financial Corp.

Waddell & Reed Financial Inc.

 

Jefferies reviewed, among other information, enterprise values, which we refer to as TEV, of the selected companies, calculated as fully-diluted equity values based on closing stock prices on November 8, 2019 plus total debt, preferred stock and non-controlling interests (as applicable), less excess cash (either disclosed by the companies or estimated by Jefferies based on its professional judgment), as a multiple of their calendar year 2019 and calendar year 2020 estimated earnings before interest, taxes, depreciation and amortization, which we refer to as EBITDA, as adjusted for non-cash compensation, advisor loan amortization and one-time non-recurring items, as applicable, which we refer to as adjusted EBITDA. Estimated financial data of the selected companies were based on publicly available Wall Street research analysts’ estimates, public filings and other publicly available information. Estimated financial data of the Company was based on financial forecasts and estimates of Company management.

 

The overall low to high latest 12 month EBITDA multiples observed for the selected transactions were 7.9x to 16.8x, with a median of 11.1x. Jefferies applied a selected range of latest 12 months EBITDA multiples of 8.0x to 10.0x derived from the selected transactions to the Company’s latest 12 months (as of June 30, 2019) run-rate adjusted EBITDA. For purposes of this analysis, Jefferies calculated run-rate adjusted EBITDA as latest 12 months adjusted EBITDA (as of June 30, 2019) further adjusted to reflect the full annualized impact of savings achieved as part of the Company’s efficiency initiatives, the negative impact of interest rate cuts on the Company’s cash sweep revenues, the annualized impact of net new advisors that joined the Company during the latest 12 month period (as of June 30, 2019), the impact of increased clearing business credits and the impact of the Kestler acquisition. Jefferies then calculated the Company’s equity value by subtracting the Company’s total debt as of October 31, 2019 from the Company’s TEV and adding parent company cash as of October 31, 2019, and used the result to calculate implied per share equity reference ranges. 

 

This analysis indicated the following approximate implied per share reference ranges for the Company, as compared to the per share merger consideration:

 

Implied Per Share Equity Reference Ranges Based on: 

TEV/2019E

Adjusted EBITDA

  

TEV/2020E

Adjusted EBITDA

  

Per Share

Merger Consideration

 
$1.30-$2.03   $1.68-$2.51   $3.50 

 

Selected Transactions Analysis. Jefferies reviewed, to the extent publicly available, financial data relating to the following 14 selected transactions announced since January 1, 2011, involving targets in the wealth management or securities brokerage industries that Jefferies considered relevant for purposes of its analysis, which, collectively, we refer to as the selected transactions.

 

 -40- 
 

 

Announcement Date   Buyer   Target
5/10/2019   Reverence Capital Partners   Advisor Group
3/19/2019   Blucora, Inc.   1st Global, Inc.
2/25/2019   Warburg Pincus   Kestra Financial Inc.
7/17/2018   Genstar Capital   Cetera Financial Group
8/16/2017   LPL Financial LLC   National Planning Holdings, Inc.
4/4/2016   Stone Point Capital   Kestra Financial Inc.
10/14/2015   Blucora, Inc.   HD Vest Financial Services
1/17/2014   RCS Capital Corporation   J.P. Turner & Company, LLC
1/16/2014   RCS Capital Corporation   Cetera Financial Group
11/16/2013   RCS Capital Corporation   Summit Financial Services Group, Inc.
10/2/2013   RCS Capital Corporation   Investors Capital Holdings, Ltd.
6/12/2013   RCAP Holdings, LLC   First Allied Holdings Inc.
7/31/2012   AIG Advisor Group   Woodbury Financial Services, Inc.
8/16/2011   Ladenburg Thalmann Financial Services Inc.   Securities America Financial Corporation

 

Jefferies reviewed transaction values of the selected transactions as a multiple of each target company’s latest 12 months revenue as of the applicable announcement date. Jefferies also reviewed transaction values of the selected transactions as a multiple of such target company’s latest 12 months EBITDA. Financial data of the selected transactions were based on public filings, other publicly available information and, in certain instances, non-public information which Jefferies included in the median but did not explicitly present for each target. In certain instances, and where information was available, Jefferies used its professional judgment to utilize run-rate financial revenue and EBITDA metrics in the calculation of transaction multiples. Financial data of the Company was based on internal estimates of management.

 

The overall low to high latest 12 months revenue multiples observed for the selected transactions were 0.2x to 1.8x, with a median of 0.8x. Jefferies applied a selected range of latest 12 months revenue multiples of 0.7x to 0.9x derived from the selected transactions to the Company’s latest 12 months (as of September 30, 2019) revenue. Jefferies then applied the same selected range of latest 12 months revenue multiples to the Company’s latest 12 months (as of September 30, 2019) revenue, excluding revenue from the Company’s insurance brokerage business which has lower margins than the Company’s independent broker-dealer and investment banking businesses, and which was not a business line in any of the target companies reviewed in the selected transactions analysis. Jefferies noted that the insurance business, which was acquired for $42 million in August 2014, generated $169.9 million of revenue and $6.2 million of adjusted EBITDA for the 12 months ended September 30, 2019.

 

The overall low-to-high latest 12-month EBITDA multiples observed for the selected transactions were 7.9x to 16.8x, with a median of 11.1x. Jefferies applied a selected range of latest 12 months EBITDA multiples of 8.0x to 10.0x derived from the selected transactions to the Company’s latest 12 months (as of June 30, 2019) run-rate adjusted EBITDA. For purposes of this analysis, Jefferies calculated run-rate adjusted EBITDA as latest 12 months adjusted EBITDA (as of June 30, 2019) further adjusted to reflect the full annualized impact of savings achieved as part of the Company’s efficiency initiatives, the negative impact of interest rate cuts on the Company’s cash sweep revenues, the annualized impact of net new advisors that joined the Company during the latest 12-month period (as of June 30, 2019), the impact of increased clearing business credits and the impact of the Kestler acquisition. Jefferies then calculated the Company’s equity value by subtracting the Company’s total debt as of October 31, 2019 from the Company’s TEV and adding parent company cash as of October 31, 2019, and used the result to calculate implied per share equity reference ranges.

 

This analysis indicated the following approximate implied per share equity value reference range for the Company, as compared to the per share merger consideration.

 

 -41- 
 

 

Revenue

 

Implied Per Share Equity Reference Range  Per Share Merger Consideration 
$2.26-$4.02  $3.50 
$1.50-$3.09  $3.50 
(excluding revenues from insurance brokerage business)     

 

Adjusted EBITDA

 

Implied Per Share Equity Reference Range  Per Share Merger Consideration 
$1.64-$3.06  $3.50 

 

Discounted Cash Flow Analysis. Jefferies performed a discounted cash flow analysis of the Company, using a terminal multiple approach, to calculate a range of implied present values of the unlevered, after-tax free cash flows that the Company was forecasted to generate through the full fiscal year ending December 31, 2023, utilizing the Management Projections (which are summarized in the section titled “The Merger—Certain Unaudited Company Forecasts” beginning on page 36). Terminal values of the Company were calculated by applying to the Company’s projected adjusted EBITDA for the fiscal year ending December 31, 2023 a selected range of adjusted EBITDA multiples of 7.0x to 9.0x, which range was selected by Jefferies in its professional judgment. The present values (as of December 31, 2019) of the cash flows and terminal values were then calculated using a selected discount rate range of 11.50% to 12.50% which were based on the estimated weighted average cost of capital calculation. This analysis indicated the following approximate implied per share equity value reference range for the Company, as compared to the per share merger consideration:

 

Implied Per Share Equity Reference Range  Per Share Merger Consideration 
$3.02-$4.81  $3.50 

 

The discounted cash flow analysis is a widely used valuation methodology, but the results of such methodology are highly dependent on the assumptions that must be made, including revenue growth rates, EBITDA estimates, terminal values and discount rates. The analysis did not purport to be indicative of the actual values or expected values of the Company.

 

Certain Additional Information

 

Jefferies observed certain additional factors that were not considered part of its financial analyses for its opinion but rather were noted for informational purposes, including, the following:

 

Jefferies observed the premiums paid or proposed to be paid in selected mergers and acquisition transactions announced from January 1, 2017 to October 16, 2019. Jefferies applied a selected range of premiums of approximately 20% to 26% (reflecting the overall 25th and 75th percentile premiums derived from such transactions based on the closing stock prices of the target companies involved in such transactions one trading day prior to public announcement of such transactions) to the closing price of the shares of common stock of $2.01 on October 28, 2019, the trading day immediately prior to the first media reports of a proposed transaction involving the Company. Jefferies’ observations indicated an implied equity reference range for the shares of common stock of approximately $2.41 to $2.53 per share. Jefferies also applied a selected range of premiums of approximately 21% to 32% (reflecting the overall 25th and 75th percentile premiums derived from such transactions based on the closing stock prices of the target companies involved in such transactions 30 calendar days prior to public announcement of such transactions) to the closing price of the shares of common stock of $2.01 on October 28, 2019, which indicated an implied equity reference range for the shares of approximately $2.43 to $2.65 per share.

 

 -42- 
 

 

Miscellaneous

 

The Company has agreed to pay Jefferies for its financial advisory services in connection with the merger an aggregate fee of approximately $13.0 million, of which $1.5 million became payable upon delivery of Jefferies’ opinion and approximately $11.5 million of which is payable contingent upon consummation of the merger. The Company has also agreed to reimburse Jefferies for expenses, including fees and expenses of counsel, reasonably incurred in connection with Jefferies’ engagement, and to indemnify Jefferies and related parties against liabilities arising out of or in connection with the services rendered and to be rendered by Jefferies under its engagement.

 

In the ordinary course of business, Jefferies and its affiliates may trade or hold securities in the Company, Advisor Group and certain of their respective affiliates, as the case may be, for Jefferies’ own account and for the accounts of Jefferies’ customers and, accordingly, may at any time hold long or short positions in those securities. As the Board was aware, Jefferies may seek to in the future provide financial advisory and financing services unrelated to the merger to Advisor Group, or entities that are affiliated with Advisor Group, for which services Jefferies and its affiliates would expect to receive fees. In the past two years, Jefferies has not provided financial advisory or financing services to the Company, Advisor Group or Advisor Group’s controlling shareholder.

 

Jefferies was selected to act as the Company’s financial advisor in connection with the merger because, among other factors, Jefferies is an internationally recognized investment banking firm with substantial experience in merger and acquisition transactions, its familiarity with the Company and its business and its reputation. Jefferies is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities and private placements.

 

Financing of the Merger

 

The obligations of Advisor Group and Merger Sub to complete the merger are not contingent upon the receipt of any financing. Advisor Group intends to finance its payment obligations under the merger agreement with a combination of cash on hand, equity financing pursuant to an equity commitment letter with certain private equity funds sponsored by Reverence Capital Partners, the private investment firm that indirectly controls Advisor Group, and debt financing pursuant to a debt commitment letter with the debt financing sources, which are further described below and are collectively referred to as the commitment letters.

 

Although obtaining the proceeds of any financing, including any financing under the commitment letters, is not a condition to the completion of the merger, the failure of Advisor Group and Merger Sub to obtain any portion of the committed financing (or alternative financing) is likely to result in the failure of the merger to be completed. In that case, Advisor Group may be obligated to pay the reverse termination fee to the Company, as described under “The Merger Agreement—Termination Fee” on page 68.

 

Equity Financing

 

On November 11, 2019, in connection with the entry into the merger agreement, Advisor Group entered into an equity commitment letter with investment funds sponsored by Reverence Capital Partners, including Reverence Capital Partners Opportunities Fund II, L.P., Reverence Capital Partners Opportunities Fund II (Cayman), L.P., Reverence Capital Partners Opportunity Fund II (AI) L.P. and Reverence Capital Partners Opportunities Fund II (Parallel), L.P., which we refer to as the equity financing sources. Pursuant to the equity commitment letter, the equity financing sources will   (i) collectively invest $230 million in equity financing to fund or to cause the funding of capital to Advisor Group, which will use the funds to satisfy its payment obligations under the merger agreement and (ii) guaranteed to the Company, on a pro rata basis, Advisor Group’s obligation under the merger agreement with respect to the full amount of the reverse termination fee should it become payable. The description of the equity commitment letter in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the equity commitment letter, a copy of which is attached as Exhibit A to the merger agreement attached as Annex A to this proxy statement.

 

 -43- 
 

 

Debt Financing

 

On November 11, 2019, in connection with the entry into the merger agreement, Advisor Group entered into a debt commitment letter with Bank of America, N.A., BofA Securities, Inc., UBS AG, Stamford Branch, UBS Securities LLC, Barclays Bank PLC, Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman Islands Branch, Deutsche Bank Securities Inc. and Goldman Sachs Bank USA, which we refer to collectively as the debt financing sources. Pursuant to the debt commitment letter, the debt financing sources have committed to provide, severally but not jointly, an aggregate of $875 million to Advisor Group, consisting of (i) an incremental revolving facility in an aggregate principal amount of $100 million and (ii) a senior bridge facility in an aggregate principal of $775 million, which, collectively, we refer to as the debt facilities. The debt financing is conditioned upon, among other things, consummation of the merger and delivery of certain customary closing documents (including, among others, a customary solvency certificate) and certain Company audited and unaudited financial statements. The description of the debt commitment letter in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the equity commitment letter, a copy of which is attached as Exhibit B to the merger agreement attached as Annex A to this proxy statement.

 

Advisor Group’s Obligations to Obtain the Financing

 

Advisor Group and Merger Sub are obligated under the merger agreement to use their respective reasonable best efforts to obtain and consummate the financing on the terms of the commitment letters, and Advisor Group has agreed that it will not, without the Company’s consent, agree to any amendment, restatement, replacement, supplement, termination, repudiation, rescission, cancellation, expiration or other modification or waiver of, any condition, remedy or other provision under any commitment letter if doing so would (i) reduce the aggregate amount of the financing contemplated by the commitment letters, (ii) impose new or additional conditions or expand any of the conditions to the receipt of the financing or otherwise make it less likely that the financing would be funded at closing, (iii) prevent, impair, adversely affect or delay the funding of the financing at closing or (iv) adversely affect the ability of Advisor Group or the Company to enforce its rights against the other parties to the commitment letters. Advisor Group has also agreed with it will not, without the prior written consent of the Company, terminate or permit the termination of any commitment letter unless prior to or in concurrence with such termination, the commitment letter is replaced with a new commitment that would satisfy the requirements listed in this paragraph.

 

In the event all or any portion of the debt financing becomes unavailable or Advisor Group or Merger Sub becomes aware of an event that would reasonably be expected to make any portion of the debt financing unavailable, Advisor Group and Merger Sub must use their reasonable best efforts to arrange for and obtain alternative financing from alternative sources in an amount sufficient to cover its financial obligations in connection with the merger which do not involve any conditions precedent that are materially less favorable to Advisor Group than those contained in the debt commitment letter and would not reasonably be expected to prevent, materially impede or materially delay the consummation of the debt financing or the transactions contemplated by the merger agreement.

 

Closing and Effective Time of the Merger

 

The closing of the merger is scheduled to occur at 9:00 a.m., Eastern Time, on the third business day following the satisfaction or waiver of the conditions set forth in the merger agreement (other than those conditions that by their nature are to be satisfied at the closing, but subject to the satisfaction or waiver of those conditions), which we refer to as the closing. Notwithstanding the foregoing, if the first period of 10 consecutive business days after January 13, 2020, through which (i) the conditions listed in the closing conditions of the merger agreement (other than those conditions that by their nature can only be satisfied at or on the date of closing) have been satisfied, (ii) Advisor Group has received the appropriate audited consolidated balance sheets and consolidated statements of income and cash flows and the unaudited consolidated balance sheets and statements of income, stockholders’ equity and cash flows of the Company, which we refer to as the required information, from the Company, and (iii) the required information is and remains compliant, such period which we refer to as the marketing period, has not ended at the time of the satisfaction or waiver of the conditions set forth in the merger agreement (other than those conditions that by their nature can only be satisfied at the closing, but subject to the satisfaction or waiver of those conditions), then the closing will occur instead on the date following the satisfaction or waiver of such conditions that is the earlier to occur of (x) any business day as may be specified by Advisor Group on no less than three business days’ prior notice to the Company and (y) the third business day following the final day of the marketing period.

 

As soon as practicable following the closing, the Company and Advisor Group will cause articles of merger with respect to the merger to be executed, acknowledged and filed with the Secretary of State of the State of Florida as provided in the FBCA. The merger will become effective at the effective time.

 

 -44- 
 

 

Payment of Merger Consideration and Surrender of Stock Certificates

 

As soon as reasonably practicable after the effective time (but in any event within three business days thereafter), each holder of record of a stock certificate representing shares of common stock that is entitled to receive the per share merger consideration will be sent a letter of transmittal and instructions describing how such record holder may surrender his, her or its shares of our common stock (or affidavits of loss in lieu thereof) in exchange for the per share merger consideration.

 

You should not return your stock certificates with the enclosed proxy card.

 

Any holder of book-entry shares not held, directly or indirectly, through the Depository Trust Company, which we refer to as DTC, will not be required to deliver a stock certificate or an executed letter of transmittal to the paying agent to receive the per share merger consideration that such holder is entitled to receive. In lieu thereof, each holder of record of one or more book-entry shares not held, directly or indirectly, through DTC whose shares of common stock were converted into the right to receive the per share merger consideration will upon receipt by the paying agent of an “agent’s message” in customary form (or such other reasonable evidence, if any, as the paying agent may reasonably request), be entitled to receive the per share merger consideration in respect of each such share of common stock and the book-entry shares of such holder will forthwith be cancelled. With respect to book-entry shares held, directly or indirectly, through DTC, Advisor Group and the Company have agreed to cooperate to establish procedures with the paying agent and DTC to ensure that the beneficial owners of such shares will receive the per share merger consideration in respect of each such share once such shares have been surrendered.

 

No interest will be paid or accrued on the cash payable as the per share merger consideration upon your surrender of your book-entry shares or stock certificates. Advisor Group, the surviving corporation and the paying agent will be entitled to deduct and withhold any required taxes from the per share merger consideration with respect to Company options and Company restricted shares.

 

If you have lost a stock certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the per share merger consideration, you will have to make an affidavit of the loss, theft or destruction of such stock certificate, and post a bond in such customary amount and upon such terms as may be reasonably required by Advisor Group or the paying agent pursuant to the paying agent agreement or otherwise as indemnity against any claim that may be made against it, Merger Sub or the surviving corporation with respect to such lost, stolen or destroyed stock certificate. These procedures will be described in the letter of transmittal and instructions that you will receive, which you should read carefully and in their entirety.

 

Interests of the Company’s Directors and Executive Officers in the Merger

 

In considering the recommendation of the Board with respect to the merger proposal, you should be aware that executive officers and directors of the Company have certain interests in the merger that may be different from, or in addition to, the interests of the Company’s shareholders generally. The Board was aware of these interests and considered them at the time it evaluated and approved the merger agreement and the merger, and in recommending that the merger agreement be approved by the shareholders of the Company. Company shareholders should take these interests into account in deciding whether to approve the merger agreement. Nothing in this proxy statement should be interpreted as providing any executive officer or director of the Company with an entitlement to any payments or other benefits in excess of the payments or other benefits to which he or she would otherwise be entitled in connection with the merger pursuant to the terms of these arrangements.

 

 -45- 
 

 

Treatment of Company Options and Company Restricted Shares

 

Company Options. At the effective time, each Company option outstanding as of the effective time will be accelerated and entitle the holder to receive an amount in cash equal to the product of (i) the number of shares of common stock subject to such Company option and (ii) the excess, if any, of the per share merger consideration over the exercise price per share of the Company option, less applicable withholding taxes.

 

Company Restricted Shares. At the effective time, all Company restricted shares outstanding as of the effective time will be accelerated and entitle the holder to receive an amount in cash equal to the product of (i) the number of Company restricted shares held by such holder and (ii) the per share merger consideration, less applicable withholding taxes.

 

For an estimate of the amounts that would become payable to each of the Company’s named executive officers in settlement of his or her unvested equity awards, see “—Golden Parachute Compensation.” The estimated aggregate amount that would be payable to the Company’s seven non-employee directors in settlement of their unvested Company equity awards that are outstanding on December 2, 2019 if the merger were to be completed on February 1, 2020 is $1,102,500. The amounts in this paragraph were calculated based on the per share merger consideration of $3.50.

 

Executive Officer Employment Agreements

 

The Company’s named executive officers, Richard Lampen, Mark Zeitchick, Adam Malamed, Brett H. Kaufman and Joseph Giovanniello, have employment agreements with the Company that provide for potential payments in the event of their termination. Under each of Mr. Lampen’s, Mr. Zeitchick’s and Mr. Malamed’s employment agreements, if the executive’s employment is terminated by the Company without “cause” or by the executive for “good reason” within two years after the completion of the merger (which will constitute a “change in control” as defined in the employment agreements), the executive will be entitled to receive a lump sum severance payment equal to 1.5 times (2 times in the case of Mr. Lampen) the sum of (i) the executive’s base salary and (ii) the bonus (inclusive of any amounts deferred and retention amounts) paid to the executive in respect of the performance period that ended immediately prior to the performance period in which the termination occurred (or, if greater, the bonus paid in respect of 2014 for Messrs. Lampen and Zeitchick and 2017 for Mr. Malamed), and for Messrs. Zeitchick and Malamed, each executive and his dependents will be entitled to continued participation, at the Company’s expense, in the Company’s health and welfare plans for up to 18 months (or, if earlier, until such time the executive becomes eligible for replacement coverage). Under each of Mr. Kaufman’s and Mr. Giovanniello’s employment agreements, if the executive’s employment is terminated by the Company without “cause” or by the executive for “good reason”, then subject to execution of a general release of claims, the executive will be entitled to receive a lump sum severance payment equal to 1.0 times his annual base salary, and each executive and his dependents will be entitled to continued participation, at the Company’s expense, in the Company’s health and welfare plans for up to 18 months (or, if earlier, until such time the executive becomes eligible for replacement coverage). For each of the named executive officers, the applicable definitions of “cause” and “good reason” are set forth in their respective employment agreements; provided, that the parties have agreed that “good reason” for each executive will be triggered upon the completion of the merger.

 

Supplemental Severance Arrangements

 

In connection with the Company’s entry into the merger agreement, the Company entered into supplemental severance arrangements with each of Messrs. Kaufman and Giovanniello. The supplemental severance arrangements provide that in the event either executive’s employment is terminated following the completion of the merger in a manner qualifying such executive for severance pursuant to the terms of his existing employment agreement with the Company, such executive will be entitled to receive an incremental severance payment in the amount of $550,000. The incremental severance will be paid in a single lump sum, subject to the executive’s execution of a general release of claims. The supplemental severance arrangements do not otherwise amend or supersede the terms of the executives’ respective employment agreements with the Company.

 

 -46- 
 

 

For an estimate of the value of the payments and benefits described above that would be payable to the Company’s named executive officers under their employment agreements upon a qualifying termination of employment immediately following consummation of the merger, see “—Golden Parachute Compensation.”

 

Golden Parachute Compensation

 

This section sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each named executive officer of the Company that is based on or otherwise relates to the merger and that will or may become payable to each such named executive officer at the effective time or on a qualifying termination of employment in connection with the merger. The “named executive officers” are the individuals listed as such in the Company’s most recent annual proxy statement.

 

The estimated potential payments in the table below are based on (i) per share merger consideration of $3.50;  (ii) base salary and equity award holdings as of December 2, 2019; (iii) each named executive officer receiving a 2019 annual bonus equal to that received in respect of 2018; (iv) a merger closing on February 1, 2020 (the assumed date of the closing of the merger solely for purposes of this golden parachute compensation disclosure); and (v) a termination of each named executive officer by the Company without “cause” or by the executive for “good reason” on the closing date. Depending on when the merger occurs, certain equity awards that are now unvested and included in the table below may vest pursuant to the terms of the equity awards based on the completion of continued service with the Company, independent of the merger. The amounts indicated below are estimates based on multiple assumptions that may or may not actually occur, including assumptions described in this proxy statement, and do not reflect certain compensation actions that may occur before completion of the merger. As a result, the actual amounts, if any, to be received by a named executive officer may materially differ from the amounts set forth below. All dollar amounts have been rounded to the nearest whole dollar.

 

For purposes of this discussion, “single-trigger” refers to benefits that arise as a result of the closing of the merger and “double-trigger” refers to benefits that require two conditions, which are the closing of the merger as well as a qualifying termination of employment or specified date following the effective time of the merger, as applicable.

 

Golden Parachute Compensation

 

Named Executive Officers  Cash ($)(1)   Equity ($)(2)   Health and Welfare Continuation ($)(3)   Total ($) 
Richard J. Lampen  $4,200,000   $1,859,375       $6,059,375 
Mark Zeitchick  $3,990,000   $1,859,375   $19,002   $5,868,377 
Adam Malamed  $3,427,500   $1,203,125   $61,368   $4,691,993 
Brett H. Kaufman  $925,000   $280,000   $59,120   $1,264,120 
Joseph Giovanniello  $900,000   $280,000   $58,329   $1,238,329 

 

 

(1) For Messrs. Lampen, Zeitchick and Malamed, the cash payments payable to each such executive consist of a lump sum severance payment equal to 1.5 times (2 times in the case of Mr. Lampen) the sum of (i) the executive’s base salary and (ii) the bonus (inclusive of any amounts deferred and retention amounts) paid to the executive in respect of the performance period that ended immediately prior to the performance period in which the termination occurred (or, if greater, the bonus paid in respect of 2014 for Messrs. Lampen and Zeitchick and 2017 for Mr. Malamed).
   
  For Messrs. Kaufman and Giovanniello, the cash payments payable to each such executive consist of a lump sum severance payment in an amount equal to 1.0 times his annual base salary. Additionally, as described in more detail in “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger”, Messrs. Kaufman and Giovanniello are entitled to a supplemental severance payment in the amount of $550,000 upon a qualifying termination.
   

 

 -47- 
 

 

  Set forth below are the separate values of each component of the severance payable to the named executive officers.

 

   Base Salary Component   Bonus Component   Supplemental Severance   Total ($) 
Richard J. Lampen  $650,000   $3,550,000       $4,200,000 
Mark Zeitchick  $637,500   $3,352,500       $3,990,000 
Adam Malamed  $600,000   $2,827,500       $3,427,500 
Brett H. Kaufman  $375,000       $550,000   $925,000 
Joseph Giovanniello  $350,000       $550,000   $900,000 

 

(2) As described in more detail in “The Merger Agreement—Treatment of Company Securities,” each Company restricted share that is outstanding when the merger is completed will vest upon completion of the merger and entitle the holder thereof to receive an amount in cash equal to the product of (i) the number of Company restricted shares held by such holder multiplied by (ii) the per share merger consideration, less applicable withholding taxes. These values represent the “single-trigger” payments in respect of the following number of Company restricted shares which would be outstanding and held by each of our named executive officers as of February 1, 2020: Mr. Lampen, 531,250; Mr. Zeitchick, 531,250; Mr. Malamed, 343,750; Mr. Kaufman, 80,000; and Mr. Giovanniello, 80,000. All of the named executive officers’ outstanding Company options will be vested pursuant to their terms as of February 1, 2020, and accordingly, have been excluded from this quantification in accordance with Item 402(t) of Regulation S-K.
   
(3) Upon a qualifying termination, each of Messrs. Zeitchick, Malamed, Kaufman and Giovanniello and his eligible dependents will be entitled to continued participation, at the Company’s expense, in the Company’s health and welfare plans for up to 18 months. All such benefits are “double-trigger.”

 

Material U.S. Federal Income Tax Consequences of the Merger

 

The following is a summary of the material U.S. Federal income tax consequences of the merger to U.S. holders (as defined below) whose shares of common stock are converted into the right to receive cash in the merger. This summary does not purport to consider all aspects of U.S. Federal income taxation that might be relevant to our shareholders. For purposes of this discussion, we use the term “U.S. holder” to mean a beneficial owner of shares of our common stock that is, for U.S. Federal income tax purposes:

 

  an individual who is a citizen or resident of the United States;
     
  a corporation (or other entity taxable as a corporation for U.S. Federal income tax purposes) created or organized under the laws of the United States or any of its political subdivisions;
     
  a trust that (i) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or
     
  an estate that is subject to U.S. Federal income tax on its income regardless of its source.

 

If a partnership (including an entity or arrangement treated as a partnership for U.S. Federal income tax purposes) holds our common stock, the U.S. Federal income tax treatment of a partner generally will depend on the status of the partner and the activities of the partner and the tax treatment of the partnership. A partner of a partnership holding our common stock should consult the partner’s tax advisor regarding the U.S. Federal income tax consequences of the merger to such partner.

 

 -48- 
 

 

This discussion is based on the Internal Revenue Code of 1986, as amended, which we refer to as the Code, its legislative history, existing and proposed regulations under the Code, published rulings and court decisions, all as currently in effect. These laws are subject to change or differing interpretation, possibly on a retroactive basis. The discussion applies only to beneficial owners who hold shares of our common stock as capital assets, and does not apply to shares of our common stock received in connection with the exercise of employee stock options or otherwise as compensation, shareholders who hold an equity interest, actually or constructively, in Advisor Group or the surviving corporation after the merger, or to certain types of beneficial owners who may be subject to special rules (such as insurance companies, banks, tax-exempt organizations, financial institutions, broker-dealers, partnerships, S corporations or other pass-through entities, mutual funds, traders in securities who elect the mark-to-market method of accounting, shareholders subject to the alternative minimum tax, shareholders that have a functional currency other than the U.S. dollar or shareholders who hold our common stock as part of a hedge, straddle, wash sale, constructive sale or conversion transaction). This discussion also does not address the U.S. tax consequences to any shareholder who, for U.S. Federal income tax purposes, is a non-resident alien individual, foreign corporation, foreign partnership or foreign estate or trust, and does not address the receipt of cash in connection with the treatment of restricted stock units, performance stock units, company awards or any other matters relating to equity compensation or benefit plans (including the stock plans). This discussion does not address any aspect of state, local or foreign tax laws. Holders of common stock should consult their own tax advisors to determine the particular tax consequences to them of the merger, including the applicability and effect of any state, local, foreign or other tax laws.

 

Exchange of Shares of Common Stock for Cash Pursuant to the Merger Agreement

 

The exchange of shares of our common stock for cash in the merger will generally be a taxable transaction for U.S. Federal income tax purposes. In general, a U.S. holder whose shares of our common stock are converted into the right to receive cash in the merger will recognize capital gain or loss for U.S. Federal income tax purposes equal to the difference, if any, between the amount of cash received with respect to such shares (determined before the deduction of any applicable withholding taxes, as described below in the section titled “Backup Withholding and Information Reporting”) and the U.S. holder’s adjusted tax basis in such shares. A U.S. holder’s adjusted tax basis will generally equal the price the U.S. holder paid for such shares. Gain or loss will be determined separately for each block of shares of our common stock (i.e., shares of common stock acquired at the same cost in a single transaction). Such capital gain or loss will be long-term capital gain or loss where the U.S. holder’s holding period for such shares of common stock is more than one year at the effective time. Long-term capital gain of a non-corporate U.S. holder is generally taxed at preferential rates. There are limitations on the deductibility of capital losses. In addition, a 3.8% tax is imposed on all or a portion of the “net investment income” (within the meaning of the Code) of certain individuals and on the undistributed net investment income of certain estates and trusts. The 3.8% tax generally is imposed on the lesser of (1) the U.S. holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between $125,000 and $250,000, depending on the individual’s circumstances). For these purposes, “net investment income” generally will include any gain recognized on the receipt of cash for shares pursuant to the merger.

 

Backup Withholding and Information Reporting

 

A U.S. holder may be subject to information reporting. In addition, backup withholding of tax will apply at the statutory rate to cash payments to which a non-corporate U.S. holder is entitled under the merger agreement, unless the U.S. holder or other payee provides a taxpayer identification number, certifies that such number is correct, and otherwise complies with the backup withholding rules. Each U.S. holder should complete and sign, under penalty of perjury, an Internal Revenue Service Form W-9 (or appropriate successor form) to be included as part of the letter of transmittal and return it to the paying agent, in order to provide the information and certification necessary to avoid backup withholding, unless an exemption applies and is established in a manner satisfactory to the paying agent.

 

Backup withholding is not an additional tax. Any amounts withheld from cash payments to a U.S. holder pursuant to the merger under the backup withholding rules will generally be allowable as a refund or a credit against such U.S. holder’s U.S. Federal income tax liability provided the required information is timely furnished to the Internal Revenue Service. U.S. holders are urged to consult their independent tax advisors as to qualifications for exemption from backup withholding and the procedure for obtaining the exemption.

 

 -49- 
 

 

The U.S. Federal income tax consequences described above are not intended to constitute a complete description of all tax consequences relating to the merger. Because individual circumstances may differ, each shareholder should consult the shareholder’s tax advisor regarding the applicability of the rules discussed above to the shareholder and the particular tax effects to the shareholder of the merger in light of such shareholder’s particular circumstances, the application of state, local and foreign tax laws, and, if applicable, the treatment of company equity awards or any other matters relating to equity compensation or benefit plans (including the stock plans).

 

Regulatory Approvals

 

HSR Clearance. Under the HSR Act and the rules promulgated thereunder, certain transactions, including the merger, may not be completed until notifications have been given and information furnished to the Antitrust Division of the Department of Justice, which we refer to as the Antitrust Division, and the Federal Trade Commission, which we refer to as the FTC, and all statutory waiting period requirements have been satisfied. Completion of the merger is subject to the expiration or earlier termination of the applicable waiting period under the HSR Act and the expiration or earlier termination of all agreements with governmental entities that govern the ability of the parties to close the merger. The merger may not be completed until the expiration of a 30 calendar day waiting period, which begins when the Company and Advisor Group file Premerger Notification and Report Forms under the HSR Act with the Antitrust Division and the FTC, unless such waiting period is earlier terminated by the Antitrust Division and the FTC. In connection with the merger, the Company filed its Premerger Notification and Report Form on December 2, 2019 and Advisor Group filed its Premerger Notification and Report Form on November 27, 2019.

 

FINRA Approvals. FINRA (National Association of Securities Dealers) Rule 1017 requires that FINRA broker-dealer members file a Continuing Membership Application for approval of a change in the equity ownership of such member that results in a third party indirectly owning or controlling 25% or more of the equity of such member. The Company’s subsidiaries that are FINRA broker-dealer members are: Ladenburg Thalmann & Co. Inc., Investacorp, Inc., KMS Financial Services, Inc., Triad Advisors, LLC, Securities America, Inc., and Securities Service Network, LLC. The indirect change of control of these Company subsidiaries resulting from the merger is therefore subject to FINRA’s approval of each subsidiaries’ Continuing Membership Application required to be filed with FINRA. The Company’s broker-dealer subsidiaries filed a joint Continuing Membership Application with FINRA on December 3, 2019.

 

Other Notifications and Approvals. Completion of the merger is further subject to notification or receipt of certain other regulatory approvals, including notification, clearance and/or approval from:

 

  The Texas Department of Insurance with respect to the indirect change of control of the Company’s insurance brokerage subsidiaries licensed in Texas, including SSN Agency of Texas, Inc., Ladenburg Thalmann Annuity Insurance Services LLC, Triad Insurance, Inc., Highland Capital Brokerage, Valor Insurance Agency and KMS Financial Services, Inc. On November 27, 2019, counsel to Advisor Group submitted a letter to the Texas Department of Insurance to give notice of the merger and to request confirmation that the merger does not require any additional submission to or approval from the Texas Department of Insurance.
     
  The Bermuda Monetary Authority with respect to the indirect change of control of the Company’s insurance brokerage subsidiary licensed in Bermuda, Highland Capital Brokerage. On December 5, 2019, counsel to Highland Capital Brokerage submitted a letter to the Bermuda Monetary Authority to give notice of the merger and to request the Bermuda Monetary Authority’s non-objection to the indirect change of control.
     
  The Nevada Division of Financial Institutions with respect to the indirect change of control of the Company’s trust company subsidiary, Premier Trust, licensed in Nevada. On November 22, 2019, counsel to Premier Trust submitted a letter to the Nevada Financial Institutions Division to give notice of the merger.

 

There can be no assurance that all of the regulatory approvals described above, or any other regulatory approvals that might be required to consummate the merger, will be obtained and, if obtained, there can be no assurance as to the timing of any approvals, ability to obtain the approvals on satisfactory terms or the absence of any litigation challenging such approvals. There can also be no assurance that the Department of Justice, the FTC, FINRA or any other governmental entity or any private party will not attempt to challenge the merger on regulatory grounds or refuse to grant required approvals, and, in each case, if any such challenge is made, there can be no assurance as to the result.

 

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THE MERGER AGREEMENT

 

This section describes the material terms of the merger agreement. The description of the merger agreement in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the merger agreement, a copy of which is attached as Annex A and is incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the merger agreement that is important to you. We encourage you to read the merger agreement carefully and in its entirety.

 

Explanatory Note Regarding the Merger Agreement

 

The merger agreement and this summary are included to provide you with information regarding the merger agreement’s material terms. Factual disclosures about the Company contained in this proxy statement or in the Company’s public reports filed with the SEC may supplement, update or modify the factual disclosures about the Company contained in the merger agreement. The representations, warranties and covenants contained in the merger agreement were made only for purposes of the merger agreement and as of specific dates, were solely for the benefit of the parties to the merger agreement, may be subject to limitations, qualifications or other particulars agreed upon by the contracting parties (including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the merger agreement instead of establishing such matters as facts or made for other purposes), and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors are not third-party beneficiaries under the merger agreement and may not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the merger agreement, which subsequent information will not necessarily be fully reflected in the Company’s public disclosures. For further information regarding the representations and warranties contained in the merger agreement, please refer to “—Representations and Warranties” beginning on page 53.

 

Effects of the Merger (Directors and Officers; Articles of Incorporation and Bylaws)

 

The merger agreement provides that Merger Sub will merge with and into the Company with the Company continuing as the surviving corporation. Following the merger, Advisor Group will be the sole common shareholder of the Company and the common stock will cease to be publicly traded. The merger will have the effects specified in the FBCA.

 

The members of the board of directors of Merger Sub immediately prior to the effective time will, from and after the effective time, be the members of the board of directors of the surviving corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with applicable law, the articles of incorporation and bylaws of the surviving corporation.

 

At the effective time, the articles of incorporation of the surviving corporation will be the articles of incorporation of the Company as in effect immediately prior to the effective time. The bylaws of the surviving corporation will be the bylaws of the Company as in effect immediately prior to the effective time.

 

Treatment of Company Securities

 

Common Stock

 

At the effective time, by virtue of the merger and without any action on the part of any holder of any capital stock of the Company, each share of common stock issued and outstanding at the effective time (other than (i) shares owned by Advisor Group or any of its direct or indirect wholly owned subsidiaries or the Company (and in each case not held on behalf of third parties) and (ii) Company restricted shares) will be converted into the right to receive the per share merger consideration, without interest.

 

At the effective time, each share that will be converted into the right to receive cash will be cancelled and will cease to exist and will thereafter represent only the right to receive the merger consideration and other amounts payable with respect thereto. Also at the effective time, (i) the shares owned by Advisor Group, Merger Sub or any other direct or indirect wholly owned subsidiary of Advisor Group and shares owned by the Company and, in each case, not held on behalf of third parties and (ii) Company restricted shares will cease to be outstanding, will be cancelled without any payment and will cease to exist as of the effective time.

 

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Company Options

 

At the effective time, each Company option outstanding as of the effective time will be accelerated and entitle the holder to receive an amount in cash equal to the product of (i) the number of shares of common stock subject to such Company option and (ii) the excess, if any, of the per share merger consideration over the exercise price per share of the Company option, less applicable withholding taxes.

 

Company Restricted Shares

 

At the effective time, all Company restricted shares outstanding as of the effective time will be accelerated and entitle the holder to receive an amount in cash equal to the product of (i) the number of Company restricted shares held by such holder and (ii) the per share merger consideration, less applicable withholding taxes.

 

Company Preferred Shares and Debt Securities

 

Each preferred share will remain outstanding at the effective time, but the closing of the merger will constitute a “Change of Control” within the meaning of the Company’s articles of incorporation, as amended. At the effective time, upon the occurrence of such Change of Control, each holder of preferred shares will have the right to convert some or all of such holder’s preferred shares into cash (unless, prior to the change of control conversion date, the surviving corporation in the merger has provided notice of its election to redeem some or all of the preferred shares for cash) in accordance with the Company’s articles of incorporation, as amended.

 

At the effective time, the debt securities issued by the Company will remain outstanding as debt securities of the surviving corporation in the merger.

 

The merger agreement requires the Company, upon Advisor Group’s request, to use its reasonable best efforts prior to closing to enable the surviving corporation in the merger to delist and deregister the preferred shares and the debt securities as promptly as practicable after the effective time.

 

Exchange and Payment Procedures

 

Immediately prior to the effective time, Advisor Group will deposit, or cause to be deposited, with the paying agent cash in immediately available funds in an amount sufficient to pay the aggregate merger consideration payable to holders of common stock and the amounts payable to holders of Company options and Company restricted shares to the extent any such holder is not and was not during the applicable vesting period an employee of the Company or its subsidiaries.

 

As soon as reasonably practicable after the effective time (but in any event within three business days after the effective time), each holder of record of a stock certificate representing shares of common stock that is entitled to receive the per share merger consideration will be sent a notice advising such holders of the effectiveness of the merger, with a letter of transmittal and instructions included in the notice describing how such record holder may surrender his, her or its shares of our common stock (or affidavits of loss in lieu thereof) in exchange for the per share merger consideration.

 

You should not return your stock certificates with the enclosed proxy card.

 

Any holder of book-entry shares not held, directly or indirectly, through DTC will not be required to deliver a stock certificate or an executed letter of transmittal to the paying agent to receive the per share merger consideration that such holder is entitled to receive. In lieu thereof, each holder of record of one or more book-entry shares not held, directly or indirectly, through DTC whose shares of common stock were converted into the right to receive the per share merger consideration will upon receipt by the paying agent of an “agent’s message” in customary form (or such other reasonable evidence, if any, as the paying agent may reasonably request), be entitled to receive the per share merger consideration in respect of each such share of common stock and the book-entry shares of such holder will forthwith be cancelled. With respect to book-entry shares held, directly or indirectly, through DTC, Advisor Group and the Company have agreed to cooperate to establish procedures with the paying agent and DTC to ensure that the beneficial owners of such shares will receive the per share merger consideration in respect of each such share once such shares have been surrendered.

 

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If you have lost a stock certificate, or if it has been stolen or destroyed, then before you will be entitled to receive the per share merger consideration, you will have to make an affidavit of the loss, theft or destruction of such stock certificate, and post a bond in such customary amount and upon such terms as may be reasonably required by Advisor Group or the paying agent pursuant to the paying agent agreement or otherwise as indemnity against any claim that may be made against it, Merger Sub or the surviving corporation with respect to such lost, stolen or destroyed stock certificate. These procedures will be described in the letter of transmittal and instructions that you will receive, which you should read carefully and in their entirety.

 

No interest will be paid or accrued on the cash payable as the per share merger consideration upon your surrender of your book-entry shares or stock certificates

 

From and after the effective time, there will be no transfers on the stock transfer books of the Company of the shares of common stock that were outstanding immediately prior to the effective time. If, after the effective time, any stock certificate formerly representing any common stock that entitled its holder to receive the per share merger consideration is presented to the surviving corporation, Advisor Group or the paying agent for transfer, it will be cancelled and exchanged for the cash amount in immediately available funds to which the holder of such stock certificate is entitled pursuant to the merger agreement.

 

Any portion of the per share merger consideration deposited with the paying agent that remains unclaimed by shareholders 12 months after the effective time will be delivered to Advisor Group or the surviving corporation, as determined by Advisor Group. Holders of shares of common stock entitled to receive the per share merger consideration who have not complied with the above-described exchange and payment procedures, and any holder of Company equity awards who has not received the applicable Company equity payment by the paying agent may thereafter only look to the surviving corporation for payment of the per share merger consideration upon due surrender of stock certificates representing certificated shares of common stock (or affidavits of loss in lieu thereof) or book-entry shares, without any interest thereon.

 

None of Advisor Group, the surviving corporation, the paying agent or any other person will be liable to any former holder of common stock, Company options or Company restricted shares for any amount properly delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

Representations and Warranties

 

The merger agreement contains representations and warranties made, on the one hand, by the Company to Advisor Group and Merger Sub and, on the other hand, by Advisor Group and Merger Sub to the Company. Certain of the representations and warranties in the merger agreement are subject to materiality or material adverse effect qualifications (that is, they will not be deemed to be untrue, inaccurate or incorrect unless their failure to be true or correct is material or would result in a material adverse effect, as defined below).

 

In addition, certain of the representations and warranties in the merger agreement are subject to knowledge qualifications, which means that those representations and warranties would not be deemed untrue, inaccurate or incorrect as a result of matters of which certain officers of the party making the representation did not and do not have knowledge following a reasonable inquiry, as described in the merger agreement.

 

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Further, the representations and warranties made by the Company in the merger agreement are subject to specified exceptions and qualifications in the Company’s public filings with the SEC. The representations and warranties made by the parties in the merger agreement may be further subject to specified exceptions and qualifications contained in the confidential disclosure letters that the parties exchanged in connection with signing the merger agreement, which disclosure letters are not reflected in the merger agreement and will not otherwise be publicly disclosed, and that were included for the purpose of, among other things, allocating contractual risk between Advisor Group and Merger Sub, on the one hand, and the Company, on the other hand, rather than establishing matters as facts, and may be subject to standards of materiality that differ from the standards relevant to investors. You should not rely on the representations, warranties, covenants or any description thereof as actual characterizations of the actual state of facts or condition of Advisor Group, the Company, or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the merger agreement, which subsequent information may or may not be fully reflected in public disclosures by Advisor Group and the Company. The representations and warranties and other provisions of the merger agreement should not be read alone but, instead, should be read only in conjunction with the information provided elsewhere in this proxy statement and in the documents incorporated by reference into this proxy statement. See “Where You Can Find More Information” beginning on page 77.

 

Representations and Warranties of the Company

 

The Company made customary representations and warranties to Advisor Group and Merger Sub in the merger agreement relating to a number of matters, including, among other things:

 

our organization, valid existence, good standing and authority and power to carry on our business and that of our subsidiaries;
   
our corporate power and authority to execute, deliver and perform our obligations under, and consummate the transactions under, the merger agreement, and the enforceability of the merger agreement against us;
   
the approval and declaration of advisability of the merger agreement and the merger by the Board;
   
the absence of conflicts, breaches or violations of organizational documents, contracts or applicable law as a result of the Company entering into and consummating the transactions contemplated by the merger agreement;
   
the effectiveness of our constituent documents and those of our subsidiaries;
   
our capital structure;
   
our public filings with the SEC;
   
our compliance with NYSE American listing requirements;
   
our disclosure controls and procedures, internal controls over financial reporting and compliance with the certification requirements of the Sarbanes-Oxley Act of 2002;
   
our compliance with GAAP in our financial statements and the absence of undisclosed liabilities;
   
our compliance with applicable laws and certain permits, licenses and other governmental authorizations;
   
the governmental filings, notices and approvals required in connection with the transactions contemplated by the merger agreement;
   
the absence of changes in our business since September 30, 2019;

 

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the absence of litigation, governmental inquiries, investigations and other actions against the Company;
   
tax matters;
   
employee benefit plans and other agreements, plans and policies with or concerning employees;
   
labor matters and compliance with labor and employment laws;
   
leased real property;
   
intellectual property matters;
   
certain of our material contracts;
   
our investment adviser subsidiaries;
   
our broker-dealer subsidiaries;
   
our financial advisor agreements and loans;
   
the inapplicability of anti-takeover laws;
   
finder’s fees (none except for fees payable to Jefferies in connection with the merger); and
   
environmental matters.

 

Company Material Adverse Effect

 

Many of our representations and warranties are qualified by exceptions relating to the absence of a “company material adverse effect,” which means any event, change, development, circumstance, fact or effect that, individually or in the aggregate, (i) has had or is reasonably expected to have a material and adverse effect on the business, financial condition or the results of operations of the Company or its subsidiaries, taken as a whole, or (ii) that would reasonably be expected to prevent or materially impair the ability of the Company or any of its subsidiaries to perform their respective obligations under the merger agreement or to consummate the transactions contemplated by the merger agreement in a timely matter. However, with respect to clause (i) above, none of the following (or the results thereof), either alone or in combination with any other events, changes, developments, circumstances, facts or effects, shall constitute or contribute to a company material adverse effect:

 

(1)any change in applicable accounting principles or any adoption, proposal, implementation or change in law (including any law in respect of taxes or any fiduciary or similar duties of investment advisors, broker dealers or registered representatives), or any interpretation thereof;
   
(2)any change in global, national or regional political conditions (including protests, strikes, riots, acts of terrorism or war) or in general global, national or regional economic business, regulatory, political or market conditions or in national or global financial or capital markets (including any changes in debt or equity trading market volume, volatility or performance or interest rates);
   
(3)any change generally affecting the industries or market sectors in which one or more of the Company and its subsidiaries operate;
   
(4)any change resulting from or arising out of hurricanes, earthquakes, floods or other natural disasters;

 

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(5)the negotiation, execution, announcement or performance of the merger agreement or consummation of the transactions contemplated by the merger agreement (including any loss of, or adverse change in, the relationship of the Company with its customers, employees, registered representatives, investment adviser representatives or marketing sponsors resulting from the pendency or the announcement of the transactions contemplated by the merger agreement or the identity of, or any facts or circumstances related to, Advisor Group) or any litigation relating to the merger agreement or the transactions contemplated by the merger agreement;
   
(6)the failure of one or more of the Company and its subsidiaries to meet any internal or public projections, forecasts or estimates of performance, revenues or earnings (it being understood that the underlying factors or occurrences giving rise or contributing to such failure shall, unless otherwise excluded, be taken into account in determining whether there has been a company material adverse effect);
   
(7)any actions (or the effects of any action) taken (or omitted to be taken) upon the written request or instruction of, or with the written consent of, Advisor Group, consistent with the terms of the merger agreement; and
   
(8)any action (or effects of any action) taken (or omitted to be taken) by the Company or any of its subsidiaries as required pursuant to the merger agreement, except in the case of clauses (1), (2) and (3) above, to the extent the Company and the Company subsidiaries, taken as a whole, are disproportionately affected thereby as compared with other similarly situated participants in the applicable industry or industries in which the Company and the Company subsidiaries operate.

 

Representations and Warranties of Advisor Group

 

Advisor Group made customary representations and warranties to the Company in the merger agreement relating to a number of matters with respect to Advisor Group and Merger Sub, including, among other things:

 

their organization, valid existence, good standing and authority to carry on their businesses;
   
their corporate power and authority to execute, deliver and perform their obligations, and consummate the transactions under, the merger agreement, and the enforceability of the merger agreement against them;
   
the absence of conflicts, breaches or violations of organizational documents, contracts or applicable law as a result of their entry into and consummation of the transactions contemplated by the merger agreement;
   
their ability to provide sufficient funding to consummate the transactions contemplated by the merger agreement and to pay all of their payment obligations under the merger agreement;
   
the governmental filings, notices and approvals required in connection with the transactions contemplated by the merger agreement;
   
the absence of legal actions, investigations and governmental orders;
   
their beneficial ownership of securities of the Company;
   
the inapplicability of anti-takeover laws;
   
the absence of any fees payable to brokers and financial advisors in connection with the merger;
   
their solvency after the effective time; and
   
the truthfulness and inclusion of material facts in certain information supplied by Advisor Group or Merger Sub in connection with the merger, including for purposes of this proxy statement.

 

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Conduct of Our Business Pending the Merger

 

Under the merger agreement, we have agreed, subject to certain exceptions contemplated by the merger agreement and listed below or as may be approved by Advisor Group (such approval may not be unreasonably conditioned, withheld or delayed), to carry on our business and the business of our subsidiaries in the ordinary course of business in all material respects consistent with past practice and use commercially reasonable efforts to maintain and preserve intact in all material respects our business organizations and advantageous business relationships.

 

Furthermore, we have also agreed not to (subject to certain general exceptions listed in the next sentence or as may be approved by Advisor Group) take any of the following actions or permit our subsidiaries to take such actions:

 

amend any provision of the organizational documents of the Company other than ministerial amendments;
   
sell, pledge, transfer, dispose of, encumber (other than permitted encumbrances), create, redeem, repurchase, acquire, allot or issue, or grant an option to subscribe for, any equity interest in the Company or any of its subsidiaries (except in each case the net share settlement or issuance of equity interests in respect of Company options and Company restricted shares outstanding as of the date of the merger agreement in accordance with their terms (or, with respect to net share settlement, consistent with past practice) and, as applicable, the stock plans as in effect on the date of the merger agreement), as described under “The Merger Agreement—Treatment of Company Securities”;
   
acquire or agree to acquire any equity interest in, or make any investments in, any third party (other than as between the Company and its subsidiaries and advances of expenses to employees in the ordinary course of business consistent with past practice);
   
make any loans or advances to any third party or make any capital contributions to any third party (other than as between the Company and its subsidiaries and advances of expenses to employees in the ordinary course of business consistent with past practice);
   
merge or consolidate the Company or any of its subsidiaries with any third party (other than with any affiliate of the Company or any of its subsidiaries);
   
adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization of the Company or any of its subsidiaries;
   
form any subsidiary or affiliate of the Company;
   
declare, set aside, make or pay any dividend or other distribution with respect to any of its capital stock (except for dividends paid by any subsidiary of the Company to the Company or to any other subsidiary of the Company and regular quarterly or monthly dividends (as applicable) declared and paid with respect to the shares of common stock and/or preferred shares made in the ordinary course of business consistent with past practice);
   
split, combine or reclassify any of its capital stock or other equity interests or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock or other equity interests (except in each case the issuance of equity interests in respect of Company options and Company restricted shares outstanding as of the date of this Agreement in accordance with their terms and, as applicable, the stock plans as in effect on the date of the merger agreement);

 

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except as required by the terms of any benefit plan or as required by applicable law: (i) grant any new long-term incentive or equity-based awards, or amend, modify or waive the terms or conditions of any such outstanding awards under any benefit plan; (ii) grant any transaction-related retention bonuses (other than a portion of the annual bonus in respect of the 2019 calendar year in the form of cash retention awards consistent with past practice); (iii) increase employee compensation (except for employees who are not executive officers of the Company and, subject to limits set forth in the merger agreement, increases implemented in the ordinary course of business consistent with past practice); (iv) terminate the employment of any executive officer (other than for cause), hire any new employee (except for new employees with an annual salary or wage rate of less than $100,000 annually and who are replacement hires receiving substantially similar terms of employment) or promote or grant merit increases to any employees (except in the ordinary course of business in connection with the Company’s annual or quarterly compensation review cycle or as the result of the termination or resignation of any employee); (v) adopt, enter into, terminate or amend any benefit plan or any collective bargaining agreement or other contract with any labor organization or other representative of the Company’s or any Company subsidiary’s employees or make any contribution to any benefit plan other than contributions required by applicable law or the terms of existing benefit plans (except with respect to benefit plans providing for health and welfare benefits, the Company may (A) negotiate and enter into new contracts and extensions of existing contracts with benefit plan providers in the ordinary course of business consistent with past practice, provided that duration of such contracts or extensions do not extend beyond calendar year 2020 and (B) take such other actions so long as the aggregate cost of any such benefit plan is not materially increased); (vi) enter into or amend any employment, services, change in control, severance, deferred compensation, retention or similar contract with any officer, director or employee of the Company;   (vii) accelerate or otherwise change the payment timing of any compensation or benefit under any benefit plan; or (viii) change any actuarial or other assumption used to calculate funding obligations with respect to any benefit plan or change the manner in which contributions are made or the basis on which contributions are calculated except as may be required by GAAP;
   
make, change or revoke any material tax election, change any tax accounting method or period, file any amended tax return, enter into any closing agreement with respect to taxes, request any tax ruling, waive or extend the statute of limitations in respect of a material amount of taxes or settle or compromise any material tax liability or refund;
   
other than the sale of obsolete equipment or assets in the ordinary course of business, sell, lease, license or otherwise dispose of (whether by way of merger, consolidation, sale of stock or assets, or otherwise), grant an encumbrance on or permit an encumbrance to exist on, or agree to do any of the foregoing on, any properties or assets of the Company or any of its subsidiaries (in each case, other than any permitted encumbrances and other than with respect to any assets with a value of less than $500,000 individually or $2 million in the aggregate);
   
acquire or agree to acquire all or a substantial portion of the assets or business of any third party or any division or line of business thereof;
   
commence any action or file any petition in any court relating to the bankruptcy, reorganization, insolvency, dissolution, liquidation or relief from debtors, in any case, in respect of the Company or any of its subsidiaries;
   
amend, modify, waive or terminate, in each case, any existing material contract or enter into any material contract (other than (i) any termination or renewal for one year or less in accordance with the terms of any existing material contract on substantially similar terms, (ii) the entry into new material contracts in replacement of existing material contracts on terms not materially worse to the Company or the relevant subsidiary, in the aggregate, than the current terms and (iii) immaterial ministerial amendments, modifications or waivers in the ordinary course);

 

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incur, redeem or prepay any indebtedness, except for (i) indebtedness for borrowed money incurred in the ordinary course of business not to exceed $2 million in the aggregate, (ii) indebtedness in replacement of existing indebtedness for borrowed money on terms substantially consistent with or more favorable to the Company than the indebtedness being replaced or (iii) guarantees of indebtedness of its wholly owned subsidiaries otherwise incurred in compliance with this clause;
   
make any material change in business operations as defined in FINRA (NASD) Rule 1011(k);
   
change its fiscal year or make any material changes with respect to accounting methods, principles or practices, except as may be required by GAAP or applicable law;
   
make any capital expenditure or expenditures, or incur any obligations or liabilities in connection with such capital expenditure (other than in accordance with the Company’s capital expenditures budget for calendar year 2019 or any capital expenditures budget for calendar year 2020), which, individually, is in excess of $500,000 or, in the aggregate, are in excess of $2 million;
   
settle or compromise any action (other than settlements or compromises of claims that exclusively require the payment of money by the Company or its subsidiaries of unreimbursed out-of-pocket settlement amounts that are (i) accrued or reserved for as of the date of the merger agreement or (ii) not in excess of $250,000 per action or $2 million in the aggregate) or enter into any consent, decree, injunction or similar restraint or form of equitable relief or deferred prosecution agreement or similar agreement with any government authority that would impose any conduct conditions or remedies that would have a restrictive impact on the business of the Company or any of its subsidiaries, or would reasonably be expected to impede or delay in any material respect the consummation of the transactions contemplated by the merger agreement;
   
cancel, compromise, waive or release any material right or claim of the Company and its subsidiaries;
   
cancel, terminate or modify in any material respect any insurance policy (other than the renewal of any insurance policy in place as of the date hereof in the ordinary course of business consistent with past practice);
   
enter into any real property lease or modify, amend, renew, extend, waive or exercise any material right or remedy under or terminate any lease, other than (i) any renewal for one year or less of any existing lease in the ordinary course of business consistent with past practice, (ii) immaterial ministerial amendments, modifications or waivers of any existing lease in the ordinary course of business consistent with past practice or (iii) with respect to any lease that requires a monthly rent payment of less than $3,000;
   
other than ordinary course director compensation, ordinary course compensation and employee benefit entitlements, ordinary course reimbursement of travel and entertainment expenses or advances regarding the same, in each case that are payable in the ordinary course of business consistent with past practice or as otherwise permitted under the merger agreement, enter into any transaction or arrangement with any  (i) director, officer or employee of the Company, (ii) third party who is or was, since the applicable date, a greater than 5% shareholder of the Company or (iii) any of their respective affiliates;
   
acquire any equity interests in, assets or accounts of, or make any investments in, any financial advisor of the Company or any of its subsidiaries, which we refer to as a financial advisor, or a prospective financial advisor or any party affiliated with any such financial advisor in excess of $500,000 individually or $5 million in the aggregate (if closing does not occur on or prior to March 31, 2020, $10 million in the aggregate);

 

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make any recruiting loans or similar advances to any prospective financial advisor in excess of $500,000 individually or $2.5 million in the aggregate (if closing does not occur on or prior to March 31, 2020, $5 million in the aggregate);
   
make any change to the financial advisor payout grids or substantially similar compensation table or make any change to any other methodology affecting the rate of any other compensation with respect to the financial advisors applicable to the financial advisor field force taken as a whole, provided that the Company or its subsidiaries may make changes to the compensation payable to individual financial advisors on a case-by-case basis consistent with past practices; or
   
affirmatively authorize, agree or commit, or publicly announce an intention, to do any of the foregoing.

 

Notwithstanding the prohibitions listed above, neither we nor our subsidiaries are prohibited from effecting any of the following:

 

any matter required by law or by a government authority or requested by a government authority as part of its supervision of the Company or its subsidiaries;
   
the implementation of any transaction or taking any action required by or otherwise permitted under the merger agreement;
   
any matter disclosed in the Company’s disclosure letter;
   
the performance of an obligation under any contract existing as of the date of the merger agreement;
   
any action on behalf of or at the direction of a client or customer of the Company or any subsidiary thereof (so long as such action is taken in the ordinary course of business consistent with past practice);
   
the release or discharge of any liability owed by any subsidiary of the Company to the Company or its affiliates or owed by the Company to any of its subsidiaries or affiliates; or
   
any action taken in connection with disaster recovery or emergency response efforts (the Company must notify Advisor Group of such efforts).

 

Acquisition Proposals

 

Restrictions

 

Upon the signing of the merger agreement, the Company was required to, and required to cause its subsidiaries and all of its and their respective directors, officers and representatives to, immediately (i) cease all solicitation, encouragement, discussions and negotiations regarding any inquiry, proposal or offer pending on the date of the merger agreement that constitutes, or would reasonably be expected to lead to, an acquisition proposal, (ii) request the prompt return or destruction of all confidential information previously furnished to any third party in connection with a possible acquisition proposal and (iii) terminate access to any physical or electronic data rooms relating to a possible acquisition. The Company also agreed that neither it nor any of its subsidiaries nor any of their respective directors, officers and representatives will, and that the Company will instruct and use its reasonable best efforts to cause its and its subsidiaries’ representatives not to, directly or indirectly:

 

initiate, solicit or knowingly encourage any inquiries or the making of any proposal or offer that constitutes, or could reasonably be expected to lead to, any acquisition proposal;

 

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engage in, continue or otherwise participate in any discussions or negotiations regarding, or provide any non-public information or data to any third party relating to, any acquisition proposal; or
   
knowingly facilitate the efforts of a third party to make an acquisition proposal.

 

Exceptions

 

Notwithstanding the restrictions on solicitation, negotiation and facilitation described above, and subject to the notice provisions described below, prior to the time the merger agreement is approved by our shareholders, we may provide non-public and other information in response to a request by a third party that has made an unsolicited bona fide written acquisition proposal and may participate in discussions and negotiations with such third party regarding such unsolicited bona fide written acquisition proposal, in each such case if such third party has executed a confidentiality agreement and the Board determines in good faith after consultation with outside legal counsel and its financial advisor that such acquisition proposal either constitutes a superior proposal (defined below) or could reasonably be expected to result in a superior proposal and that failure to take such action would reasonably be expected to be inconsistent with the Board’s fiduciary duties.

 

An “acquisition proposal” means (i) any proposal or offer with respect to a merger, joint venture, partnership, consolidation, dissolution, liquidation, tender offer, recapitalization, reorganization, share exchange, business combination or similar transaction involving the Company or any of its significant subsidiaries and (ii) any acquisition by any third party resulting in, or proposal or offer, in each case, which if consummated would result in, any third party becoming the beneficial owner of, directly or indirectly, in one or a series of related transactions, 15% or more of the total voting power of any class of equity securities of the Company (or of the surviving entity in a merger involving the Company, as applicable) or 15% or more of the consolidated net revenues, net income or total assets (it being understood that total assets include equity securities of its subsidiaries and shall be determined by the Board, acting reasonably, on both a book-value and fair-market-value basis) of the Company, in each case other than the transaction contemplated by the merger agreement.

 

A “superior proposal” means any bona fide written acquisition proposal (with the percentages set forth in the definition of such term changed from 15% to 50%) that would result in a third party, other than Advisor Group or any of its subsidiaries or controlled affiliates, becoming the beneficial owner of, directly or indirectly, more than 50% of the total voting power of the equity securities of the Company (or of the surviving entity in a merger involving the Company, as applicable) or more than 50% of the consolidated net revenues, net income or total assets (it being understood that total assets include equity securities of its subsidiaries and shall be determined by the Board, acting reasonably, on both a book-value and fair-market value basis) of the Company that the Board has determined in good faith, after consultation with outside legal counsel and its financial advisor that (a) if consummated, would result in a transaction more favorable to the Company’s shareholders from a financial point of view than the merger, and (b) is reasonably likely to be consummated on the terms proposed, taking into account any legal, financial, regulatory and shareholder approval requirements, the sources, availability and terms of any financing, financing market conditions, the likelihood of termination, the timing of closing and the identity of the third party making the proposal and any other aspects considered, in good faith, relevant by the Board; provided, that such acquisition proposal did not result from a breach of the Company’s obligations under the merger agreement with respect to acquisition proposals.

 

Notice Requirements

 

The Company must, as promptly as practicable (and, in any event, within 48 hours), notify Advisor Group if any inquiries, proposals or offers with respect to an acquisition proposal are received by it or any of its representatives indicating, in connection with the notice, the name of the third party and the material terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements). Additionally, the Company must keep Advisor Group informed, on a current basis, of the status and terms of such proposals or offers (including any amendments thereto).

 

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Change of Board Recommendation

 

Except as permitted by the terms of the merger agreement as described below, the Board may not make a change of Board recommendation, which includes any of the following:

 

withhold, withdraw, qualify or modify (or publicly propose or resolve to withhold, withdraw, qualify or modify), in a manner adverse to Advisor Group in any material respect, the Board recommendation;
   
fail to reaffirm the Board recommendation or fail to publicly state that the merger agreement is in the best interests of its shareholders, within 10 business days after Advisor Group requests in writing that it take such action, (or within one day if the special meeting called to vote on the merger is scheduled to be held within two days);
   
fail to publicly announce that, within 10 business days after a tender offer or exchange relating to the Company’s securities has been commenced, it recommends rejecting the tender offer or exchange offer; or
   
approve, endorse, recommend or publicly propose to take those actions toward any acquisition proposal.

 

Notwithstanding the foregoing, prior to obtaining shareholder approval of the merger proposal and subject to the terms and conditions set forth in the merger agreement, including the notice, good faith negotiation and determination requirements described below, the Board may change its recommendation in the event the Company receives an unsolicited bona fide written acquisition that the Board determines in good faith after consultation with outside legal counsel and its financial advisor that such acquisition proposal constitutes a superior proposal and that failure to effect a change of Board recommendation would be inconsistent with the directors’ fiduciary duties under applicable law, so long as the Board intends to terminate the merger agreement with Advisor Group to enter into an alternative acquisition agreement with respect to a superior proposal.

 

As described above, before making a change in Board recommendation, the Company must, as promptly as practicable (and, in any event, within 48 hours), notify Advisor Group if any inquiries, proposals or offers with respect to an acquisition proposal are received by it or any of its representatives indicating, in connection with the notice, the name of the third party and the material terms and conditions of any proposals or offers (including, if applicable, copies of any written requests, proposals or offers, including proposed agreements). Additionally, the Company must keep Advisor Group informed, on a current basis, of the status and terms of such proposals or offers (including any amendments thereto). Further, before the Company may effect the change of Board recommendation, it must give Advisor Group three business days, during which, at Advisor Group’s option, the parties will negotiate in good faith, to match the superior proposal. After such three day period, and after the Company has delivered to Advisor Group written notice of the Board’s intention to make a change of Board recommendation (including its reasons for making such change and attaching the most current version of the agreement in relation to such superior proposal and its intention to terminate the merger agreement), the Company may effect the change of Board recommendation. Any material amendment to any acquisition proposal will be deemed to be a new acquisition proposal for the purposes of making a change of Board recommendation and for the purposes of the notice requirements.

 

Shareholder Meeting

 

We are required to, as soon as reasonably practicable following the date this proxy statement is cleared by the SEC, to duly call, give notice of, convene and hold a special meeting for the purposes of seeking the approval of the merger proposal by our shareholders. We have agreed to (i) cause this proxy statement to be mailed to the shareholders and to hold the special meeting as promptly as reasonably practicable following the date it is cleared by the SEC and (ii) solicit and use reasonable best efforts to obtain approval of the merger proposal by our shareholders, including engaging a proxy solicitation firm for the purposes of assisting in the solicitation of proxies for the special meeting.

 

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Unless the merger agreement has been terminated in accordance with its terms prior to the date of the special meeting, the special meeting shall be convened and the merger agreement shall be submitted to our shareholders at the special meeting.

 

The merger agreement provides that except to the extent that the Board changed its recommendation, the Company must include the Board recommendation in this proxy statement and the Company may, after consulting with Advisor Group, adjourn, recess or postpone the special meeting only (i) to the extent required by applicable law to ensure that any required supplement or amendment to the proxy statement is provided to the shareholders within a reasonable amount of time in advance of the special meeting, (ii) to the extent required by a court in connection with any legal action in connection with the merger agreement or the merger, (iii) if, as of the time for which the special meeting is originally scheduled there are insufficient shares represented to constitute a quorum necessary to conduct the business of the special meeting (provided that the Company will not be required to adjourn the special meeting for this reason on more than two occasions and will not be required to adjourn the special meeting past the outside date) or (iv) with the prior written consent of Advisor Group.

 

Financing Cooperation

 

The Company has agreed to use its reasonable best efforts to deliver to Advisor Group and the debt financing sources certain required information, including certain Company audited and unaudited financial statements (other than any financial statements that are not required to be included in any company reports). The Company has also agreed to use reasonable best efforts to provide, and use reasonable best efforts to cause its subsidiaries to and cause their representatives to use reasonable best efforts to provide, to Advisor Group and the debt financing sources, at Advisor Group’s sole cost and expense (other than in respect of the required information), all customary cooperation reasonably requested in writing by Advisor Group and the debt financing sources to cause the conditions in the debt commitment letter to be satisfied or as otherwise reasonably requested, in each case, solely with respect to information regarding the Company and its subsidiaries, in connection with the financing, including using its reasonable best efforts to, among other things:

 

participate in meetings, presentations, a road show and due diligence sessions and sessions with rating agencies;
   
deliver to Advisor Group and the debt financing sources financial and other information regarding the Company and its subsidiaries;
   
assist Advisor Group and the debt financing sources in their preparation of offering documents for the debt financing;
   
cooperate with Advisor Group and the debt financing sources in their marketing and due diligence efforts with respect to the debt financing;
   
assist in facilitating the granting of a security interest in collateral;
   
cause its independent accountants to deliver customary comfort letters with respect to any financial statement included in the required information; and
   
assist in obtaining customary payoff letters relating to the repayment of existing third party indebtedness for borrowed money of the Company or its subsidiaries required by the debt commitment letter to be repaid on at the date of closing.

 

The parties agreed that the Company will not, among other things, be required to cooperate to the extent that it would interfere unreasonably with the Company’s or any of its subsidiaries’ business or operations, cause the Company or any of its subsidiaries significant competitive harm or create unreasonable risk of harm to any property or assets of the Company or any of its subsidiaries.

 

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Employee Benefits Matters

 

The merger agreement provides that for a one year period after the effective time, Advisor Group will provide each continuing Company employee compensation (base salary, base wage rate, commission schedule, target annual and long-term incentive opportunities), severance benefits and retirement and employee welfare benefits that are no less favorable in the aggregate than those provided to similarly situated employees of Advisor Group and its affiliates.

 

Additionally, the merger agreement requires Advisor Group to (i) cause any pre-existing conditions or limitations and eligibility waiting periods under any group health plans of Advisor Group or its affiliates to be waived with respect to the continuing Company employees and their eligible dependents, (ii) give each continuing Company employee credit for the plan year in which the effective time occurs towards applicable deductibles and annual out-of-pocket limits for medical expenses incurred prior to the effective time for which payment has been made and (iii) give each continuing Company employee service credit for such continuing Company employee’s years of service with the Company and its subsidiaries for purposes of vesting, benefit accrual and eligibility to participate under each applicable Advisor Group benefit plan, as if such service had been performed with Advisor Group, except for purposes of qualifying for subsidized early retirement benefits or to the extent it would result in a duplication of benefits.

 

The merger agreement also requires that, as soon as reasonably practicable following the effective time, the Company must take all actions necessary and appropriate so as to directly transfer to a 401(k) plan maintained or established by Advisor Group or one of its affiliates the assets and liabilities of each of the Company’s 401(k) plans, including all outstanding loans to participants under such plans and employer contributions through the effective time. The parties agreed to take all reasonable and necessary steps so as to cooperate and effectuate the foregoing transfer. The Company also agreed to the termination of any and all sick, vacation, personal days, floating days, voluntary paid time off and other paid time off policies, programs and plans, and to freeze the accrual of any additional paid time off under such plans effective as of December 31, 2019, and, to the extent permitted by applicable law, pay out any accrued but unused benefits under such plans through December 31, 2019 to participants of such plans no later than the normally scheduled payroll immediately prior to the effective time. From January 1, 2020 through the effective time, continuing employees will continue to accrue (and use) any and all paid time off under such plans. Following the effective time, continuing employees will accrue paid time off under the policies of Advisor Group and its affiliates, who will provide continuing employees to be credited with paid time off for the period between January 1, 2020 and the effective time.

 

Advisor Group has acknowledged that a “change in control” (or similar phrase) within the meaning of the benefit plans of the Company and its subsidiaries will occur from and after the effective time. From and after the effective time, Advisor Group will, and will cause its affiliates to, honor all obligations and rights under the Company’s benefit plans which are not terminated pursuant to the merger agreement in accordance with their terms, provided that Advisor Group and its affiliates are not required to continue the Company benefit plans indefinitely or for any period of time following the effective time.

 

Delisting and Deregistration of the Common Stock

 

If the merger is completed, our common stock will be delisted from the NYSE American and deregistered under the Exchange Act.

 

Conditions to the Merger

 

The respective obligations of the Company, Advisor Group and Merger Sub to consummate the merger are subject to the satisfaction or waiver, at or prior to closing, of the following conditions:

 

the merger proposal has been duly approved by the affirmative vote of holders of a majority of the shares of common stock entitled to vote at the special meeting;
   
all required governmental approvals have been obtained and any applicable waiting periods relating to any required governmental approvals have expired or been terminated early; and
   
no court or other governmental authority of competent jurisdiction may have enacted, issued, promulgated, enforced or entered any law that is effective and restrains, enjoins or otherwise prohibits the consummation of the merger or other transactions contemplated by the merger agreement.

 

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The obligations of Advisor Group and Merger Sub to consummate the merger are also subject to the satisfaction or waiver, at or prior to closing, of the following conditions:

 

our representations and warranties set forth in the merger agreement (other than those described in the bullet below) must have been true and correct as of the date of the merger agreement and as of the date of closing (except to the extent such representations and warranties expressly related to a specific date in which case such representations and warranties need only to be so true and correct as of such specific date (but excluding the reference to “as of the date hereof” in the lead-in of the article of the merger agreement that outlines our representations and warranties)) except where the failures of such representations and warranties to be true and correct have not had, individually or in the aggregate, a company material adverse effect (disregarding for purposes of these conditions any limitations as to materiality or company material adverse effect set forth in our representations and warranties, except for any such limitations regarding the Company’s and its subsidiaries’ undisclosed liabilities and the absence of certain changes as of September 30, 2019 or with respect to any list of items that is qualified by materiality, which will not be disregarded for purposes these conditions);
   
our representations and warranties regarding our organization; corporate authorization; binding effect and approval; capital structure; and finder’s fees must have been true and correct in all respects as of the date of the merger agreement and of the date of closing, except that information regarding our capital structure could have had de minimis inaccuracies;
   
we must have performed in all material respects our covenants and agreements set forth in the merger agreement at or prior to the date of closing;
   
Advisor Group and Merger Sub must have been delivered a certificate, dated as of the date of closing and signed by a duly authorized officer of the Company certifying that the conditions described above have been satisfied; and
   
no company material adverse effect has occurred since the date the merger agreement was signed.

 

Our obligation to consummate the merger is subject to the satisfaction or waiver, at or prior to closing, of the following conditions:

 

the representations and warranties of Advisor Group and Merger Sub set forth in the merger agreement (other than those described in the bullet below) must have been true and correct as of the date of the merger agreement and as of the date of closing (except to the extent such representations and warranties expressly related to a specific date in which case such representations and warranties need only to be so true and correct as of such specific date (but excluding the reference to “as of the date hereof” in the lead-in of the article of the merger agreement that outlines their representations and warranties)) except where the failure of such representations and warranties to be true and correct have not had, individually or in the aggregate, a parent material adverse effect (disregarding for purposes of these conditions any limitation as to materiality or parent material adverse effect set forth in their representations and warranties);
   
their representations and warranties regarding their organization; corporate authorization; binding effect and approval; and finder’s fees must have been true and correct in all respects as of the date of the merger agreement and as of the date of closing;

 

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Advisor Group and merger sub must have performed in all material respects their covenants and agreements set forth in the merger agreement at or prior to the date of closing; and
   
we must have been delivered a certificate, dated as of the date of closing and signed by a duly authorized officer of Advisor Group certifying that all of the conditions to obligations of the Company have been satisfied.

 

Indemnification

 

The merger agreement provides that all rights, existing as of the date of the merger agreement, to indemnification, advancement of expenses and exculpation from liabilities for acts or omissions occurring at or prior to the completion of the merger in favor of the current or former officers, directors or employees of the Company or any of its subsidiaries will continue in full force and effect. The merger agreement also provides that, following completion of the merger, the surviving corporation will indemnify and hold harmless, to the fullest extent permitted by applicable law, all individuals who are, as of the date of the merger agreement and at any time from and after the date of the merger agreement until the completion of the merger, directors, officers or employees of the Company and its subsidiaries (in their capacity as such), against any costs, claims, expenses and liabilities, whether arising before or after the effective time, arising out of the fact that such person is or was a director, officer or employee of the Company or its subsidiaries, and pertaining to matters existing or occurring at or prior to the effective time, and will also advance expenses to such persons, provided that such person provides an undertaking to repay such advances if it is ultimately determined that such person is not entitled to indemnification.

 

From and after the effective time, the surviving corporation and Advisor Group will indemnify and hold harmless each individual who is as of the date of the merger agreement, or who becomes prior to the effective time, a director, officer or employee of the Company or any of its subsidiaries or who is as of the date of the merger agreement, or who thereafter commences prior to the effective time, serving at the request of the Company or any of its subsidiaries as a director, officer or employee of another third party, against all liabilities, including attorney’s fees and disbursements, incurred or arising in connection with any claim, action, investigation, suit or proceeding (including with respect to matters existing or occurring or alleged to have existed or occurred at or prior to the effective time (including the merger agreement and the transactions and actions contemplated by the merger agreement)) arising out of or pertaining to the fact that such indemnified party is or was serving at the request of the Company or any of its subsidiaries as a director, officer or employee of a third party or any act or omission by such indemnified party while serving in such capacity, whether asserted or claimed prior to, at or after the effective time, to the fullest extent permitted under applicable law.

 

Termination

 

We and Advisor Group may, by mutual written consent, terminate the merger agreement and abandon the merger at any time prior to the effective time, notwithstanding any approval of the merger agreement by our shareholders.

 

The merger agreement may also be terminated and the merger abandoned at any time prior to the effective time as follows:

 

by either Advisor Group or the Company, if:

 

the merger has not been consummated by the outside date; provided, however, that if all conditions to the closing of the merger, other than with respect to the FINRA approvals, have been satisfied or waived as of such date (except those conditions which by their nature are to be satisfied at the consummation of the merger), the outside date will automatically be extended for up to one additional 30-day period to allow for the FINRA approval to be obtained, provided that this right to terminate is not available to any party that has breached any representation, warranty, covenant or agreement contained in the merger agreement that has been the primary cause of or resulted in the failure of the transactions contemplated by the merger agreement to occur on or before the outside date (except that if the closing did not occur on or before the outside date as a result of a financing failure, then Advisor Group may terminate the merger agreement if Advisor Group pays the reverse termination fee required and as described in further detail below in the section titled “—Termination Fee”);

 

 -66- 
 

 

our shareholders do not approve the merger agreement at the special meeting or at any adjournment or postponement of the special meeting; or
   
any government order permanently restrains, enjoins or prohibits or makes illegal the consummation of the merger, and such government order becomes effective (and final and non-appealable) or any law becomes enacted, entered, promulgated or enforced by any government authority that prohibits or makes illegal consummation of the merger, provided that the terminating party must have complied in all material respects with its obligations under the merger agreement.

 

by Advisor Group, if:

 

there has been a breach of any representation, warranty, covenant or agreement made by the Company in the merger agreement or if any representation or warranty of the Company becomes untrue after the date of the merger agreement, and such breach or failure to be true gives rise to the failure of the condition to the closing of the merger relating to the accuracy and representations and warranties of the Company or compliance by the Company with its obligations under the merger agreement, and such breach or failure to be true cannot be cured or, if curable, is not cured within 30 days after Advisor Group provides written notice of such breach or failure to be true; or
   
prior to the approval by our shareholders of the merger agreement, the Board has made a change of Board recommendation in light of its intentions to enter into an alternative acquisition agreement with respect to a superior proposal.

 

by the Company, if:

 

there has been a breach of any representation, warranty, covenant or agreement made by Advisor Group or Merger Sub in the merger agreement or if any representation or warranty of Advisor Group or Merger Sub becomes untrue after the date of the merger agreement, and such breach or failure to be true gives rise to the failure of the condition to the closing of the merger relating to the accuracy of the representations and warranties of Advisor Group and Merger Sub or compliance by Advisor Group and Merger Sub with their respective obligations under the merger agreement, and such breach or failure to be true cannot be cured or, if curable, is not cured within 30 days after the Company provides written notice of such breach or failure to be true; or
   
prior to the approval by our shareholders of the merger agreement, the Board authorizes the Company to enter into an alternative acquisition agreement with respect to a superior proposal in compliance with the terms of the merger agreement, including its notice obligations and giving Advisor Group the opportunity to match the superior proposal.

 

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Termination Fees

 

Termination Fees Payable by the Company

 

A termination fee of $19 million would be payable to Advisor Group by us in the event the merger agreement were terminated:

 

by either Advisor Group or the Company if (i) the merger has not been consummated by the outside date or our shareholders do not approve the merger agreement at the special meeting or at any adjournment or postponement of the special meeting, (ii) at the time of such termination, a third party has publicly announced (and not withdrawn) a proposed acquisition transaction with the Company and (iii) within 12 months of such termination, the Company enters into an agreement with respect to an alternative transaction that results in a change in control of at least 50% of total voting power of any class of equity securities of the Company or at least 50% of the net revenues, net income or total assets of the Company, in which case, the termination fee would be payable prior to or concurrently with entering into an agreement with respect to such alternative transaction;
   
by Advisor Group if the Board has made a change of Board recommendation in favor of the merger agreement, in which case, the termination fee would be payable within five business days of such termination; or
   
by the Company if prior to the approval by our shareholders of the merger agreement, the Board authorizes the Company to enter into an alternative acquisition agreement in compliance with the terms of the merger agreement, including the requirements described under “The Merger Agreement—Acquisition Proposals” beginning on page 60, in which case the termination fee would be payable within five business days of such termination.

 

In each case, the Company will be required to reimburse Advisor Group’s documented transaction-related third-party expenses, which reimbursement is capped at $10 million and will be applied as credit to any required payment of the termination fee. If the merger agreement is terminated by either Advisor Group or the Company because our shareholders do not approve the merger agreement at the special meeting or at any adjournment or postponement of the special meeting, then the Company is required to reimburse Advisor Group’s expenses up to the $10 million cap.

 

Reverse Termination Fees Payable by Advisor Group

 

A reverse termination fee of $35,300,000 would be payable by Advisor Group to us in the event the merger agreement is terminated by either Advisor Group or the Company if the merger has not been consummated by the outside date and at the time of such termination that (i) all of the closing conditions have been satisfied (other than those conditions that by their nature are to be satisfied at the date of closing) and (ii) there exists a financing failure, except in the case (A) where the Company has materially breached its obligations to cooperate with Advisor Group in its attempt to receive financing (described in more detail under “The Merger Agreement Financing Cooperation”) and such breach is not cured within 15 days after written notice of such a breach by Advisor Group to the Company specifying such breach in particularity and, without such a breach there would be no financing failure, or (B) where (x) the applicable auditors who prepared the required information have withdrawn any of their audit opinions with respect to the audited financial statements contained in the required information or (y) the financial statements included in the required information are deemed to be stale or otherwise unusable under customary practices for offerings and private placements of high-yield debt securities or insufficient to permit the Company’s independent public accountants to issue a customary “comfort” letter to the debt financing sources, which circumstances in (A) and (B) we refer to as the Company causation exception.

 

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Remedies

 

Specific Performance

 

The parties agreed that irreparable damage would occur in the event that any of the provisions of the merger agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties is entitled to seek specific performance of the terms and provisions of the merger agreement and to obtain or to seek an injunction restraining any breach or violation or threatened breach or violation of the provision of the merger agreement. Each party agreed that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that either party has an adequate remedy at law or an award of specific performance is not an appropriate remedy for any reason at law or equity and that it will not require the party seeking relief to post a bond or other form of security as a prerequisite to obtaining equitable relief.

 

Specifically, this entitles the Company to seek specific performance and monetary damages if Advisor Group does not close when it is otherwise obligated to close (i.e., when the Company has satisfied its obligations and all closing conditions have been satisfied other than those conditions that by their nature are to be satisfied at the closing), except in the event of a financing failure, where the parties have agreed that Advisor Group may pay liquidated damages to the Company of $35,300,000 in lieu of closing, as described below.

 

Liquidated Damages

 

In the event the termination fee becomes payable by the Company, such termination fee will be the sole and exclusive remedy for monetary damages to which Advisor Group and Merger Sub will be entitled (except that in the event the merger agreement is terminated because our shareholders do not approve the merger agreement at the special meeting and as a result the Company reimburses Advisor Group for its out-of-pocket expenses, Advisor Group still will have the right to receive the termination fee, with the amount reimbursed by the Company for such out-of-pocket expenses applied as a credit against the additional payment of the termination fee).

 

In the event the Advisor Group pays the Company the reverse termination fee of $35,300,000 in liquidated damages, such fee will be the sole and exclusive remedy of the Company and its affiliates against Advisor Group and its subsidiaries, the debt financing sources and any of their respective former, current, or future general or limited partners, stockholders, managers, members, directors, officers, affiliates, employees, representatives or agents, for any losses suffered as a result of any breach of any representation, warranty, covenant or agreement in the merger agreement or the failure of the consummation of the merger, and none of such parties will have any further liability or obligation relating to or arising out of the merger agreement or the transactions contemplated by the merger agreement.

 

Uncapped Damages

 

Notwithstanding the foregoing, no payment of liquidated damages, either the Company termination fee or the Advisor Group reverse termination fee, will relieve any party of any liability or damages incurred or suffered by the Company or Advisor Group or Merger Sub, as applicable, to the extent such liability or damages are the result of or arise out of any fraud or willful breach of any provision of the merger agreement.

 

In the event that Advisor Group or Merger Sub commit any fraud of willful breach of any provision of the merger agreement, the Company will be entitled to recover damages that will be determined by reference to the total amount that would have been recoverable by the Company’s shareholders if all such shareholders brought an action against Advisor Group and were recognized as third-party beneficiaries under the merger agreement.

 

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Fees and Expenses

 

All fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring such fees and expenses whether or not the merger is completed, subject to exceptions for expenses (i) incurred by Advisor Group if the merger agreement is terminated in specified circumstances, as described above, (ii) incurred by the Company as a result of cooperating with Advisor Group in order to obtain or assist Advisor Group in obtaining any actions, consents, undertakings, approvals or waivers by or from any person for or in connection with, and to reasonably assist Advisor Group in litigating or otherwise contesting any objections to or proceedings or other actions challenging, the consummation of the merger or (iii) incurred by the Company and its subsidiaries in connection with the performance of its financing cooperation covenant (other than with respect to the preparation of audited and other historical financial statements).

 

Amendments; Waiver

 

Any provisions of the merger agreement may be amended if such amendment is in writing and signed by and on behalf of each party, and any provision of the merger agreement may be waived if such waiver is in writing and signed by and on behalf of the party against whom such waiver is to be enforced, except that any amendment of certain provisions that is adverse to the rights of the lenders and commitment parties under the debt financing obtained by Advisor Group for the purpose of financing the merger will also require the consent of such lenders and commitment parties.

 

Governing Law

 

The merger agreement and its enforcement will be governed by the laws of the state of Florida without regard to conflicts of law provisions, except that each of the parties agreed that except as specifically set forth in the debt commitment letter, all claims or causes of action against any of the debt financing sources or their representatives, affiliates, and agents in any way relating to the debt financing or the performance thereof or the financing contemplated thereby will be exclusively governed by the laws of the state of New York without regard to conflicts of law provisions. The parties agreed that New York is the exclusive jurisdiction for purpose of any action arising out of or relating to the merger agreement or the confidentiality agreement, and each party agrees that all claims in respect to such action may be heard and determined exclusively in any New York state or federal court sitting in New York County, New York.

 

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THE VOTING AGREEMENTS

 

This section describes the material terms of the voting agreements. The description of the voting agreements in this section and elsewhere in this proxy statement is qualified in its entirety by reference to the complete text of the form of director voting agreement, a copy of which is attached as Annex B, and the Vector voting agreement, a copy of which is attached as Annex C, both of which are incorporated by reference into this proxy statement. This summary does not purport to be complete and may not contain all of the information about the voting agreements that is important to you. We encourage you to read the voting agreements carefully and in their entirety.

 

In connection with the merger agreement, on November 11, 2019, (1) the directors of the Company (solely in their capacities as shareholders of the Company) and (2) Vector Group, Ltd., a greater than 10% shareholder of the Company, each entered into a voting agreement with Advisor Group. Such shareholders beneficially own and are entitled to vote shares of our common stock representing approximately 21% of the outstanding shares entitled to vote at the special meeting in the aggregate (not including any shares of common stock deliverable upon exercise of any Company options, but including any Company restricted shares).

 

Pursuant to the voting agreements, such shareholders agreed to, among other things, (i) vote all shares of common stock that they beneficially owned as of November 11, 2019 or thereafter acquired by such shareholders (including pursuant to the exercise of any options) in favor of adopting the merger proposal and (ii) vote against any alternative acquisition proposal or any action which is intended or would reasonably be expected to prevent, materially delay, materially interfere with, or materially impair the consummation of the merger. Such shareholders have granted Advisor Group an irrevocable proxy granting Advisor Group the right to vote on their behalf to the extent such shareholders fail to comply with their voting obligations under the voting agreements.

 

In addition, pursuant to the voting agreements, such shareholders also agreed, among other things, not to transfer any of their respective shares of common stock during the term of the voting agreements, except for certain limited purposes described in the voting agreements. Each voting agreement terminates upon the earliest to occur of (i) the effective time; (ii) the termination of the merger agreement in accordance with its terms (including termination by the Company to enter into an alternative acquisition agreement with respect to a superior proposal, as described herein);  (iii) the time of any amendment, modification, waiver or other change to any provision of the merger agreement that reduces the amount or changes the form of consideration payable to any shareholder of the Company; and (iv) the written agreement of the relevant shareholder and Advisor Group to terminate the applicable voting agreement.

 

 -71- 
 

 

ADVISORY VOTE ON MERGER-RELATED COMPENSATION (PROPOSAL 2)

 

As required by Section 14A of the Exchange Act and the applicable SEC rules issued thereunder, the Company is required to submit a proposal to the Company’s shareholders for a non-binding advisory vote to approve the merger-related compensation.

 

The compensation that the Company’s named executive officers may be entitled to receive from the Company in connection with the merger is summarized and included under the heading “The Merger—Interests of Company’s Directors and Executive Officers in the Merger—Golden Parachute Compensation” beginning on page 47 of this proxy statement. That summary includes all compensation and benefits that may be paid or become payable to the Company’s named executive officers by the Company in connection with the merger.

 

The Board encourages you to review carefully the compensation arrangements for the Company’s named executive officers in connection with the merger disclosed in this proxy statement.

 

The Board unanimously recommends that our shareholders approve the following resolution, on a non-binding, advisory basis:

 

“RESOLVED, that the compensation that may be paid or become payable to the Company’s named executive officers, in connection with the merger, and the agreements or understandings pursuant to which such compensation may be paid or become payable, in each case as disclosed pursuant to Item 402(t) of Regulation S-K in “The Merger—Interests of the Company’s Directors and Executive Officers in the Merger—Golden Parachute Compensation,” including the footnotes to the table and the related narrative discussion, is hereby APPROVED.”

 

The proposal to approve, by a non-binding advisory vote, the merger-related compensation requires the affirmative vote of the holders of a majority of the votes cast by the holders entitled to vote thereon at the special meeting. Abstentions and broker non-votes will have no effect on the outcome of the vote. The vote on this proposal is separate and apart from the vote to approve the merger proposal. Accordingly, you may vote not to approve the merger-related compensation proposal and vote to approve the merger proposal. Because the vote on the merger-related compensation proposal is advisory only, it will not be binding on either the Company or Advisor Group. Accordingly, if the merger proposal is approved and the merger is completed, the compensation will be payable, subject only to the conditions applicable thereto, regardless of the outcome of the non-binding advisory vote of our shareholders.

 

Recommendation of Our Board

 

The Board unanimously recommends that the shareholders of the Company vote “FOR” the proposal to approve, by a non-binding advisory vote, the merger-related compensation.

 

VOTE ON ADJOURNMENT (PROPOSAL 3)

 

We are asking the shareholders of the Company to approve a proposal that will give the Board the authority, after consultation with Advisor Group, to adjourn the special meeting if (i) an adjournment is required by applicable law to ensure that any required supplement or amendment to this proxy statement is provided to our shareholders within a reasonable amount of time in advance of the special meeting, (ii) an adjournment is required by a court of competent jurisdiction in connection with any action in connection with the merger agreement or the merger, (iii) as of the time for which the special meeting is originally scheduled, there are insufficient shares of common stock represented, either in person or by proxy, to constitute a quorum necessary to conduct the business of the special meeting, provided that the Company shall not be required to adjourn the special meeting under this provision on more than two occasions and shall not be required to adjourn the special meeting past the outside date or (iv) Advisor Group gives prior written consent to adjourn the special meeting. In each case, the Company may adjourn, recess or postpone the special meeting for the minimum duration reasonably necessary to remedy the circumstances giving rise to such adjournment, recess or postponement.

 

The Company does not anticipate calling a vote on this proposal if the merger proposal is approved by the requisite number of shares of common stock at the special meeting.

 

The vote on the adjournment proposal is a vote separate and apart from the vote on the merger proposal. Accordingly, you may vote to approve the merger proposal and vote not to approve the adjournment proposal, or vice versa.

 

Approval of the adjournment proposal requires the affirmative vote of holders of a majority of the votes cast with respect to this proposal.

 

Recommendation of Our Board

 

The Board unanimously recommends that the shareholders of the Company vote “FOR” the adjournment proposal, if a vote on the adjournment proposal is called.

 

 -72- 
 

 

MARKET PRICE OF COMMON STOCK

 

Our common stock is listed for trading on the NYSE American under the symbol “LTS.” The table below shows the high and low sales price of common stock, for the periods indicated, as reported on the NYSE American.

 

   Common Stock Price   Dividend 
   High   Low   Per Share 
FY 2017            
First quarter  $2.57   $2.05     
Second quarter  $2.78   $2.13     
Third quarter  $2.93   $2.22   $0.01 
Fourth quarter  $3.45   $2.77   $0.01 
                
FY 2018               
First quarter  $3.64   $2.80   $0.01 
Second quarter  $3.81   $3.02   $0.01 
Third quarter  $3.59   $2.37   $.0125 
Fourth quarter  $3.02   $2.19   $.0125 
                
FY 2019               
First quarter  $3.24   $2.36   $.0125 
Second quarter  $3.92   $2.79   $.0125 
Third quarter  $3.45   $1.83   $.0125 
Fourth quarter (through ________, 2019)  $_____   $_____   $_____ 

 

The closing price of our common stock on the NYSE American on October 28, 2019, the last full trading day prior to the publication of a Bloomberg News article disclosing that the Company was considering a sale of the Company, was $2.01 per share. The closing price of our common stock on the NYSE American on November 8, 2019, the last full trading day prior to the announcement of the execution of the merger agreement, was $2.85 per share. On ________, ________, the most recent practicable date before this proxy statement was mailed to our shareholders, the closing price of our common stock on the NYSE American was $________ per share. You are encouraged to obtain current market quotations for common stock in connection with voting your shares of common stock.

 

 -73- 
 

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The table below presents certain information regarding the beneficial ownership of shares of our common stock as of December 2, 2019, the most recent practicable date before this proxy statement was mailed to our shareholders, by (i) those persons or groups known to us to beneficially own more than 5% of our common stock, (ii) each of our directors, (iii) each named executive officer and (iv) all directors and executive officers as a group.

 

The share percentages in the table below are based on 149,130,442 shares of common stock outstanding on December 2, 2019, the most recent practicable date before this proxy statement was mailed to our shareholders. Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned by them (other than with respect to Company restricted shares over which the individuals have voting power but no investment power). Unless otherwise noted, the business address of each listed beneficial owner is c/o Ladenburg Thalmann Financial Services Inc., 4400 Biscayne Boulevard, 12th Floor, Miami, Florida 33137.

 

Shares of our common stock issuable upon the exercise of options or warrants that are presently exercisable or exercisable within 60 days of the date hereof are deemed to be outstanding and beneficially owned by the person holding the options or warrants for the purpose of computing the percentage of ownership of that person, but are not treated as outstanding for the purpose of computing the percentage of any other person.

 

   Beneficial Ownership of Our common Stock
Name and Address of Beneficial Owner  Number of Shares   Percent
Vector Group Ltd. (1)  15,191,205 (1)    10.19%
Glenn Halpryn (2)  9,309,128 (2)    6.24%
Mark Zeitchick  6,620,791 (3)    4.37%
Howard M. Lorber  6,197,479 (4)    4.08%
Richard J. Lampen  5,708,249 (5)    3.77%
Jacqueline M. Simkin  2,352,738 (6)    1.57%
Adam Malamed  2,352,290 (7)    1.57%
Dr. Richard M. Krasno  738,917 (8)    * 
Brett H. Kaufman  705,966 (9)    * 
Joseph Giovanniello  628,207 (10)    * 
Henry C. Beinstein  523,675 (11)    * 
Brian S. Genson  495,602 (12)    * 
Michael S. Liebowitz  271,498 (13)    * 
Glenn C. Davis  69,000 (14)    * 
All directors and executive officers as a group (12 persons)  26,664,412 (15)    16.79%

 

 

*Less than 1 percent.

 

(1)The business address of Vector Group Ltd. is 4400 Biscayne Boulevard, 10th Floor, Miami, Florida 33137. Represents 15,191,205 shares of common stock held by Vector Group Ltd.

 

 -74- 
 

 

(2)Based on the Schedule 13G filed with the Securities and Exchange Commission on February 11, 2019. Represents (i) 533,800 shares of common stock held by Mr. Halpryn; (ii) 620,616 shares of common stock held by Biscayne 4400 AL, LLC, a Delaware limited liability company (“Biscayne AL”), of which Mr. Halpryn is the manager;  (iii) 384,862 shares of common stock held by Biscayne 4400 Partners LLLP, a Florida limited liability limited partnership (“Biscayne Partners”), of which Mr. Halpryn is the manager of its general partner; (iv) 56,324 shares of common stock held by Biscayne Biotech Holdings, LLC, a Florida limited liability company (“Biscayne Biotech”), of which Mr. Halpryn is the manager; (v) 72,007 shares of common stock held by Biscayne Pulmonary Holding LLC, a Florida limited liability company (“Biscayne Pulmonary”), of which Mr. Halpryn is the manager; (vi) 119,723 shares of common stock held by HA-LEN, L.L.C., a Florida limited liability company (“HA-LEN”), of which Mr. Halpryn is the manager; (vii) 138,616 shares of common stock held by Halpryn Group VI, LLC, a Florida limited liability company (“Halpryn Group”), of which Mr. Halpryn is the manager; (viii) 77,000 shares of common stock held by Stem Cell Therapeutics, LLC, a Florida limited liability company (“Stem Cell”), of which Mr. Halpryn is the manager; (ix) 3,716,712 shares of common stock held by IVC Investors, LLLP, a Florida limited liability limited partnership (“IVC”), of which Mr. Halpryn is the president and the managing member of its general partner; (x) 3,091,665 shares of common stock held by Prine Intervest Limited, a British Virgin Islands entity (“Prine”), of which Mr. Halpryn is the president; (xi) 315,368 shares of common stock held by Transworld Investment Corporation, a Delaware corporation (“Transworld”), of which Mr. Halpryn is the president;  (xii) 96,000 shares of common stock held by Noritsu Investments, Corp., a Panama corporation (“Noritsu”), for which Mr. Halpryn has a durable power of attorney; and (xiii) 86,435 shares of common stock held by The Rosecrands Corporation, a Panama corporation (“Rosecrands”), for which Mr. Halpryn has a durable power of attorney. Mr. Halpryn has sole voting and investment power over the shares held individually and those held by Biscayne AL, Biscayne Partners, Biscayne Biotech, Biscayne Pulmonary, HA-LEN, Halpryn Group and Stem Cell. He has shared voting power over the shares held by IVC, Prine and Transworld. He has shared investment power over the shares held by IVC, Prine, Transworld, Noritsu and Rosecrands. Except for the 533,800 shares of common stock held by Mr. Halpryn, Mr. Halpryn disclaims beneficial ownership of the shares of common stock except to the extent of his pecuniary interest therein. The principal business address of Mr. Halpryn, Biscayne AL, Biscayne Partners, Biscayne Biotech, Biscayne Pulmonary, HA- LEN, Halpryn Group, IVC, Prine, Stem Cell and Transworld is 4400 Biscayne Boulevard, Suite 950, Miami, Florida 33137-3212. The principal business address of Noritsu and Rosecrands is 6001 Broken Sound Parkway NW, Suite 424, Boca Raton, Florida 33487.
  
(3)Represents (i) 3,053,343 shares of common stock held by the Mark D. Zeitchick 2016 Revocable Trust,  (ii) 1,267,448 shares of common stock held directly by Mr. Zeitchick, 843,750 of which are subject to vesting restrictions, and (iii) 2,300,000 shares of common stock issuable upon exercise of currently exercisable options held by Mr. Zeitchick.
  
(4)Represents (i) 3,085,385 shares of common stock held directly by Mr. Lorber, 45,000 of which are subject to vesting restrictions, (ii) 522,027 shares of common stock held by Lorber Alpha II Limited Partnership, a Nevada limited partnership, (iii) 2,590,000 shares of common stock issuable upon exercise of currently exercisable options held by Mr. Lorber and (iv) 67 shares of common stock held of record by Citibank N.A. as custodian for the benefit of Howard Lorber Rollover IRA. Lorber Alpha II, Inc., a Nevada corporation, is the general partner of Lorber Alpha II Limited Partnership. Mr. Lorber is the director, officer and principal stockholder of Lorber Alpha II, Inc. Does not include (i) the shares of common stock beneficially owned by Vector Group Ltd., of which Mr. Lorber serves as an executive officer and director and (ii) shares of common stock held by the Lorber Charitable Fund, a New York not-for-profit corporation, of which family members of Mr. Lorber serve as directors and executive officers.
  
(5)Represents (i) 3,324,916 shares of common stock held directly by Mr. Lampen, 843,750 of which are subject to vesting restrictions, (ii) 2,300,000 shares of common stock issuable upon exercise of currently exercisable options held by Mr. Lampen and (iii) 83,333 shares of common stock held by Mr. Lampen’s spouse, as to which he disclaims beneficial ownership. Does not include shares of common stock beneficially owned by Vector Group Ltd., of which Mr. Lampen serves as an executive officer.
  
(6)Represents (i) 1,829,738 shares of common stock held by The Jacqueline Simkin Revocable Trust as Amended & Restated 12/16/03, of which Ms. Simkin is the trustee, (ii) 158,000 shares of common stock held by The Jacqueline Simkin Charitable Remainder Unitrust dated 09/06/2002, of which Ms. Simkin is a co-trustee,  (iii) 75,000 shares of common stock held directly by Ms. Simkin, 45,000 of which are subject to vesting restrictions and (iv) 290,000 shares of common stock issuable upon exercise of currently exercisable options held by Ms. Simkin.
  
(7)Represents (i) 1,612,290 shares of common stock held directly by Mr. Malamed, 531,250 of which are subject to vesting restrictions, (ii) 5,000 shares of common stock held by the NFS/FMTC IRA for the benefit of Adam Malamed and (iii) 735,000 shares of common stock issuable upon exercise of currently exercisable options held by Mr. Malamed.

 

 -75- 
 

 

(8)Represents (i) 383,089 shares of common stock held by The Richard M. Krasno Living Trust dated 10/6/2009, of which Dr. Krasno is the sole trustee and beneficiary, (ii) 290,000 shares of common stock issuable upon exercise of currently exercisable options held by Dr. Krasno and (iii) 65,828 shares of common stock held directly by Mr. Krasno, 45,000 of which are subject to vesting restrictions.
  
(9)Represents (i) 268,466 shares of common stock held directly by Mr. Kaufman, 127,500 of which are subject to vesting restrictions and (ii) 437,500 shares of common stock issuable upon exercise of currently exercisable options held by Mr. Kaufman.
  
(10)Represents (i) 423,207 shares of common stock held directly by Mr. Giovanniello, 127,500 of which are subject to vesting restrictions and (ii) 205,000 shares of common stock issuable upon exercise of currently exercisable options held by Mr. Giovanniello.
  
(11)