As filed with the Securities and Exchange Commission on October 23, 2015
Registration No. 333-206626
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933
GWG HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
Delaware |
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26-2222607 |
(State or other
jurisdiction of
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(I.R.S. Employer
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220 South Sixth Street, Suite
1200
Minneapolis, Minnesota 55402
Tel: (612) 746-1944
Fax: (612) 746-0445
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
Paul D. Chestovich Maslon LLP 3300 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402 Tel: (612) 672-8200 |
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Copies to: GWG Holdings, Inc. Jon R. Sabes Chief Executive Officer 220 South Sixth Street, Suite 1200 Minneapolis, Minnesota 55402 Tel: (612) 746-1944 (Name, address, including zip code, and telephone number, including area code, of agent for service) |
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Dominic Baldini Emerson Equity LLC 155 Bovet Road, Suite 725 San Mateo, CA 94402 Tel: (650) 312-0200 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. ¨
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. x
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a registration statement pursuant to General Instruction I.D. or a post-effective amendment thereto that shall become effective upon filing with the SEC pursuant to Rule 462(e) under the Securities Act, check the following box. ¨
If this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction I.D. filed to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act, check the following box. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ |
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Accelerated filer ¨ |
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Non-accelerated filer ¨ |
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Smaller reporting company x |
__________________________________________________________________________________________________
CALCULATION OF REGISTRATION FEE
__________________________________________________________________________________________________
Title
of Each Class of
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Amount to be Registered |
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Proposed Maximum Offering Price Per Share |
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Proposed Maximum Aggregate Offering Price (1) |
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Amount of Registration Fee |
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Redeemable Preferred Stock, par value $.001 per share |
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100,000 |
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$ |
1,000 |
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$ |
100,000,000 |
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$ |
11,620 |
Common Stock, par value $.001 per share (2)(3) |
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— |
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— |
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— |
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— |
____________
(1) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
(2) We also are registering hereunder an indeterminate number of shares of Common Stock that may be issuable upon the conversion of the Redeemable Preferred Stock. The shares of Common Stock issuable upon conversion of the Redeemable Preferred Stock will be issued for no additional consideration, and therefore no registration fee is required pursuant to Rule 457(i) under the Securities Act of 1933.
(3) Pursuant to Rule 416 under the Securities Act of 1933, such number of shares of Common Stock registered hereby also shall include an indeterminate number of shares of Common Stock that may be issued in connection with stock splits, stock dividends, recapitalizations or similar events or adjustments in the number of shares issuable as provided in the Certificate of Designation for the Redeemable Preferred Stock.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission, of which this prospectus is a part, shall have been declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED OCTOBER 23, 2015
GWG HOLDINGS, INC.
Maximum of 100,000 Shares of Redeemable Preferred Stock
GWG Holdings, Inc., through its subsidiaries, invests in life insurance assets in the secondary marketplace. Our objective is to earn returns from our investments in life insurance assets that are greater than the costs necessary to purchase, finance and service those policies to their maturity.
We are offering a maximum of 100,000 shares of our Redeemable Preferred Stock, par value $.001 per share, referred to as our “Redeemable Preferred Stock.” Each share of Redeemable Preferred Stock has an initial Stated Value of $1,000 per share, and up to 15% of the Stated Value is convertible into common stock at a conversion price equal to the volume-weighted average price of our common stock for the 20 trading days prior to the date of conversion, subject to a minimum conversion price of $15.00 (subject to adjustment).
The Redeemable Preferred Stock will be sold at a public offering price of $1,000 per share. The Redeemable Preferred Stock will not be issued or certificated. The Redeemable Preferred Stock will rank senior to our common stock with respect to payment of dividends and distribution of amounts upon liquidation, dissolution or winding up. Holders of our Redeemable Preferred Stock will have no voting rights.
Our common stock trades on The NASDAQ Capital Market under the symbol “GWGH.”
We are an “emerging growth company” under applicable law and are subject to reduced public company reporting requirements. Please read the disclosures on page 5 of this prospectus for more information. Investing in our securities involves a high degree of risk, including the risk of losing your entire investment. You should carefully read and consider “Risk Factors” included in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q, and those on page 13 of this prospectus and in any applicable prospectus supplement before investing in our securities.
Please read this prospectus before investing and keep it for future reference. We file annual, quarterly and current reports with the SEC. This information will be available free of charge by contacting us at 220 South Sixth Street, Suite 1200, Minneapolis, Minnesota 55402 or by phone at (612) 746-1944 or on our website at www.gwglife.com . The SEC also maintains a website at www.sec.gov that contains such information.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Per Share |
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Maximum Offering |
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Public offering price |
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$ |
1,000 |
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$ |
100,000,000 |
Selling commissions (1)(3) |
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$ |
60 |
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$ |
6,000,000 |
Additional compensation (2)(3) |
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$ |
20 |
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$ |
2,000,000 |
Proceeds, before expenses, to us |
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$ |
920 |
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$ |
92,000,000 |
____________
(1) Selling commissions will equal 6.00% of aggregate gross proceeds, and will be payable to each soliciting broker-dealer authorized by us and Emerson Equity LLC, the managing broker-dealer or “dealer manager” for this offering.
(2) Additional compensation consists of (i) a non-accountable expense allowance of up to 0.60% of gross offering proceeds, (ii) an accountable expense allowance of up to 0.40% of gross offering proceeds, (iii) a dealer manager fee (payable only to Emerson Equity) of 0.40% of gross offering proceeds for managing and coordinating the offering, (iv) a wholesaling fee (payable only to wholesaling dealers) of 0.50% of gross offering proceeds, and (v) non-cash compensation of up to 0.10% of gross offering proceeds. Aggregate additional compensation will not exceed 2.00% of gross offering proceeds. The dealer manager may reallow up to 0.60% of additional compensation to other soliciting broker-dealers. The amount of the reallowance to any soliciting broker-dealer will be determined by the dealer manager in its sole discretion.
(3) The combined selling commissions and additional compensation for this offering will not exceed 8.00% of the aggregate gross proceeds of this offering. Our dealer manager will repay us any selling commission and additional compensation payments exceeding 8.00% of our aggregate gross offering proceeds if this offering is terminated before reaching the maximum amount of offering proceeds.
The dealer manager of this offering is Emerson Equity LLC. The dealer manager is not required to sell any specific number or dollar amount of Redeemable Preferred Stock, but will use its “reasonable best efforts” to sell the Redeemable Preferred Stock offered. The minimum permitted purchase is generally $10,000, but we may accept purchases of less than $10,000 in our discretion. We expect to sell up to 100,000 shares of Redeemable Preferred Stock in this continuous offering. We may terminate this offering at any time or may offer Redeemable Preferred Stock pursuant to a new registration statement.
We will sell Redeemable Preferred Stock through Depository Trust Company, or DTC, settlement, and through direct settlement with the Company. See “How to Purchase Redeemable Preferred Stock” and “Plan of Distribution” for a description of this settlement method.
EMERSON EQUITY LLC
as Dealer Manager
The date of this prospectus is , 2015
TABLE OF CONTENTS
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Page |
ABOUT THIS PROSPECTUS |
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i |
INDUSTRY AND MARKET DATA |
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HOW TO PURCHASE REDEEMABLE PREFERRED STOCK |
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FREQUENTLY ASKED QUESTIONS ABOUT THIS OFFERING |
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PROSPECTUS SUMMARY |
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1 |
RISK RELATING TO FORWARD-LOOKING STATEMENTS |
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12 |
RISK FACTORS |
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13 |
USE OF PROCEEDS |
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18 |
BUSINESS |
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20 |
DESCRIPTION OF THE REDEEMABLE PREFERRED STOCK |
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42 |
PLAN OF DISTRIBUTION |
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46 |
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS |
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49 |
STATE, LOCAL AND FOREIGN TAXES |
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56 |
ERISA CONSIDERATIONS |
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LEGAL MATTERS |
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56 |
EXPERTS |
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56 |
WHERE YOU CAN FIND MORE INFORMATION |
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56 |
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE |
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57 |
GWG Holdings, Inc.
220 South Sixth Street, Suite 1200
Minneapolis, MN 55402
Tel: (612) 746-1944
Fax: (612) 746-0445
ABOUT THIS PROSPECTUS
We have prepared this prospectus as part of a registration statement that we filed with the SEC for our offering of Redeemable Preferred Stock. The registration statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this prospectus and certain information that is incorporated by reference. You should read this prospectus, the related exhibits filed with the SEC, together with additional information described below under “Where You Can Find More Information,” and the documents which are incorporated, or deemed to be incorporated, by reference into this prospectus. This prospectus contains summaries of certain other documents, which summaries contain all material terms of the relevant documents and are believed to be accurate, but reference is hereby made to the full text of the actual documents for complete information concerning the rights and obligations of the parties thereto. Such information necessarily incorporates significant assumptions, as well as factual matters. All documents relating to this offering and related documents and agreements, if readily available to us, will be made available to a prospective investor or its representatives upon request.
You should rely only on the information contained in this prospectus. Neither we nor the dealer manager have authorized any other person to provide you with any information different from that contained in this prospectus or information furnished by us upon request as described herein. The information contained in this prospectus is complete and accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or sale of our Redeemable Preferred Stock. In this prospectus, we use the term “day” to refer to a calendar day, and we use the term “business day” to refer to any day other than Saturday, Sunday, a legal holiday or a day on which banks in New York City are authorized or required to close.
No information contained herein, nor in any prior, contemporaneous or subsequent communication should be construed by a prospective investor as legal or tax advice. Each prospective investor should consult its, his or her own legal, tax and financial advisors to ascertain the merits and risks of the transactions described herein prior to purchasing the Redeemable Preferred Stock. This written communication is not intended to be “written advice,” as defined in Circular 230 published by the U.S. Treasury Department.
INDUSTRY AND MARKET DATA
The industry and market data used throughout this prospectus have been obtained from our own research, surveys or studies conducted by third parties and industry or general publications. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. We believe that each of these studies and publications is reliable.
HOW TO PURCHASE REDEEMABLE PREFERRED STOCK
If, after carefully reading this entire prospectus, obtaining any other information requested and available, and being fully satisfied with the results of pre-investment due-diligence activities, you would like to purchase Redeemable Preferred Stock, you may purchase of Redeemable Preferred Stock through DTC (Depository Trust Company) settlement or direct settlement with the Company.
For DTC settlement, your broker-dealer must be a participant in the DTC system. In such a case, you can place an order for the purchase of Redeemable Preferred Stock through your broker-dealer. A broker-dealer using this service will have an account with DTC in which your funds will be placed to facilitate your purchase in this offering. Orders will be executed by your broker-dealer electronically and you must coordinate with your broker-dealer’s registered representative to pay the full purchase price for the Redeemable Preferred Stock by the final settlement date. Orders may be placed at any time, and the final settlement date will be the date on which your purchase is accepted and consummated, which we anticipate will ordinarily occur on a monthly basis. You will be credited with ownership of shares of Redeemable Preferred Stock on the settlement date. Your purchase price for the Redeemable Preferred Stock purchased in this way will not be held in escrow.
When settling a purchase directly with the Company, you will send your completed and executed Subscription Agreement, together with your subscription amount, to us at the address listed below. Your subscription amount should be paid through a certified check or personal check payable to the order of “GWG Holdings, Inc.—Subscription Account.” In lieu of paying by check, you may wire your subscription amount to the account referenced below.
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GWG Holdings, Inc.
220 South Sixth Street, Suite 1200
Minneapolis, MN 55402
Wire
Instructions
GWG Holdings, Inc. — Subscription Account
Account: 500027347
Routing: 091310521
Bank Name: Bell State Bank & Trust
If you are working with a broker-dealer or other investment professional, your broker-dealer or professional will gather and send in the required information on your behalf, and may facilitate your payment of the subscription amount. Once we have received your subscription amount and required documentation, we will either reject or accept your subscription. Once accepted, we will have immediate access to your subscription amount and we will issue you, in book-entry form, the shares of Redeemable Preferred Stock you have purchased.
COVERED SECURITY
Our Redeemable Preferred Stock is a “covered security.” The term “covered security” applies to securities exempt from state registration pursuant to Section 18 of the Securities Act of 1933. Generally, securities listed on national exchanges are the most common type of covered security exempt from state registration. A non-traded security also can be a covered security if it has a seniority greater than or equal to other securities from the same issuer that are listed on a national exchange. Our Redeemable Preferred Stock is a covered security because they will be senior to our common stock, which is listed on The NASDAQ Capital Market, and therefore our offering of Redeemable Preferred Stock is exempt from state registration.
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FREQUENTLY ASKED QUESTIONS ABOUT THIS OFFERING
What is this offering?
GWG Holdings, Inc. is offering to sell 100,000 shares of Redeemable Preferred Stock at $1,000 per share. This stock will pay a 7.00% per annum cumulative dividend. The stock will be callable at GWG’s discretion once it has been outstanding for at least one year. After the stock has been outstanding for at least one year, investors may redeem this stock once per calendar quarter in an amount up to 25% of the Redeemable Preferred Stock originally purchased from us (plus any preferred shares issued in satisfaction of dividends thereon), subject, however, to an applicable redemption fee. In addition, investors may themselves elect to convert some of their preferred shares into GWG’s common stock.
Are there minimum purchase requirements for this offering?
The Redeemable Preferred Stock will sell for $1,000 per share. The minimum purchase is 10 shares and there is no maximum purchase. There is no aggregate minimum number of shares that must be subscribed for, or related proceeds that must be received, before we can accept subscriptions and access investor funds.
What do you mean by “preferred stock?”
Preferred stock means that, in the event of the liquidation of our Company, the holder of this stock will receive preferential treatment as compared to holders of certain other stock or equity in the Company. In this case, the holders of this preferred stock would receive payment of accrued and declared but unpaid dividends, plus the Stated Value of their preferred stock (i.e., the original purchase price), before the holders of junior equity such as our common stock. This preferred stock will also entitle its holders to preferred dividends, meaning that dividends on this stock must be paid prior to dividend payments being made to holders of junior equity such as our common stock. This preferred stock does not, however, have any voting rights.
Will I be able to receive any of my dividend payments in the form of additional shares of preferred stock?
Yes. You may receive dividend payments in cash if there are no restrictions on the payment of such dividends arising under applicable law, our borrowing agreements or our Certificate of Incorporation, as amended. Nevertheless, we may at our election choose to pay dividends in the form of additional shares of preferred stock. In addition, you may choose to receive dividends in the form of additional shares of preferred stock by notifying us prior to any payment date for dividends. In this regard, dividends, if paid, will be declared and paid on a monthly basis. You may change your election to receive dividends in the form of additional shares of preferred stock (back to cash, or vice versa) once per calendar year.
Are the dividends paid on this stock taxable?
Yes, the dividends you receive on this stock are taxable in the period in which you receive the dividends. We believe that dividends paid on this stock may be eligible for taxation as “qualified dividend income,” which means a tax rate of 15–20% may apply to this income depending on the ordinary income marginal tax bracket in which an investor is taxed. Investors will receive an IRS form 1099-DIV for the tax year in which a dividend is paid. Investors should consult with their own tax advisor regarding tax consequences.
Is my investment guaranteed?
No. As with almost any investment, there is a risk of loss. Before you invest in our Redeemable Preferred Stock you should read the entire prospectus and understand the risks associated with this investment. In particular, you should carefully read the “Risk Factors” section of this prospectus together with the risk disclosures incorporated into this prospectus by reference. We encourage you to review all of our disclosure about this offering and to ask questions of us and consult with your advisors about any questions you may have regarding this offering.
Can I resell or transfer my preferred stock after it has been purchased?
Yes. It will be legally possible to sell or transfer your preferred stock since these securities are being offered and sold pursuant to a registration statement. We do not, however, expect a public trading market to develop for the Redeemable Preferred Stock in the foreseeable future, if ever. If you wish to transfer your preferred shares held in
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book-entry form, you should contact us. If you wish to transfer your preferred shares held through DTC, you should contact your broker-dealer.
Will it be possible to redeem the shares for cash at some point?
Yes. Once you have held preferred shares for at least one year, you will be entitled once per calendar quarter to request redemption of up to 25% of your Redeemable Preferred Stock originally purchased from us (plus any preferred shares issued in satisfaction of dividends thereon) at a redemption price equal to the Stated Value of such redeemed shares, plus any accrued but unpaid dividends thereon. In some cases, however, a redemption fee may apply. After preferred shares have been held at least three years, no redemption fee will apply.
You should understand that we will not be obligated in all cases to honor these redemption requests. Our obligation to honor redemption requests will be limited to the extent that we do not have sufficient funds available to fund any such redemption (which determination we will make in our discretion), by applicable law, any restrictions in our Certificate of Incorporation, as amended, and any borrowing agreements to which we or our subsidiaries are a party or are otherwise bound. To the extent we have requests for redemptions that we are unable to satisfy, we will honor redemption requests promptly after we become able to do so, with all such deferred redemption requests being satisfied on a prorated basis, regardless of the order in which we received those requests. See “Description of the Redeemable Preferred Stock.” See also “Risk Factors—You may not be able to redeem your shares of Redeemable Preferred Stock when and as you wish.”
If I have an emergency, can I get any of my money when I need it?
Preferred stock is an equity investment and we are not obligated to redeem your shares unless and until we call the stock for redemption. You should take this into account before you purchase our preferred stock. You should not count on us redeeming any stock if you have an emergency need for the money. There are, however, certain circumstances—such as upon your death, bankruptcy or total disability—where we will, if legally possible, redeem your shares upon your request. These circumstances are discussed immediately below.
If I die, will you repurchase my preferred stock?
Not automatically. The legal representative of your estate will, however, have the right to request that we redeem your preferred shares. If we receive adequate documentation evidencing your death, we will honor this kind of repurchase request without any penalty if we are permitted by applicable law, our Certificate of Incorporation, as amended, and our borrowing agreements to do so. In the absence of a repurchase request by your estate, your preferred stock will go to your estate for distribution according to your will or the applicable laws of intestacy, and be paid out when called by us or through your estate’s exercise of a redemption request. The Certificate of Designation for our Redeemable Preferred Stock, which governs the rights, preferences and privileges of the preferred shares, contains similar rights to request redemption in the event of a bankruptcy or your total disability. Please see “Description of the Redeemable Preferred Stock” for important details about these rights.
Will I receive a stock certificate?
No. Stock certificates will not be issued. Your ownership will be noted as Redeemable Preferred Stock in our stock register and on the balance sheet of GWG Holdings, Inc.
What if I need proof of ownership of my investment in GWG?
At your request, we will confirm your investment in our Redeemable Preferred Stock in writing.
Can I convert my preferred stock into shares of common stock?
Yes. Holders of this preferred stock may convert the stock they purchase from us and hold into common stock. When this is done, the conversion price at which common shares are issued will equal to the volume-weighted average price of our common stock for the 20 trading days immediately prior to the date on which notice of conversion is delivered to us. In no event, however, may the conversion price be less than $15.00 (which minimum price will be subject to equitable adjustment upon customary events affecting our share capital). You should understand, however, that a holder will be limited in the number of preferred shares that may be converted in this fashion. Specifically, a holder is limited to the extent that the Stated Value of converted preferred shares equals 15% of the Stated Value of preferred
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stock originally purchased by a holder from us and still held by such holder. For this purpose, shares of Redeemable Preferred Stock issued to holders in satisfaction of our dividend-payment obligations will not count as shares” originally purchased” from us.
Your right to convert preferred shares into common shares will be suspended in the event that we call your preferred shares for redemption. For more information, please see “Description of the Redeemable Preferred Stock.”
Could my subscription be refused?
Yes. Subscriptions and the investment in GWG must be approved by our management. We have the right to reject any subscription for our preferred stock.
What is GWG Holdings, Inc.?
We are a specialty finance company and a leading purchaser of life insurance policies in the secondary market. We are a holding company, meaning that we hold interests in subsidiaries and the subsidiaries generate income through operations. Through our subsidiaries, we purchase and finance life insurance policies at a discount to the face value of the policy benefit.
The life insurance secondary market has evolved to allow for the purchase and sale of a life insurance policy through a process known as a senior life settlement. A senior life settlement allows a senior consumer to sell an existing life insurance policy to a financial buyer, such as us, for more than its cash surrender value but less than the face value of the policy benefit. There are a number of reasons a senior consumer may seek to sell their life insurance policy, and a financial buyer may seek to purchase a life insurance policy. When we purchase a life insurance policy, we continue paying the policy premiums until we collect the face value of the policy benefit. We expect to profit from the difference between the cost of purchasing, paying the related premiums, and financing the life insurance policy, and the face value of the life insurance policy benefit we ultimately receive upon the insured’s mortality.
While our primary wholly owned operating subsidiary began operations in March 2006, we were formed and organized in Delaware in 2008. In September 2014, we consummated an initial public offering of our common stock. In connection with this offering, we started listing our common stock on The NASDAQ Capital Market under the ticker symbol “GWGH.” We are based in Minneapolis, Minnesota.
What does GWG plan on doing with this money?
The net proceeds from this investment will allow us to grow and diversify our portfolio of life insurance policies, service policies that we now own or acquire in the future, retire debt as it comes due, redeem shares of an earlier issued class of preferred stock entitled “Series A Convertible Preferred Stock,” satisfy our working capital needs and possibly engage in strategic activities to expand and grow our business. Our management will have discretion as to the manner in which proceeds will be allocated among these uses. Please see “Use of Proceeds.”
What does it mean to purchase a life insurance policy, and why would someone sell his or her policy, in the secondary market?
The secondary market for life insurance has developed in response to the large volume of policy lapses and surrenders. Rather than allowing a policy to lapse as worthless, or surrendering a life insurance policy at a fraction of its inherent value, the secondary market—on which life insurance policies are bought and sold—can be a source of significant value to consumers. A life settlement is the sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than the face value of the policy benefit. We have found that, where our services are appropriate, we offer significant value to our senior consumers over the cash surrender value offered by insurance carriers. For example, over our history, we have paid senior consumers over $291.6 million for their life insurance policies, which is $273.8 million more than the cash surrender value offered by the insurance carriers.
Why should I invest in a company that purchases life insurance policies?
We seek to build a profitable and large portfolio of life insurance policy assets that are well-diversified in terms of insurance carriers, mortality profiles and the medical conditions of insureds. We seek to own a diversified portfolio of life insurance policies because we believe it lowers our overall risk exposure and provides us with greater actuarial stability, predictability and reliable returns. We believe that for investors, owning a well-diversified portfolio
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of life insurance policies provides a unique investment opportunity. We believe the potential investment returns from life insurance policies are attractive due to the fact they are not correlated to general economic or financial market conditions and derived from investment grade credits. In addition, Conning Research & Consulting (Conning) estimates that the total market potential for policies that could be sold in the secondary market was $193 billion in face value in 2014. This figure compares to the $2.6 billion in face value of policy benefits that Conning estimates actually sold in the secondary market in 2013. Accordingly, we believe that the secondary market is still emerging, having a 1.3% market penetration rate during 2013. As the senior population ages, Conning believes that the overall market potential for life insurance policies that could be sold in the secondary market will grow to $233 billion by 2023. We believe that socio-economic and demographic trends support the long-term development and growth of the secondary market for life insurance, and that the secondary market for life insurance represents a significant and expansive market opportunity.
What is your business strategy?
Our business strategy is to purchase a large and well-diversified portfolio of life insurance policy assets at discounts to their face value of the policy benefits sufficient enough to generate profitable returns. In addition, we seek to bring the value of the secondary market for life insurance to a broader senior consumer market. In order to meet our goals, we have spent and intend to continue to spend significant resources: (i) developing a robust operational platform and systems for originating and purchasing life insurance policies; (ii) obtaining requisite licensure to participate in the life insurance secondary market; (iii) developing financing resources, strategies, and capabilities for servicing a large portfolio of life insurance policies; (iv) recruiting and developing a professional management team; and (v) establishing strategic relationships for delivering its services. We are currently focused on investments in universal life insurance policies.
Operationally, we generally transact directly with the policy owner who originally purchased the life insurance in the primary market through a network of life insurance agents, life insurance brokers, and licensed providers who assist policy owners in accessing the secondary market. We have been expanding our origination practice by marketing to consumers through various marketing initiatives.
Who might benefit from an investment in Redeemable Preferred Stock?
An investment in our Redeemable Preferred Stock may be beneficial for you if seek to add to your personal portfolio an investment focused in our industry or that is otherwise not correlated to the financial markets, and are able to hold your investment indefinitely. Our Redeemable Preferred Stock will not be an appropriate investment for persons who need or may need immediate liquidity.
How long will this offering last?
The offering is a continuous offering. Under SEC rules, the offering under this registration statement will expire after three years from the date of its effectiveness. We may, however, conduct similar or identical offerings during this same time or afterwards. We may also decide to terminate this offering at any time.
Will I be notified of how my investment is doing?
We will provide you with periodic updates on our performance through periodic filings we make with the SEC. Such filings will include: (i) three quarterly financial reports; (ii) one annual report; (iii) supplements and amendments to this offering, as appropriate; and (iv) such other reports as required under Sections 13 and 15(d) of the Securities Exchange Act of 1934. Such information is also available on our corporate website at www.gwglife.com.
Who can help answer my questions about the offering?
If you have more questions about the offering, you should contact a registered representative of your broker-dealer or other investment professional, or else contact:
GWG Holdings, Inc.
220 South Sixth Street, Suite 1200
Minneapolis, MN 55402
(612) 746-1944
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PROSPECTUS SUMMARY
This summary highlights some of the information in this prospectus. It is not complete and may not contain all of the information that you may want to consider. To understand this offering fully, you should carefully read the entire prospectus, including the section entitled “Risk Factors,” and the documents which are incorporated, or deemed to be incorporated, by reference into this prospectus, before making a decision to invest in our Redeemable Preferred Stock. Unless otherwise noted or unless the context otherwise requires, the terms “we,” “us,” “our,” the “Company” and “GWG” refers to GWG Holdings, Inc. together with its wholly owned subsidiaries. In instances where we refer emphatically to “GWG Holdings” or “GWG Holdings, Inc.,” or where we refer to a specific subsidiary of ours by name, we are referring only to that specific legal entity.
Our Company
We are a specialty finance company and a leader in purchasing life insurance policies in the secondary market. The life insurance secondary market has evolved to allow for the purchase and sale of a life insurance policy through a process known as a senior life settlement. A senior life settlement allows a senior consumer to sell an existing life insurance policy to a financial buyer, such as us, for more than its cash surrender value but less than the face value of the policy benefit. When we purchase a life insurance policy, we continue paying the policy premiums until we collect the face value of the policy benefit. We expect to profit from the difference between the cost of purchasing, paying the related premiums, and financing the life insurance policy, and the face value of the life insurance policy benefit we ultimately receive upon the insured’s mortality.
We seek to purchase life insurance policies from senior consumers, typically 65 years and older, who can benefit from the actuarial value of their life insurance policy. We provide seniors and their families with valuable services addressing the financial challenges and needs that arise after retirement. We have found that, where our services are appropriate, we offer significant value to our senior consumers over the cash surrender value offered by insurance carriers. For example, over our history, we have paid senior consumers over $291.6 million for their life insurance policies, which is $273.8 million more than the cash surrender value offered by the insurance carriers.
We seek to build a profitable and large portfolio of life insurance policy assets that are well diversified in terms of insurance carriers, mortality profiles and the medical conditions of insureds. We seek to own a diversified portfolio of life insurance policies because we believe this approach lowers our overall risk exposure and provides us with greater actuarial stability, predictability and reliable returns. We believe that for investors, owning a well-diversified portfolio of life insurance policies provides a unique investment opportunity. We believe the potential investment returns from life insurance policies are attractive due to the fact they are not correlated to general economic or financial market conditions and are derived from investment grade credits. To obtain the growth and diversification we seek, we have raised capital through a variety of financing efforts that have included the public offering of our common stock, private and public offerings of structured debt securities, private offerings of preferred stock, and a senior secured revolving credit facility. This offering of Redeemable Preferred Stock is a further extension of that strategy, and presents investors with an opportunity to participate in our business and the growth of the secondary market for life insurance.
The market for the senior consumers we serve is large and growing. According to the U.S. Census Bureau, the senior population represents the fastest growing demographic segment in the United States. The number of seniors in the United States, age 65 years and older, is expected to increase according to the U.S. Census Bureau. In addition, according to the American Council of Life Insurers Fact Book 2014 (ACLI), consumers owned over $11.4 trillion in face value of life insurance policy benefits and lapsed and surrendered over $639 billion in face value of policy benefits surrendered in 2013 alone in the United States. This figure includes all types of life insurance policies, including term and permanent insurance known as whole life, universal life, variable life, and variable universal life, and all ages of policy owners. Consumers surrender their life insurance or allow it to lapse for a variety of reasons, including (i) the policy is no longer needed, (ii) the policy premiums are no longer affordable, or (iii) there were unrealistic financial assumptions made when the policy was purchased.
As a result, Conning Research & Consulting (Conning) estimates that the total market potential for policies that could be sold in the secondary market was $193 billion in face value in 2014. This figure compares to the $2.6 billion in face value of policy benefits that Conning estimates actually sold in the secondary market in 2013. Accordingly, we believe that the secondary market is still emerging, having only a 1.3% market penetration rate during 2013. In addition, as the senior population ages, Conning believes that the net market potential for life insurance policies
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that could be sold in the secondary market will grow to $233 billion by 2023. We believe that socio-economic and demographic trends support the long-term development and growth of the secondary market for life insurance, and that the secondary market for life insurance represents a significant and expansive market opportunity.
The secondary market for life insurance has developed in response to the large volume of policy lapses and surrenders. Rather than allowing a policy to lapse as worthless, or surrendering a life insurance policy at a fraction of its inherent value, the secondary market can be a source of significant value to consumers. The inherent actuarial value of a policy in the life insurance secondary market often exceeds the cash surrender value offered by the insurance carrier. Without the development of the secondary market, insurance carriers would maintain monopsony power over the options offered to consumers who no longer want, need or can afford their life insurance.
We believe that we are uniquely positioned to capitalize on this opportunity by providing value-added services to the consumers we serve and new investment opportunities for investors, where both participants can profit. To participate and compete in our growing market, we have spent and intend to continue to spend significant resources: (i) developing a robust operational platform and systems for originating and purchasing life insurance policies; (ii) obtaining requisite licensure to participate in the life insurance secondary market; (iii) developing financing resources, strategies, and capabilities for servicing a large portfolio of life insurance policies; (iv) recruiting and developing a professional management team; and (v) establishing strategic relationships for delivering our services.
Since our formation in 2006, we have evaluated over 38,000 policies and acquired over $1.7 billion in face value of life insurance policy benefits in the secondary market. In 2008, after selling approximately $1 billion in face value of life insurance policy benefits, we adopted our current buy-and-hold strategy of investing in portfolio life insurance assets and offering investors the opportunity to finance our ownership of the portfolio. As of June 30, 2015, we owned approximately $806 million in face value of life insurance policy benefits with an aggregate cost basis (i.e., acquisition and related premiums and financing costs) of approximately $298 million.
Life Insurance Portfolio Summary
Our portfolio of life insurance policies, owned by our subsidiaries as of June 30, 2015, is summarized below:
Total portfolio face value of policy benefits |
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806,274,000 |
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Average face value per policy |
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2,567,000 |
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Average face value per insured life |
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2,819,000 |
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Average age of insured (yrs.) |
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82.9 |
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Average life expectancy estimate (yrs.) |
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6.56 |
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Total number of policies |
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314 |
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Number of unique lives |
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286 |
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Gender |
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68% Males; 32% Females |
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Number of smokers |
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4 |
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Largest policy as % of total portfolio |
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1.24 |
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Average policy as % of total portfolio |
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0.32 |
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Average annual premium as % of face value |
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3.34 |
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All of our services are premised on financial and actuarial modeling that assigns a present value to the face value of an insurance policy benefit. In this regard, the actuarial value we assign to a life insurance asset in the secondary market is primarily a function of: (i) the face value of the life insurance policy or portion thereof we may wish to acquire; (ii) the estimated life expectancy of the individual insured under the policy; (iii) the premiums expected to be paid over the life of the insured; (iv) market competition from other purchasers in the secondary market; and (v) the particular underwriting characteristics of the policy, relative to the characteristics of our portfolio of life insurance assets as a whole.
The types of policies we typically, but not always, acquire are universal life insurance policies. Universal life insurance is a type of permanent life insurance in which premium payments above the cost of insurance are credited to the “cash value” of the policy. The cash value is credited each month with interest based on the terms of the insurance policy agreement. If a universal life insurance policy were to lapse, the insured or other owner of the policy would nonetheless have a right to receive the “cash surrender value” of the policy. The cash surrender value is the cash value of the policy, less any surrender charges imposed by the insurance company on a cash value distribution. Our services
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provide greatest value to a consumer when the actuarial value of the life insurance policy benefit exceeds the cash surrender value of the policy—which is often the case. We also provide services to consumers who own term life insurance. Unlike permanent universal life insurance, term life insurance does not have a cash value associated with it. Nevertheless, most term insurance policies permit the policy to be converted into permanent universal life insurance. In the future, we may consider offering services in conjunction with variable universal life insurance, which differs from universal insurance in that the “variable” component of the policy involves the ownership of securities inside the policy. Regardless of the type of policy, we generally seek to purchase life insurance policies issued by rated life insurance carriers with investment grade credit ratings by Standard & Poor’s (AAA through BBB-), Moody’s (Aaa through Baa3), or A.M. Best Company (aaa through bbb). As of June 30, 2015, 99.5% of life insurance policies in our portfolio were issued by companies rated “BBB-” or better under Standard & Poor’s rating system.
Before acquiring a life insurance asset, we value the related life insurance policy by conducting an underwriting review. Our present underwriting review process generally involves obtaining two life expectancy estimates on each insured from third-party medical-actuarial firms, and then averaging these two estimates. On occasion, we may obtain more than two life expectancy estimates, in which case we average the two life expectancy estimates that we believe are the most reliable, based on our own analyses and conclusions. In this regard, the two life expectancy estimates we ultimately choose to average may not always be the most conservative estimates we obtain. From time to time and as permitted by applicable borrowing covenants, we may modify our underwriting review process. For example, in anticipation of our planned marketing efforts, we recently changed our definition of a “small face policy” as a policy having a face value equal to or less than $1,000,000 in policy benefits. Prior to this change, a small face policy was one having a face value equal to or less than $250,000. For small face policies, rather than obtaining life expectancy estimates from third-party medical-actuarial firms, we may employ a modified underwriting review process involving the use of a combination of standard mortality tables, actuarial or medical consultants, and our own analysis to develop a life expectancy estimate for an insured.
We generally purchase life insurance policies directly from the owner who originally purchased the policy. Occasionally, we may purchase life insurance policies from other financial buyers who have purchased life insurance policies and are now selling their policies. Historically, we have purchased policies in the secondary market through a network of life insurance agents, life insurance brokers, and licensed providers who assist policy owners in accessing the secondary market. Since the fourth quarter of 2014, we have been expanding our origination practice by marketing directly to consumers through various marketing initiatives. Recently, we engaged a strategic partner in the development of a specialized service center whose focus is sourcing qualified leads and processing life insurance policies directly for our purchase. In conjunction with these activities, we are in in the final stages of implementing new systems, processes and protocols with respect to our direct to consumer lead generation and life insurance policy origination protocols and practices. These implementations include streamlined underwriting process for small face policies in order to efficiently acquire life insurance policies directly from consumers.
In addition to our direct to consumer origination efforts, we have developed and expanded our “Appointed Agent Program” to address what we see as a growing need for value-added post-retirement financial services to seniors owning life insurance. Our Appointed Agent Program empowers financial professionals to bring the secondary market’s value proposition directly to consumers owning life insurance. Central to the Appointed Agent Program is education, training, and marketing that support and empower financial professionals to offer clients significant value with a program that emphasizes regulatory compliance. Since its beginning in 2014, the number of financial professionals sourcing life insurance policies directly under our Appointed Agent Program has increased to over 850 at June 30, 2015. Many of the financial professionals who distribute our investment products also participate in our Appointed Agent Program. This dual offering enables financial professionals the opportunity to develop expertise in our business model and a differentiating specialization for their financial practice. In conjunction with these activities, we have continued to sharpen our service offerings and marketing tools available to broker-dealers and financial advisors who seek to market our product and services. These offerings have, in turn, led to an increasing acceptance by the financial profession of our business model and industry practices. While these efforts are ongoing, the early outcomes from both the Appointed Agent Program and our other direct to consumer efforts are encouraging. We have experienced a significant increase in the number of life insurance policies that are now in our origination pipeline from these sources. We expect to complete our initial development efforts on these systems, including technology, reporting, processing, and underwriting protocols in 2015. When in place, we believe these efforts will be able to scale for increased volume and provide us with a unique corporate value proposition.
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We have built our business on what we believe to be the following competitive strengths:
• Industry Experience : We have actively participated in the development of the secondary market of life insurance as a purchaser and financier within the asset class since 2006. Our position within the marketplace has allowed us to gain a deep understanding of the life insurance secondary market. We have participated in the leadership of various industry associations and forums, including the Life Insurance Settlement Association (LISA) and the Insurance Studies Institute (ISI). Our experience gives us confidence to compete in the industry and acquire a portfolio of life insurance policies that we expect to perform to our expectations.
• Operational Platform : We have built and continue to refine and develop both an operational platform and systems for efficiently tracking, processing, and servicing life insurance policies that we believe provide competitive advantages when participating in the life insurance secondary marketplace.
• Underwriting Practices : We seek to use underwriting review processes and file documentation standards that generally meet published guidelines for rated securitizations of life insurance portfolios. We purchase life insurance policies we consider to be non-contestable and that meet our underwriting criteria and reviews. We consider a life insurance policy to be “non-contestable” once applicable state law prohibits the insurer from challenging the validity of the policy due to fraud. In this regard, state non-contestability laws generally require a period of one to two years to elapse after the initial issuance of the policy before that policy is considered non-contestable. Non-contestability laws do not, however, prevent an insurer from challenging the validity of a policy procured by fraud for lack of an insurable interest at the time at which the policy was purchased, such as is the case with so-called “stranger-originated” life insurance policies. To the extent we use modified methodologies for estimating life expectancies for small face policies, those modified methodologies may not meet published guidelines for rated securitizations of life insurance portfolios.
• Origination Relationships and Strategies : We have established origination relationships with life insurance policy brokers and insurance agents who submit policies for our purchase or financing. Our referral base knows our underwriting standards for purchasing life insurance policies in the secondary market, which gives us confidence in our bidding and closing processes and streamlines our own due-diligence process. We have expanded our origination strategies to include direct-to-consumer marketing and our Appointed Agent Program. We believe the expansion of these origination strategies is unique within the marketplace.
• Life Expectancy Methodology : We generally rely on two life expectancy estimates obtained from independent third-party medical-actuarial underwriting firms to arrive at a life expectancy estimate we use for valuing a life insurance asset. For a majority of our life insurance asset purchases, we rely on estimates obtained from 21 st Services and AVS Underwriting to develop our life expectancy estimate. We may, however, also obtain and use life expectancy estimates from other medical-actuarial underwriting firms. As explained above, we may from time to time modify our underwriting review processes, including our methodology for arriving at life expectancy estimates we use in ascribing value to life insurance assets.
• Pricing Software and Methodology : To calculate our expected returns on the investments we make in life insurance assets, we use actuarial pricing methodologies and software tools built by a leading independent actuarial service firm and currently supported by Modeling Actuarial Pricing Systems, Inc. (“MAPS”).
• Financing Strategy : We have actively developed a diversified financing strategy for accessing capital markets in support of our strategy of purchasing and owning our portfolio of life insurance policies, ranging from institutional bank financing to working through a network of broker-dealers registered with the Financial Industry Regulatory Authority (“FINRA”) and who participate in one or more of our investment offerings, including our current L Bond offering. If in the future we decide to offer different kinds of investment products, we expect to leverage the network of broker-dealers that we have built over time.
Our business involves a number of challenges and risks described in more detail elsewhere in this prospectus, including the following:
• Relatively New Market : Investing in life insurance assets in the secondary market is a relatively new and evolving market. Our ability to source and invest in life insurance assets at attractive prices materially
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depends on the continued growth of the secondary market for life insurance and the continued solvency of the life insurance companies that pay the face value of life insurance policy benefits.
• Asset Valuation Assumptions : The valuation of our portfolio life insurance assets—the principal asset on our balance sheet—requires us to make material assumptions that may ultimately prove to be incorrect. These assumptions include appropriate discount rates, cash flow projections, and the life expectancy estimates we use for these purposes, any of which may ultimately prove to be inaccurate.
• Ability to Expand Our Portfolio : Our business model requires us to achieve actual results that are in-line with our expectations, from our investments in life insurance assets. In this regard, we believe that the larger the portfolio of life insurance assets we own, the greater likelihood there is that we will achieve results matching our expectations. Although we plan to expand the number of investments in life insurance assets using proceeds from the sale of our L Bond offering and from our sale of Redeemable Preferred Stock in this offering, we may be unable to meet this goal. Furthermore, even if we successfully grow our portfolio of life insurance assets, we nevertheless may not achieve the results we expect.
• Reliance on Financing : To date, we have chosen to finance our business almost entirely through the issuance of debt, including, in addition to this offering, the sale of L Bonds in an ongoing continuous offering, Series I Secured Notes, and our use of a senior secured revolving credit facility. Our business model expects that we will have continued access to financing (including financing to expand or replace our existing financing) in order to purchase and finance a large and diversified portfolio of life insurance assets, and thereafter pay the attendant premiums and financing costs of maintaining that portfolio. We will be required to rely on our access to financing to pay premiums, interest and dividends until such time as we begin receiving significant revenues from the receipt of life insurance policy benefits from our portfolio. Even if we obtain the financing we require, we may not receive life insurance policy benefits that match our cash flow projections or meet them in time to earn profits after the payment of financing costs.
• Risk of Investment in Life Insurance Assets : Our investments in life insurance assets have inherent risks, including fraud and legal challenges to the validity of the life insurance policies. Examples of fraud include the possibility that the seller of a policy may have provided us with inaccurate or misleading information during the underwriting review process.
• Effects of Regulation : Our business is subject to complex state and federal regulation. Changes in state or federal laws and regulations governing our business, or changes in the interpretation of such laws and regulations, could materially and negatively affect our business.
Our business also involves certain challenges and risks described in the “Risk Factors” section of this prospectus and the “Risk Factors” sections of the documents incorporated into this prospectus by reference.
Implications of Being an “Emerging Growth Company”
As a public reporting company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” under the Jumpstart our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of certain reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. In particular, as an emerging growth company we:
• are not required to obtain an attestation and report from our auditors on our management’s assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002;
• are not required to provide a detailed narrative disclosure discussing our compensation principles, objectives and elements and analyzing how those elements fit with our principles and objectives (commonly referred to as “compensation discussion and analysis”);
• are not required to obtain a non-binding advisory vote from our stockholders on executive compensation or golden parachute arrangements (commonly referred to as the “say-on-pay,” “say-on-frequency” and “say-on-golden-parachute” votes);
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• are exempt from certain executive compensation disclosure provisions requiring a pay-for-performance graph and CEO pay ratio disclosure;
• may present only two years of audited financial statements and only two years of related Management’s Discussion & Analysis of Financial Condition and Results of Operations, or MD&A; and
• are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act.
We intend to take advantage of all of these reduced reporting requirements and exemptions, including the longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. Our election to use the phase-in periods may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the phase-in periods under §107 of the JOBS Act.
Certain of these reduced reporting requirements and exemptions were already available to us due to the fact that we also qualify as a “smaller reporting company” under SEC rules. For instance, smaller reporting companies are not required to obtain an auditor attestation and report regarding management’s assessment of internal control over financial reporting; are not required to provide a compensation discussion and analysis; are not required to provide a pay-for-performance graph or CEO pay ratio disclosure; and may present only two years of audited financial statements and related MD&A disclosure.
Under the JOBS Act, we may take advantage of the above-described reduced reporting requirements and exemptions for up to five years after our initial sale of common equity pursuant to a registration statement declared effective under the Securities Act of 1933, or such earlier time that we no longer meet the definition of an emerging growth company. In this regard, the JOBS Act provides that we would cease to be an “emerging growth company” if we have more than $1 billion in annual revenues, have more than $700 million in market value of our common stock held by non-affiliates, or issue more than $1 billion in principal amount of non-convertible debt over a three-year period. Furthermore, under current SEC rules we will continue to qualify as a “smaller reporting company” for so long as we have a public float (i.e., the market value of common equity held by non-affiliates) of less than $75 million as of the last business day of our most recently completed second fiscal quarter.
Corporate Organization
Our business was organized in February 2006. As a parent holding company, GWG Holdings was incorporated on March 19, 2008, as a limited liability company. On June 10, 2011, GWG Holdings converted from a Delaware limited liability company to a Delaware corporation through the filing of statutory articles of conversion. In connection with the conversion, each class of limited liability company membership interests in GWG Holdings, LLC was converted into shares of common stock of GWG Holdings, Inc. Our corporate structure, including our principal subsidiaries, is as follows:
GWG Life, LLC (a Delaware limited liability company formerly known as GWG Life Settlements, LLC), is a licensed life settlement provider and the guarantor of the obligations of GWG Holdings under our L Bonds. GWG DLP Funding II, LLC (a Delaware limited liability company), or DLP Funding II, and GWG DLP Funding III,
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(a Delaware limited liability company), or DLP Funding III, are each wholly owned special-purpose subsidiaries owning life insurance policies and co-borrowers under our revolving line of credit from Autobahn/DZ Bank. The life insurance assets owned by DLP Funding II are held in the GWG DLP Master Trust II (a Delaware statutory trust). The trust exists solely to hold the collateral security (i.e., life insurance policies) granted to Autobahn/DZ Bank under our revolving line of credit. DLP Funding II is the beneficiary under that trust.
On June 24, 2014, we effected a 1-for-2 share combination (reverse stock split) of our issued and outstanding common stock. Unless otherwise expressly indicated herein, all common share figures contained in this prospectus have been adjusted to reflect the effectiveness of this share combination.
On September 24, 2014, we consummated an initial public offering of our common stock that involved the listing of our common stock on The NASDAQ Capital Market effective September 25, 2014.
Our principal executive offices are located at 220 South Sixth Street, Suite 1200, Minneapolis, Minnesota 55402 and our telephone number is (612) 746-1944. Our website address is www.gwglife.com . The information on or accessible through our website is not part of this prospectus.
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The Offering
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GWG Holdings, Inc. |
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Investors may pay cash or exchange their outstanding debt securities issued by the Company in satisfaction of the aggregate purchase price for the Redeemable Preferred Stock. |
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Minimum Investment |
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The minimum investment amount is generally $10,000, but we may accept purchases of less than $10,000 in our discretion. |
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Offering Price |
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$1,000 per share of Redeemable Preferred Stock. |
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Redeemable Preferred Stock |
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Ranking . The Redeemable Preferred Stock ranks senior to our common stock, pari passu to our Series A Convertible Preferred Stock and senior or pari passu with all other classes and series of our preferred stock, with respect to payment of dividends and rights upon liquidation, dissolution or winding up. |
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“Pari passu” means that in determining priority of payment in respect of entitlement to dividends and rights upon our liquidation, winding-up or dissolution, the holders of our Redeemable Preferred Stock, together with the holders of any other class of “pari passu” equity, will be treated equally and without preference. |
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Stated Value . Each share of Redeemable Preferred Stock will have an initial “Stated Value” of $1,000, subject to appropriate adjustment upon certain events such as recapitalizations, stock dividends, stock splits, stock combinations, and reclassifications, as set forth in the Certificate of Designation for the Redeemable Preferred Stock. |
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Dividends . Holders of Redeemable Preferred Stock are entitled to receive, when and as declared by our Board of Directors out of legally available funds, cumulative cash dividends on each share of Redeemable Preferred Stock at an annual rate of 7.00% of the Stated Value of such share. Dividends are payable in monthly installments on the first day of each month (or the next following business day thereafter in the event such date is not a business day). Dividends on each share of Redeemable Preferred Stock will begin accruing on, and will be cumulative from, the date of issuance and regardless of whether our Board of Directors declares and pays such dividends. |
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In the event that our Certificate of Incorporation, as amended, provisions of Delaware law or our borrowing agreements prohibit us from paying dividends in cash, and if we do not pay dividends in the form of preferred stock as described below, unpaid dividends will cumulate. |
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At our option, we may pay dividends in the form of duly authorized, validly issued, fully paid and non-assessable shares of the Redeemable Preferred Stock. Any Redeemable Preferred Stock we issue in satisfaction of our dividend-payment obligations will be valued at the Stated Value of such shares. |
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At or prior to such time as dividends are due and payable, a holder of Redeemable Preferred Stock may elect to receive all or any portion of such holder’s accrued but unpaid dividends in the form of additional shares of Redeemable Preferred Stock, with each share having a value equal to the Stated Value. In order to exercise this option, a holder must deliver written notice to us before such dividends are paid. A holder may change his, her or its election to receive dividends in the form of cash or shares one time per calendar year. |
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No commissions or additional compensation will be payable on preferred shares issued in satisfaction of our dividend-payment obligations. |
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Voting Rights . The Redeemable Preferred Stock has no voting rights. |
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Redemption Request at the Option of a Holder . Beginning one year from the date of original issuance of any shares of Redeemable Preferred Stock to be redeemed, a holder will have the opportunity to request once per calendar quarter that we redeem up to 25% of such holder’s Redeemable Preferred Stock originally purchased from us (plus any preferred shares issued in satisfaction of dividends thereon) at a redemption price equal to the Stated Value of such redeemed shares, plus any accrued but unpaid dividends thereon, less the applicable redemption fee (if any). As a percentage of the aggregate redemption price of a holder’s shares to be redeemed, the redemption fee shall be: • 8% if the redemption is requested after the first anniversary and before the second anniversary of the original issuance of such shares. • 5% if the redemption is requested after the second anniversary and before the third anniversary of the original issuance of such shares. Beginning three years from the date of original issuance of such shares, no redemption fee shall be subtracted from the redemption price. |
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Optional Repurchase Upon Death, Disability or Bankruptcy of a Holder . Subject to certain restrictions and conditions, we will also redeem shares of Redeemable Preferred Stock of a holder who is a natural person (including an individual beneficial holder who holds our preferred shares through a custodian or nominee, such as a broker-dealer) upon his or her death, total disability or bankruptcy, within 60 days of our receipt of a written request from the holder or the holder’s estate at a redemption price equal to the Stated Value, plus accrued and unpaid dividends thereon.
A “total disability” means a determination by a physician approved by us that a holder, who was gainfully employed and working on a full-time basis as of the date on which his or her Redeemable Preferred Stock was purchased, has been unable to work on a full-time basis for at least 24 consecutive months. In this regard, the Certificate of Designation for the Redeemable Preferred Stock defines working “on a full-time basis” to mean working at least 40 hours per week. |
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Optional Redemption by the Company . After one year from the date of original issuance of shares of Redeemable Preferred Stock, we will have the right (but not the obligation) to call and redeem such shares of Redeemable Preferred Stock at 100% of their Stated Value, plus any accrued but unpaid dividends thereon. |
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Restrictions on Redemption and Repurchase . We will not be obligated in all cases to redeem shares of Redeemable Preferred Stock, whether upon a redemption request by a holder, at the option of the Company, or upon the death, total disability or bankruptcy of a holder. In particular, we will not redeem or repurchase any preferred shares if we are restricted by applicable law or our Certificate of Incorporation, as amended, from making such redemption or to the extent any such redemption would cause or constitute a default under any borrowing agreements to which we or any of our subsidiaries are a party or otherwise bound. In addition, we will have no obligation to redeem preferred shares upon a redemption request made by a holder if we do not have sufficient funds available to fund that redemption. We will have discretion under the Certificate of Designation for the Redeemable Preferred Stock to determine whether we are in possession of “sufficient funds” to fund a redemption request. To the extent we have requests for redemptions that we are unable to satisfy, we will honor these redemptions promptly after we become able to do so, with all such deferred requests being satisfied on a prorated basis, regardless of the order in which we received the requests. |
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Conversion by a Holder . Subject to the limitations described below, holders of Redeemable Preferred Stock will have the option to convert the Redeemable Preferred Stock they purchase from us and hold into common stock at a conversion price equal to the volume-weighted average price of our common stock for the 20 trading days immediately prior to the date on which notice of conversion is delivered to us, subject to a minimum conversion price of $15.00. This minimum conversion price will be equitably adjusted upon customary events affecting our share capital, such as stock dividends, subdivisions (splits), and combinations.
The right of holders to convert their Redeemable Preferred Stock is limited to 15% of the Stated Value of Redeemable Preferred Stock originally purchased by such holder from us and still held by such holder. For this purpose, shares of Redeemable Preferred Stock issued to holders in satisfaction of our dividend-payment obligations will not count as shares “originally purchased” from us.
In the event that we deliver a notice of proposed redemption of an investor’s preferred shares (see the caption “Optional Redemption by the Company” above), the right of a holder to convert those shares into our common stock will be suspended until the redemption date. If, however, we do not consummate the redemption on the redemption date, then the suspension on the right to convert will terminate and holders will once again have the right to convert their preferred shares into our common stock. |
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Liquidation Preference . Upon any voluntary or involuntary liquidation, dissolution or winding-up of our affairs, before any distribution or payment shall be made to holders of our common stock or any other class or series of capital stock ranking junior to our shares of Redeemable Preferred Stock, the holders of shares of Redeemable Preferred Stock will be entitled to be paid out of our assets legally available for distribution to our stockholders, after payment or provision for our debts and other liabilities, a liquidation preference equal to the Stated Value per share, plus accrued but unpaid dividends thereon. |
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Capital stock outstanding before this offering |
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Capital stock outstanding after this offering |
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Use of Proceeds |
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If all the Redeemable Preferred Stock is sold for cash, we would expect to receive up to approximately $91,700,000 of net proceeds from this offering after deducting estimated offering expenses, including selling commissions and additional compensation, and our own offering-related expenses. There is no minimum amount of Redeemable Preferred Stock that must be sold before we access investor funds.
We intend to use a majority of the net cash proceeds from this offering to acquire additional life insurance policy assets. We intend to use the remaining net proceeds from this offering for certain other business expenditures, including without limitation to make payments of premiums on life insurance policy assets we own, to redeem shares of Series A Convertible Preferred Stock, to repay principal and interest on debt as it becomes due, to make strategic acquisitions of other yield-bearing assets, and for general working capital purposes. See “Use of Proceeds” for additional information. |
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No Market for Redeemable Preferred Stock; Transferability |
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Tax Matters
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Dividends received by individual holders of Redeemable Preferred Stock will generally be subject to a tax rate of 15% to 20% if such dividends are treated as “qualified dividend income” for U.S. federal income tax purposes, depending on the ordinary income tax bracket of the individual holder. The treatment of dividends received as qualified dividends is limited under certain circumstances. Please see “Material Federal Income Tax Considerations.” |
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Covered Security |
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Our Redeemable Convertible Stock is a “covered security.” The term “covered security” applies to securities exempt from state registration pursuant to Section 18 of the Securities Act of 1933. Generally, securities listed on national exchanges are the most common type of covered security exempt from state registration. A non-traded security also can be a covered security if it has a seniority greater than or equal to other securities from the same issuer that are listed on a national exchange. Our Redeemable Preferred Stock is a covered security because they will be senior to our common stock, which is listed on The NASDAQ Capital Market, and therefore our offering of Redeemable Preferred Stock is exempt from state registration. |
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Risk Factors |
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An investment in the Redeemable Preferred Stock involves significant risks, including the risk of losing your entire investment. For a summary of risks relating to this offering and our Company and business, please see “Risk Factors,” page 13. |
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RISK RELATING TO FORWARD-LOOKING STATEMENTS
Certain matters discussed in this prospectus contain forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions about our operations and the investments we make, including, among other things, factors discussed under the heading “Risk Factors” in this prospectus and the following:
• changes in the secondary market for life insurance;
• our limited operating history;
• the valuation of assets reflected on our financial statements;
• the reliability of assumptions underlying our actuarial models, including our life expectancy estimates;
• our reliance on debt financing;
• risks relating to the validity and enforceability of the life insurance policies we purchase;
• our reliance on information provided and obtained by third parties;
• federal, state and FINRA regulatory matters;
• competition in the secondary market of life insurance;
• the relative illiquidity of life insurance policies;
• our ability to satisfy our debt obligations if we were to sell our entire portfolio of life insurance policies;
• life insurance company credit exposure;
• general economic outlook, including prevailing interest rates;
• performance of our investments in life insurance policies;
• financing requirements;
• litigation risks;
• restrictive covenants contained in borrowing agreements; and
• our ability to make cash distributions in satisfaction of dividend obligations and redemption requests.
Forward-looking statements can be identified by the use of words like “believes,” “could,” “possibly,” “probably,” “anticipates,” “estimates,” “projects,” “expects,” “may,” “will,” “should,” “seek,” “intend,” “plan,” “expect,” or “consider” or the negative of these expressions or other variations, or by discussions of strategy that involve risks and uncertainties. All forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual transactions, results, performance or achievements to be materially different from any future transactions, results, performance or achievements expressed or implied by such forward-looking statements.
We base these forward-looking statements on current expectations and projections about future events and the information currently available to us. Although we believe that the assumptions for these forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Consequently, no representation or warranty can be given that the estimates, opinions, or assumptions made in or referenced by this prospectus will prove to be accurate. Some of the risks, uncertainties and assumptions are identified in the discussion entitled “Risk Factors” in this prospectus. We caution you that the forward-looking statements in this prospectus are only estimates and predictions, or statements or current intent. Actual results or outcomes, or actions that we ultimately undertake, could differ materially from those anticipated in the forward-looking statements due to risks, uncertainties or actual events differing from the assumptions underlying these statements. These risks, uncertainties and assumptions include, but are not limited to, those discussed in this prospectus.
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RISK FACTORS
An investment in our securities involves a high degree of risk. Before purchasing the securities offered by this prospectus, you should carefully consider the risks, uncertainties and additional information (i) set forth in our most recent Annual Report on Form 10-K filed with the SEC on March 13, 2015, our Quarterly Reports on Form 10-Q filed on with the SEC on August 13, 2015 and on May 14, 2015, Current Reports on Form 8-K filed with the SEC on August 11, 2015, June 2, 2015, May 13, 2015, May 12, 2015, May 6, 2015, and February 18, 2015, and our definitive proxy statement filed with the SEC on April 30, 2015, all which are incorporated by reference into this prospectus, and (ii) contained herein or in any applicable prospectus supplement. For a description of these reports and documents, and information about where you can find them, see “Where You Can Find More Information” and “Incorporation of Certain Documents By Reference.” The risks and uncertainties in this prospectus and in the documents incorporated, or deemed to be incorporated, by reference in this prospectus are those that we currently believe may materially impact the Company. Additional risks not presently known or are currently deemed immaterial could also materially and adversely affect our financial condition, results of operations, business and prospects.
There is no public market for our Redeemable Preferred Stock and we do not expect one to develop.
There is no public market for our Redeemable Preferred Stock offered in this offering, and we currently have no plan to list these securities on a securities exchange or to include these shares for quotation on any national securities market. Additionally, our charter contains restrictions on the ownership and transfer of our securities, and these restrictions may inhibit your ability to sell the Redeemable Preferred Stock promptly or at all. If you are able to sell the Redeemable Preferred Stock, you may only be able to sell them at a substantial discount from the price you paid. Therefore, you should purchase the Redeemable Preferred Stock only as a long-term investment. Beginning one year from the date of original issuance, the holder of shares of Redeemable Preferred Stock may request that we redeem such shares, with the redemption price payable in cash. Nevertheless, we will have no obligation to redeem preferred shares upon a redemption request made by a holder if we do not have sufficient funds available to fund that redemption and, in this regard, the Certificate of Designation for the Redeemable Preferred Stock provides us with significant discretion to determine whether we are in possession of “sufficient funds” to fund a redemption request.
We will be required to terminate this offering if our common stock is no longer listed on The NASDAQ Capital Market or another national securities exchange.
The Redeemable Preferred Stock is a “covered security” and therefore is not subject to registration under the state securities (i.e., blue sky), regulations in the various states in which it may be sold due to its seniority to our common stock, which is listed on The NASDAQ Capital Market. If our common stock is no longer listed on the The NASDAQ Capital Market or another national securities exchange, we will be required to register this offering in any state in which we subsequently offer the Redeemable Preferred Stock. This would require the termination of this offering and could result in our raising an amount of gross proceeds that is substantially less than the amount of the gross proceeds we expect to raise if the maximum offering is sold. This would reduce our ability to make additional investments and limit the diversification of our portfolio.
There may not be a broad market for our common stock, which may cause our common stock to trade at a discount and make it difficult for you to sell the common stock into which your Redeemable Preferred Stock is convertible.
Our common stock into which the Redeemable Preferred Stock is convertible trades on The NASDAQ Capital Market under the symbol “GWGH.” Listing on The NASDAQ Capital Market another national securities exchange does not ensure an actual or active market for our common stock. Accordingly, an actual or active market for our common stock may not be maintained, the market for our common stock may not be liquid, the holders of our common stock may be unable to sell their shares of our common stock, and the prices that may be obtained in a sale of our common stock that your receive upon the conversion of your Redeemable Preferred Stock may not reflect the underlying value of our assets and business.
You may not be able to redeem your shares of Redeemable Preferred Stock when and as you wish.
You will be entitled periodically to request a redemption of a portion of your Redeemable Preferred Stock once you have held your preferred shares for at least one year . Nevertheless, there is no assurance that we will be able, or willing, to redeem those shares as you may request. The Certificate of Designation for the Redeemable Preferred Stock contains limitations on our ability to redeem preferred shares upon a redemption request, and also provides us with discretion to decline those requests. For example, if either our Certificate of Incorporation, as amended, or applicable
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law prohibits us from using funds to redeem your preferred shares when requested, we will not be under any obligation to redeem those shares. Similarly, if we or any of our subsidiaries are parties to (or otherwise bound by) an agreement under which we or they have borrowed money, and the consummation of a redemption request would trigger a breach of the borrowing agreement, then we will not be under any obligation to redeem those shares as requested. Finally, and importantly, the Certificate of Designation for the Redeemable Preferred Stock provides us with the right to decline a redemption request in the event we determine that we do not have sufficient funds to fund a redemption request. In this regard, the Certificate of Designation grants us, the Company, with the discretion to determine whether or not we have “sufficient funds” to fund a redemption.
All of these provisions discussed above are in the nature of restrictions and limitations on an investor’s ability to complete a redemption of his, her or its investment in our Redeemable Preferred Stock, and none of these restrictions and limitations (or the determinations upon which they are based) will be within your control. These provisions together create the risk that you, if you invest in these preferred shares, may not be able to redeem your preferred stock when and as you wish. As such, we believe that an investment in our Redeemable Preferred Stock is suited only for investors who will have no need for immediate liquidity in their investment.
We will be able to call your shares of Redeemable Preferred Stock for redemption under certain circumstances without your consent.
We will have the ability to call the outstanding shares of Redeemable Preferred Stock after one year from the date of original issuance of such shares of Redeemable Preferred Stock. At that time, we will have the right to redeem, at our option, the outstanding shares of Redeemable Preferred Stock, in whole or in part, at 100% of the Stated Value per share, plus any accrued and unpaid dividends.
Our limited operating history makes it difficult for you to evaluate our likely performance and this investment.
We are a company with a limited history, which makes it difficult to accurately forecast our earnings and cash flows. During the six months ended June 30, 2015, we had net income of $1.0 million. During the year ended December 31, 2014, we incurred a net loss of $6.0 million, and in the year ended December 31, 2013, we incurred a net loss of $0.2 million. Our lack of a significant history and the evolving nature of the market in which we operate make it likely that there are risks inherent in our business that are yet to be recognized by us or others, or not fully appreciated, and that could result in us earning less than we anticipate or even suffering further anticipated or unanticipated losses. As a result of the foregoing, an investment in our securities necessarily involves uncertainty about the stability of our earnings, cash flows and, ultimately, our ability to service and repay our debt and meet our other obligations. Moreover, we have limited income, cash flow, funds from operations and cash available for distribution from which we can make distributions to holders of the Redeemable Preferred Stock.
You should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies like ours that do not have a substantial operating history, many of which may be beyond our control.
We depend upon cash distributions from our subsidiaries, and contractual restrictions on distributions to us or adverse events at one of our operating subsidiaries could materially and adversely affect our ability to pay our debts and to continue to operate our business, which may harm our financial position and cash flow and potentially impact our ability to pay dividends on or satisfy redemptions for the Redeemable Preferred Stock.
GWG Holdings, Inc. is a holding company. As a holding company, we conduct our operations through our operating subsidiaries, and our only significant assets are the capital stock of our subsidiaries. Accordingly, our ability to meet our cash obligations, including our obligations under the Redeemable Preferred Stock, depends in material part upon the ability of our subsidiaries to make cash distributions to us. In this regard, the ability of our subsidiaries to make distributions to us is, and will continue to be, restricted by certain negative covenants in the agreement governing our revolving credit facility. Our subsidiaries, DLP Funding II and DLP Funding III, are the borrowers under our revolving credit facility. The significant majority of the insurance policies we own are subject to a collateral arrangement with the agent for our revolving credit lender. Under this arrangement, collection and escrow accounts are used to fund purchases of and premiums for our insurance policies and to pay interest and other charges under the revolving credit facility. The lender and its agent must authorize all disbursements from these accounts, including any distributions to GWG Life. Depending on the current advance rate of the facility, distributions may be made directly to GWG Life or may be limited to an amount that would result in the borrowers (us) realizing an annualized rate of return
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on the equity funded amount for such assets of not more than 18%, as determined by the agent. After such amount is reached, the credit agreement requires that excess funds be used to fund repayments or a reserve account in a certain amount, before any additional distributions may be made.
If any of the above limitations were to materially impede the flow of cash to us, such fact would materially and adversely affect our ability to pay cash dividends on or redeem the Redeemable Preferred Stock. In addition, any adverse event at the subsidiary level, such as a declaration of bankruptcy, liquidation or reorganization or an event of default under our revolving credit facility, could materially and adversely affect the ability of our subsidiaries to make cash distributions to us. Just as with a material contractual impediment to cash flow, any such subsidiary corporate event would materially and adversely affect our ability to service and repay our debt and to pay cash dividends on or redeem the Redeemable Preferred Stock, and could negatively impact our ability to continue operations.
We cannot guarantee we will be able to make cash distributions in satisfaction of dividend obligations and redemption requests.
Holders of Redeemable Preferred Stock are entitled to receive, when, and as authorized by our Board of Directors and declared by us out of legally available funds, cumulative cash dividends on each share of Redeemable Preferred Stock at an annual rate of 7.00% of the Stated Value. We expect to pay dividends on the Redeemable Preferred Stock monthly. Nevertheless, provisions of Delaware law, our Certificate of Incorporation, as amended, or our borrowing agreements, may prohibit us from doing so. If our Board of Directors does not declare and pay cash dividends, and if they do not choose to satisfy our dividend-payment obligations by issuing additional shares of preferred stock, then unpaid dividends will cumulate.
Moreover, as we acquire life insurance assets, we will incur substantial costs to perform due diligence tasks and other costs connected with acquiring these assets. The funding source of these costs may be from financing or operating activities. Regardless of the source of funding these acquisition costs, they could have a negative impact on our ability to pay cash dividends.
We established the offering price for the Redeemable Preferred Stock pursuant to negotiations among us and our dealer manager; as a result, the actual value of your investment may be substantially less than what you pay.
The selling price of the Redeemable Preferred Stock has been determined pursuant to negotiations among us and the dealer manager, based upon the following primary factors: the economic conditions in and future prospects for the industry in which we compete; our prospects for future earnings; an assessment of our management; the present state of our development; the prevailing conditions of the equity securities markets at the time of this offering; and current market valuations of public companies considered comparable to our company. Because the offering price is not based upon any independent valuation, the offering price is not indicative of the proceeds that you would receive upon a sale
The Redeemable Preferred Stock will be subordinate in right of payment to any corporate level debt that we incur, and your interests could be diluted by the issuance of additional preferred stock, including additional Redeemable Preferred Stock, and by other transactions.
The Redeemable Preferred Stock will be subordinate in right of payment to any corporate level debt that we incur. The credit agreement for our credit facility includes, and future debt we incur may include, restrictions on our ability to pay cash dividends on our preferred stock, including the Redeemable Preferred Stock. The issuance of additional preferred stock on a parity with or senior to the Redeemable Preferred Stock would dilute the interests of the holders of the Redeemable Preferred Stock, and any issuance of preferred stock senior to the Redeemable Preferred Stock or of additional indebtedness could affect our ability to pay cash dividends on, redeem or ultimately pay the liquidation preference on the Redeemable Preferred Stock. The Redeemable Preferred Stock does not contain any provision affording the holders of the Redeemable Preferred Stock protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all of our assets or business, that might adversely affect the holders of the Redeemable Preferred Stock.
Our ability to redeem shares of Redeemable Preferred Stock may be limited by Delaware law.
Under Delaware law, a corporation may redeem stock as long as, after giving effect to the redemption, the corporation is able to pay its debts as they become due in the usual course (the equity solvency test) and its total assets exceed the sum of its total liabilities plus, unless its charter permits otherwise, the amount that would be needed, if the
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corporation were to be dissolved at the time of the redemption, to satisfy the preferential rights upon dissolution of stockholders when preferential rights on dissolution are superior to those whose stock is being redeemed (the balance sheet solvency test). If we are insolvent at any time when a redemption of shares of Redeemable Preferred Stock is required to be made, we may not be able to effect such redemption.
We have no obligation to contribute to a sinking fund to retire the Redeemable Preferred Stock, nor is the Redeemable Preferred Stock guaranteed by any governmental agency.
We have no obligation to contribute funds to a sinking fund with respect to the Redeemable Preferred Stock. The Redeemable Preferred Stock is not guaranteed by any depositary institution. Further, no governmental entity insures or guarantees payment on the Redeemable Preferred Stock if we do not have enough funds to make principal or interest payments.
Actual results from our life insurance portfolio may not match our expected results, which could adversely affect our ability to make distributions.
Our business model relies on achieving actual results from our portfolio of life insurance assets that are profitable. In this regard, we expect to receive cash flows from our investments in life insurance policy assets over time. We believe that the larger the portfolio we own, the greater the likelihood that we will receive cash flows that better meet our expectations. To our knowledge, rating agencies generally suggest that portfolios of life insurance policies be diversified enough to achieve actuarial stability in receiving expected cash flows from underlying mortalities. For instance, in a study published in 2012, A.M. Best concluded that at least 300 lives are necessary to narrow the band of cash flow volatility and achieve actuarial stability, while Standard & Poor’s has indicated that stability is unlikely to be achieved with a pool of less than 1,000 lives. As of June 30, 2015, we owned life insurance policies covering 286 lives. Accordingly, while there is a risk with a portfolio of any size that actual cash flows may be less predictable than expected, we believe that the risk is higher when our current portfolio is smaller than rating agency recommendations.
Although we plan to expand the number of life insurance policies we own using proceeds raised from this offering of Redeemable Preferred Stock, we may be unable to meet this goal if sufficient financing from capital sources is not available or is available only on unfavorable or unacceptable terms. Furthermore, even if our portfolio reaches the size we desire, we still may experience differences between our expected cash flows and our actual cash flow. Any resulting reduction in our revenues and net income could cause a resulting decrease in our cash available for distributions.
Cost-of-insurance (premium) increases could materially and adversely affect our financial condition and our profitability.
We are subject to the risk of increased cost-of-insurance (COI) charges (i.e., premium charges) for the universal life insurance policies we own in our portfolio. Approximately 10% of the policies in our portfolio have premium levels that are guaranteed, under the terms of the policy, to keep the policy’s death benefit in force even in a situation where the policy’s cash account has been wholly depleted. We fund the remaining 90% of our policies to pay “non-guaranteed COI charges,” and therefore we are subject to the risk that the insurer could increase the COI charges for the policy. In all cases, the amount or rate of increase is subject to limits set forth in the insurance policy. Because very few of the policies we own have significant cash account value balances, any COI increase will require us to use more cash to satisfy the minimum premium amount required to keep the policy in force.
A COI increase can be expected to impair the value of the affected policy since extra expense (additional premium amounts) will be required to keep the policy in force, and such extra expense will diminish the economic value (return) of the policy upon the mortality of the insured. As a result, any widespread COI increases in policies owned in our portfolio would likely have a material and adverse effect on the value of our portfolio, which in turn would materially and adversely affect our financial condition and our profitability.
We may not be able to raise the capital that we are seeking, and may be unable to meet our overall business objectives of growing a larger, more statistically diverse portfolio of life insurance policies without the proceeds from our offerings of Redeemable Preferred Stock.
Our offer and sale of Redeemable Preferred Stock and our L Bond offering are principal means by which we intend to raise funds needed to meet our goal of growing a larger and more statistically diverse portfolio likely to meet
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our cash flow projections. While we plan to continue financing our business, if we are unable to continue to do so for any reason we may be unable to meet our goal. In addition, if actual cash flows from our portfolio of life insurance policies do not occur as our actuarial projections have forecasted, we could be forced to sell our investments in life insurance policies in order to service or satisfy our debt-related obligations. If we are forced to sell investments in life insurance policies or our entire portfolio, we may be unable to sell them at prices we believe are appropriate, and may not be able to sell them at prices that approximate the discount rate we have applied to value our portfolio, particularly if our sale of policies occurs at a time when we are (or are perceived to be) in distress. In any such event, our business and the value of our securities, including the Redeemable Preferred Stock, may be materially and adversely impacted.
We cannot know the tax implications of an investment in the Redeemable Preferred Stock.
The section of this prospectus entitled “Material Federal Income Tax Considerations” sets forth a summary of federal income tax consequences to the purchasers of the Redeemable Preferred Stock. No information is provided concerning tax consequences under any other federal, state, local or foreign laws that may apply to the purchasers of the Redeemable Preferred Stock. Prospective investors or their representatives should read that section very carefully in order to properly evaluate the federal income tax risks of an investment in the Redeemable Preferred Stock. Each prospective investor should consult his personal counsel, accountant and other business advisors as to the federal, state, local and foreign tax consequences of an investment in the Redeemable Preferred Stock.
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USE OF PROCEEDS
Assuming we sell the maximum number of shares of Redeemable Preferred Stock in this offering, for cash, at the public offering price of $1,000 per share, we expect to receive up to approximately $91,700,000 of net cash proceeds from this offering after paying selling commissions, dealer manager fees, and our own estimated offering expenses. More specifically, if all Redeemable Preferred Stock offered hereby is sold, we would pay $6,000,000 in selling commissions, up to $2,000,000 in additional compensation, and an estimated $300,000 in our own offering-related expenses consisting of legal, accounting, printing, mailing, registration, qualification and associated securities offering filing costs and expenses. Additional compensation consists of (i) a non-accountable expense allowance of up to 0.60% of gross offering proceeds, (ii) an accountable expense allowance of up to 0.40% of gross offering proceeds, (iii) a dealer manager fee (payable only to Emerson Equity) of 0.40% of gross offering proceeds for managing and coordinating the offering, (iv) a wholesaling fee (payable only to wholesaling dealers) of 0.50% of gross offering proceeds, and (v) non-cash compensation of up to 0.10% of gross offering proceeds. Aggregate additional underwriting compensation will not exceed 2.0% of gross offering proceeds. The dealer manager may reallow up to 0.60% of additional compensation to soliciting broker-dealers. The amount of the reallowance to any soliciting broker-dealer will be determined by the dealer manager in its sole discretion.
The maximum amount of commissions, fees, non-cash compensation, if any, and reimbursements payable to FINRA selling members is 8.0% of the gross proceeds of Redeemable Preferred Stock sold. If all of the Redeemable Preferred Stock was sold for cash and the maximum commissions, fees, non-cash compensation and reimbursements were paid, we estimate that the net cash proceeds to us, after paying our own estimated offering and related expenses, would be approximately $91,700,000. Nevertheless, because we do not know the total amount of Redeemable Preferred Stock that will be ultimately sold, we are unable to accurately forecast the total net proceeds that will be generated by this offering.
There is no minimum amount of Redeemable Preferred Stock that must be sold before we access investor funds.
Our goal is to use a majority of the net proceeds from the sale of Redeemable Preferred Stock to purchase additional life insurance policy assets in the secondary market. The precise amount of proceeds we apply towards purchasing additional life insurance policy assets will depend, among other things, on the amount of net proceeds that we receive from the sale of Redeemable Preferred Stock being offered, the existence and timing of opportunities to expand our portfolio of insurance policy assets or acquire other yield-bearing assets, our cash needs for certain other expenditures (summarized below) we anticipate incurring in connection with our business, and the availability of other sources of cash (e.g., our revolving credit facility). These certain other expenditures include:
• servicing of life insurance assets;
• redemption of Series A Convertible Preferred Stock;
• paying principal at maturity, interest and fees to our lenders, including under our revolving credit facility, the Series I Secured Notes, and the L Bonds; and paying fees and expenses of the trustees of certain trusts and the securities intermediary associated with our financing arrangements, and fees and expenses related to the Redeemable Preferred Stock offered hereby;
• acquisition of other yield-bearing assets; and
• general working capital purposes
As indicated above, the extent to which we will use proceeds from this offering for these other purposes, and the amounts and timing of such expenditures will depend on a variety of factors. In sum, our management will have significant discretion over the ultimate manner in which net proceeds from this offering will be applied. Net offering proceeds not immediately applied to the uses summarized above will be invested in short-term investments such as money market funds, commercial paper, U.S. Treasury Bills and similar securities investments pending their use. We may also purchase interest rate hedges to lock in our cost of capital, or longevity hedges to lock in our expected return from our portfolio.
As indicated above, we may use some of the net proceeds from this offering to pay premiums on life insurance assets we own. Our aggregate premium obligations over the next five and one half years for life insurance assets that we own as of June 30, 2015 are set forth in the table below. These premium obligations do not take into account the expectation of mortality over the periods presented.
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Years Ending December 31 |
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Premiums |
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Six months ending December 31, 2015 |
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$ |
13,292,000 |
2016 |
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27,985,000 |
2017 |
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31,333,000 |
2018 |
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34,191,000 |
2019 |
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38,001,000 |
2020 |
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42,158,000 |
Total |
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$ |
186,960,000 |
Also as indicated above, we may use some of the net proceeds from this offering to pay principal amounts owing under our Series I Secured Notes or L Bonds when such amounts become due and payable, or to redeem shares of Series A Convertible Preferred Stock. The amount of such securities that we would repay with proceeds of this offering will depend, in part, on whether the holders of such securities elect repayment rather than renewal of such securities, as well as whether we elect to use other sources of repayment. We believe it is most likely that such payments, if any, would relate to debt securities that mature within the first three years after the initial effective date of the registration statement of which this prospectus is a part. At June 30, 2015 and December 31, 2014, the weighted-average interest rate of Series I Secured Notes was 8.49% and 8.37%, respectively. The notes are secured by assets of GWG Life. The principal amount outstanding under these Series I Secured Notes was $24,728,000 and $28,047,000 at June 30, 2015 and December 31, 2014, respectively. At June 30, 2015 and December 31, 2014, the weighted-average interest rate of L Bonds was 7.27% and 7.45%, respectively. The amount outstanding under these L Bonds was $226,310,000 and $186,377,000 at June 30, 2015 and December 31, 2014, respectively.
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BUSINESS
Overview
GWG Holdings, Inc. is a specialty finance company and a leader in purchasing life insurance policies in the secondary market. The life insurance secondary market has evolved to allow for the purchase and sale of a life insurance policy through a process known as a senior life settlement. A senior life settlement allows a senior consumer to sell an existing life insurance policy to a financial buyer, such as us, for more than its cash surrender value but less than the face value of the policy benefit. When we purchase a life insurance policy, we continue paying the policy premiums until we collect the face value of the policy benefit. We expect to profit from the difference between the cost of purchasing, paying the related premiums, and financing the life insurance policy, and the face value of the life insurance policy benefit we ultimately receive upon the insured’s mortality.
We seek to purchase life insurance policies from senior consumers, typically 65 years and older, who can benefit from the actuarial value of their life insurance policy. We provide seniors and their families with valuable services addressing the financial challenges and needs that arise after retirement. We have found that where our services are appropriate, we offer significant value to our senior consumers over the cash surrender value offered by insurance carriers. For example, over our history, we have paid senior consumers over $291.6 million for their life insurance policies, which is $273.8 million more than the cash surrender value offered by the insurance carriers.
We seek to build a profitable and large portfolio of life insurance policy assets that are well diversified in terms of insurance carriers, mortality profiles and the medical conditions of insureds. We seek to own a diversified portfolio of life insurance policies because we believe this approach lowers our overall risk exposure and provides us with greater actuarial stability, predictability and reliable returns. We believe that for investors, owning a well-diversified portfolio of life insurance policies provides a unique investment opportunity. We believe the potential investment returns from life insurance policies are attractive due to the fact they are not correlated to general economic or financial market conditions and are derived from investment grade credits. To obtain the growth and diversification we seek, we have raised capital through a variety of financing efforts that have included the public offering of our common stock, private and public offerings of structured debt securities, private offerings of preferred stock, and a senior secured revolving credit facility. This offering of Redeemable Preferred Stock is a further extension of that strategy, and presents investors with an opportunity to participate in our business and the growth of the secondary market for life insurance.
Our business was organized in February 2006. As a parent holding company, GWG Holdings was incorporated on March 19, 2008, as a limited liability company. On June 1, 2011, GWG Holdings converted from a Delaware limited liability company to a Delaware corporation through the filing of statutory articles of conversion. In connection with the conversion, each class of limited liability company membership interests in GWG Holdings, LLC was converted into shares of common stock of GWG Holdings, Inc.
Since our formation in 2006, we have evaluated over 38,000 policies and acquired over $1.7 billion in face value of life insurance policy benefits in the secondary market. In 2008, after selling approximately $1 billion in face value of life insurance policy benefits, we adopted our current buy-and-hold strategy of investing in portfolio life insurance assets and offering investors the opportunity to finance our ownership of the portfolio. As of June 30, 2015, we owned approximately $806 million in face value of life insurance policy benefits with an aggregate cost basis (i.e., acquisition and related premiums and financing costs) of approximately $298 million.
On September 24, 2014, we consummated an initial public offering of our common stock resulting in the sale of 800,000 shares of common stock at $12.50 per share. In connection with that offering, we started listing our common stock on The NASDAQ Capital Market under the ticker symbol “GWGH” effective September 25, 2014.
In the first six months of 2015, we recognized $25.6 million of revenue from the receipt of $29.4 million in policy benefits. In addition, we recognized an expense from the change in fair value of our life insurance policies, net of premiums and carrying costs, of $0.4 million. In the first six months of 2015, interest expense, including amortization of the deferred financing costs and preferred stock dividends, was $14.5 million, and selling, general and administrative expenses were $8.5 million. Income tax expense for the first half of 2015 was $1.4 million. Our net income before interest, taxes and amortization was $16.9 million and our net income after tax was $1 million for the first half of 2015.
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In the first six months of 2014, we recognized $0.2 million of revenue from the receipt of $0.3 million in policy benefits. In addition, we recognized revenue from the change in fair value of our life insurance policies, net of premiums and carrying costs, of $10.8 million. Interest expense, including amortization of the deferred financing costs and preferred stock dividends, was $12.9 million for the six months ended June 30, 2014, and selling, general and administrative expenses were $4.8 million. Income tax benefit for the six months ended June 30, 2014 was $2.3 million. Our net income before interest, taxes and amortization was $6.2 million and our net loss after tax was $4.5 million for the first half of 2014.
GWG Holdings, Inc. (GWG Holdings) facilitates the purchase of life insurance policies through its wholly owned subsidiary, GWG Life, LLC (GWG Life), and GWG Life’s subsidiaries, GWG Life Trust (Trust), GWG DLP Funding II LLC (DLP Funding II) and DLP Funding II’s wholly owned subsidiary, GWG DLP Master Trust II (Trust II), and GWG DLP Funding III (DLP Funding III). All of these entities are legally organized in Delaware. Unless the context otherwise requires or we specifically so indicate, all references in this prospectus to “we,” “us,” “our,” “our Company,” “the Company,” or “GWG,” refers to these entities collectively. References to specific entities, such as “GWG Holdings” or “GWG Life,” are references to those entities only. We are based in Minneapolis, Minnesota.
Market
The market for the senior consumers we serve is large and growing. According to the U.S. Census Bureau, the senior population represents the fastest growing demographic segment in the United States. The number of seniors in the United States, age 65 years and older, is expected to increase according to the U.S. Census Bureau. In addition, according to the American Council of Life Insurers Fact Book 2014 (ACLI), consumers owned over $11.4 trillion in face value of life insurance policy benefits and lapsed and surrendered over $639 billion in face value of policy benefits surrendered in 2013 alone in the United States. This figure includes all types of life insurance policies, including term and permanent insurance known as whole life, universal life, variable life, and variable universal life; and all ages of policy owners. Consumers lapse or surrender their life insurance for a variety of reasons, including: (i) the policy is no longer needed; (ii) the policy premiums are no longer affordable; or (iii) there were unrealistic financial assumptions made when the policy was purchased.
The secondary market for life insurance has developed in response to the large volume of policy lapses and surrenders. Rather than allowing a policy to lapse as worthless, or surrendering a life insurance policy at a fraction of its inherent value, the secondary market can be a source of significant value to consumers. The inherent actuarial value of a policy in the life insurance secondary market often exceeds the cash surrender value offered by the insurance carrier. Without the development of the secondary market, insurance carriers would maintain monopsony power over the options offered to consumers who no longer want, need or can afford their life insurance.
As a result, Conning Research & Consulting (Conning) estimates that the total market potential for policies that could be sold in the secondary market was $193 billion in face value in 2014. This figure compares to the $2.6 billion in face value of policy benefits that Conning estimates actually sold in the secondary market in 2013. Accordingly, we believe that the secondary market is still emerging, having only a 1.3% market penetration rate during 2013. In addition, as the senior population ages, Conning believes that the net market potential for life insurance policies that could be sold in the secondary market will grow to $233 billion by 2023. We believe that socio-economic and demographic trends support the long-term development and growth of the secondary market for life insurance, and that the secondary market for life insurance represents a significant and expansive market opportunity.
We have recently seen positive growth trends for the market, evidenced by increased competition for policy purchases through traditional channels, new efforts by market participants to reach consumers directly, and little change in the regulatory and legal environment which impact our market. In particular, we are aware of only two reported consumer complaints relating to life settlement transactions that have been received by insurance regulators nationally since 2012. During 2015 (with most state legislatures now in recess or adjourned until 2016), there was not any legislation introduced attempting to establish more restrictive processes or controls on life settlement transactions. In fact, we are aware of approximately one dozen state bills that were introduced thus far during 2015 recognizing that life settlements are good public policy by requiring insurance companies or governmental authorities to advise policyholders facing lapse or surrender that selling their policy on the secondary market is an option.
Furthermore, we are also aware that a class-action lawsuit against a major insurance company, alleging breach of fiduciary duty for failure to advise consumers about their life settlement options, was privately settled. We believe
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that this lawsuit may begin establishing precedent for insurance carriers and their agents, as well as other financial professionals, to advise clients of their rights to effect a sale of their life insurance policy.
In sum, we believe these legislative and legal developments indicate that the market for life settlements is gaining growing acceptance from a public policy perspective, and that participants in the market are achieving success at adhering to the regulatory requirements imposed on them. When combined with the recent positive growth trends in the market, and our own efforts and successes in expanding our network of financial professionals involved in offering our products and services, we begin the second half of 2015 with confidence and optimism for the further development of our business and marketplace.
Our Business Model
We believe that we are uniquely positioned to capitalize on this opportunity by providing value-added services to consumers owning life insurance and investors seeking alternative investment opportunities, where both participants can profit. To participate and compete in our growing market, we have spent and intend to continue to spend significant resources: (i) developing a robust operational platform and systems for originating and purchasing life insurance policies; (ii) obtaining requisite licensure to participate in the life insurance secondary market; (iii) developing financing resources, strategies, and capabilities for servicing a large portfolio of life insurance policies; (iv) recruiting and developing a professional management team; and (v) establishing strategic relationships for delivering our services.
We have seen increasing interest among investors and financial professionals in participating in our $1,000,000,000 L Bond offering. Over the last three months, we added over 1,500 financial professionals who are now approved to sell our L Bond offering. This increases the total number of financial professionals offering our L Bond to over 3,000 advisors. The L Bond offers investors the opportunity to obtain a high yielding investment from our portfolio of life insurance policies, assets whose performance is not tied to the stock market, commodities, or real estate. We expect to continue growing our financial product distribution as awareness and understanding of our asset class increases.
We generally purchase life insurance policies directly with the owner who originally purchased the policy. Occasionally, we may purchase life insurance policies from other financial buyers who have purchased life insurance policies and are now selling their policies. Historically, we have purchased policies in the secondary market through a network of life insurance agents, life insurance brokers, and licensed providers who assist policy owners in accessing the secondary market. Since the fourth quarter of 2014, we have been expanding our origination practice by marketing directly to consumers through various marketing initiatives. Recently, we engaged a strategic partner in the development of a specialized service center whose focus is sourcing qualified leads and processing life insurance policies directly for our purchase. In conjunction with these activities, we are in in the final stages of implementing new systems, processes and protocols with respect to our direct to consumer lead generation and life insurance policy origination protocols and practices. These implementations include streamlined underwriting process for small face policies in order to efficiently acquire life insurance policies directly from consumers.
In addition to our direct to consumer origination efforts, we have developed and expanded our Appointed Agent Program to address what we see as a growing need for value-added post-retirement financial services to seniors owning life insurance. Our Appointed Agent Program empowers financial professionals to bring the secondary market’s value proposition directly to consumers owning life insurance. Central to the Appointed Agent Program is education, training, and marketing that support and empower financial professionals to offer clients significant value with a program that emphasizes regulatory compliance. Since its beginning in 2014, the number of financial professionals sourcing life insurance policies directly under our Appointed Agent Program has an increased to over 850 at June 30, 2015. Many of the financial professionals who distribute our investment products also participate in our Appointed Agent Program. This dual offering enables financial professionals the opportunity to develop expertise in our business model and a differentiating specialization for their financial practice. In conjunction with these activities, we have continued to sharpen our service offerings and marketing tools, available to broker-dealers and financial advisors who seek to market our product and services. These offerings have, in turn, led to an increasing acceptance by the financial profession of our business model and industry practices. While these efforts are ongoing, the early outcomes from both the Appointed Agent Program and our other direct to consumer efforts are encouraging. We have experienced a significant increase in the number of life insurance policies that are now in our origination pipeline from these sources. We expect to complete our initial development efforts on these systems, including technology, reporting, processing, and underwriting protocols in 2015. When in place, we believe these efforts will be able to scale for increased volume and provide us with a unique corporate value proposition.
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While these efforts are ongoing, and initial results are preliminary, the early outcomes from both our Appointed Agent Program and direct to consumer marketing efforts are very encouraging. In the last three months, we have experienced a significant increase in the number of life insurance policies that are now in our origination pipeline. All told, these efforts have increased our policy purchases from zero to now making up over 28% of all the life insurance policies in our current origination pipeline as of August 3, 2015. Our origination pipeline includes all the life insurance policies we are currently gathering information, evaluating, or in the process of closing a purchase. We expect to complete our initial development efforts on these systems, including supporting marketing, technology, reporting, processing, and underwriting protocols through the balance of 2015. When in place, we believe we will be well-positioned to scale for increased volume.
We have also expanded our own footprint in the various states and jurisdictions where secondary market life settlement transactions are regulated. Of the 42 jurisdictions that require licensure, we presently hold 35 licenses and have pending applications in another four jurisdictions.
Before acquiring a life insurance asset, we value the related life insurance policy by conducting an underwriting review. Our present underwriting review process generally involves obtaining two life expectancy estimates on each insured from third-party medical-actuarial firms, and then averaging these two estimates. On occasion, we may obtain more than two life expectancy estimates, in which case we average the two life expectancy estimates that we believe are the most reliable, based on our own analyses and conclusions. In this regard, the two life expectancy estimates we ultimately choose to average may not always be the most conservative estimates we obtain. From time to time and as permitted by applicable borrowing covenants, we may modify our underwriting review process. For example, we recently changed our definition of a “small face policy” as a policy having a face value equal to or less than $1,000,000 in policy benefits. Prior to this change, a small face policy was one having a face value equal to or less than $250,000. For small face policies, rather than obtaining life expectancy estimates from third-party medical-actuarial firms, we may employ a modified underwriting review process involving the use of a combination of standard mortality tables, actuarial or medical consultants, and our own analysis to develop a life expectancy estimate for an insured. We seek to purchase life insurance policies issued by rated life insurance companies with investment grade credit ratings by Standard & Poor’s (AAA through BBB-), Moody’s (Aaa through Baa3), or A.M. Best Company (aaa through bbb). As of June 30, 2015, approximately 95.5% of life insurance policies in our portfolio were issued by companies rated “BBB-” or better under Standard & Poor’s rating system. Many of our current underwriting review processes, including our policy of obtaining two life expectancy estimates from medical actuarial firms as described above, are undertaken in satisfaction of obligations under our revolving credit facility. In the future we may modify our underwriting review process if permitted under our borrowing arrangements.
All of our services are premised on financial and actuarial modeling that assigns a present value to the face value of an insurance policy benefit. In this regard, the value we assign to a life insurance asset in the secondary market is primarily a function of: (i) the face value of the life insurance policy or portion thereof we may wish to acquire; (ii) the estimated life expectancy of the individual insured under the policy; (iii) the premiums expected to be paid over the life of the insured; (iv) market competition from other purchasers in the secondary market; and (v) the particular underwriting characteristics of the policy, relative to the characteristics of our portfolio of life insurance assets as a whole.
The types of policies we typically, but not always, acquire are universal life insurance policies. Universal life insurance is a type of permanent life insurance in which premium payments above the cost of insurance are credited to the “cash value” of the policy. The cash value is credited each month with interest based on the terms of the insurance policy agreement. If a universal life insurance policy were to lapse, the insured or other owner of the policy would nonetheless have a right to receive the “cash surrender value” of the policy. The cash surrender value is the cash value of the policy, less any surrender charges imposed by the insurance company for a cash value distribution. Our services provide greatest value to a consumer when the actuarial value of the life insurance policy benefit exceeds the cash surrender value of the policy—which is often the case. We also provide services to consumers who own term life insurance. Unlike permanent universal life insurance, term life insurance does not have a cash value associated with it. Nevertheless, most term insurance policies permit the policy to be converted into permanent universal life insurance. In the future, we may consider offering services in conjunction with variable universal life insurance, which differs from universal insurance in that the “variable” component of the policy involves the ownership of securities inside the policy.
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Portfolio Summary
Our portfolio of life insurance policies, owned by our subsidiaries as of June 30, 2015, is summarized below:
Total portfolio face value of policy benefits |
|
$ |
806,274,000 |
|
Average face value per policy |
|
$ |
2,567,000 |
|
Average face value per insured life |
|
$ |
2,819,000 |
|
Average age of insured (yrs.)* |
|
|
82.9 |
|
Average life expectancy estimate (yrs.)* |
|
|
6.56 |
|
Total number of policies |
|
|
314 |
|
Number of unique lives |
|
|
286 |
|
Demographics |
|
|
68% Males; 32% Females |
|
Number of smokers |
|
|
4 |
|
Largest policy as % of total portfolio |
|
|
1.24 |
% |
Average policy as % of total portfolio |
|
|
0.32 |
% |
Average annual premium as % of face value |
|
|
3.34 |
% |
Competitive Strengths
We have built our business on what we believe to be the following competitive strengths:
• Industry Experience : We have actively participated in the development of the secondary market of life insurance as a purchaser and financier within the asset class since 2006. Our position within the marketplace has allowed us to gain a deep understanding of the life insurance secondary market. We have participated in the leadership of various industry associations and forums, including the Life Insurance Settlement Association (LISA) and the Insurance Studies Institute (ISI). Our experience gives us confidence to compete in the industry and acquire a portfolio of life insurance policies that we expect to perform to our expectations.
• Operational Platform : We have built and continue to refine and develop both an operational platform and systems for efficiently tracking, processing, and servicing life insurance policies that we believe provide competitive advantages when participating in the life insurance secondary marketplace.
• Underwriting Practices : We seek to use underwriting review processes and file documentation standards that generally meet published guidelines for rated securitizations of life insurance portfolios. We purchase life insurance policies we consider to be non-contestable and that meet our underwriting criteria and reviews. We consider a life insurance policy to be “non-contestable” once applicable state law prohibits the insurer from challenging the validity of the policy due to fraud. In this regard, state non-contestability laws generally require a period of one to two years to elapse after the initial issuance of the policy before that policy is considered non-contestable. Non-contestability laws do not, however, prevent an insurer from challenging the validity of a policy procured by fraud for lack of an insurable interest at the time at which the policy was purchased, such as is the case with so-called “stranger-originated” life insurance policies. To the extent we use modified methodologies for estimating life expectancies for small face policies, those modified methodologies may not meet published guidelines for rated securitizations of life insurance portfolios.
• Origination Relationships and Strategies : We have established origination relationships with life insurance policy brokers and insurance agents who submit policies for our purchase or financing. Our referral base knows our underwriting standards for purchasing life insurance policies in the secondary market, which gives us confidence in our bidding and closing processes and streamlines our own due-diligence process. We have expanded our origination strategies to include direct-to-consumer marketing and our Appointed Agent Program. We believe the expansion of these origination strategies is unique within the marketplace.
• Life Expectancy Methodology : We generally rely on two life expectancy estimates obtained from independent third-party medical-actuarial underwriting firms to arrive at a life expectancy estimate we use for valuing a life insurance asset. For a majority of our life insurance asset purchases, we rely on estimates obtained from 21 st Services and AVS Underwriting to develop our life expectancy estimate. We may, however, also obtain and use life expectancy estimates from other medical-actuarial underwriting firms.
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As explained above, we may from time to time modify our underwriting review processes, including our methodology for arriving at life expectancy estimates we use in ascribing value to a life insurance asset.
• Pricing Software and Methodology : To calculate our expected returns on the investments we make in life insurance assets, we use actuarial pricing methodologies and software tools built by a leading independent actuarial service firm and currently supported by Modeling Actuarial Pricing Systems, Inc. (“MAPS”).
• Financing Strategy : We have actively developed a diversified financing strategy for accessing capital markets in support of our strategy of purchasing and owning our portfolio of life insurance policies, ranging from institutional bank financing to working through a network of broker-dealers registered with the Financial Industry Regulatory Authority (“FINRA”) and who participate in one or more of our investment offerings, including our current L Bond offering. If in the future we decide to offer different kinds of investment products, we expect to leverage the network of broker-dealers that we have built over time.
On the other hand, our business involves a number of challenges and risks described in more detail elsewhere in this prospectus, including the following:
• Relatively New Market : Investing in life insurance assets in the secondary market is a relatively new and evolving market. Our ability to source and invest in life insurance assets at attractive prices materially depends on the continued growth of the secondary market for life insurance and the continued solvency of the life insurance companies that pay the face value of life insurance policy benefits.
• Asset Valuation Assumptions : The valuation of our portfolio life insurance assets—the principal asset on our balance sheet—requires us to make material assumptions that may ultimately prove to be incorrect. These assumptions include appropriate discount rates, cash flow projections, and the life expectancy estimates we use for these purposes, any of which may ultimately prove to be inaccurate.
• Ability to Expand Our Portfolio : Our business model requires us to achieve actual results that are in-line with our expectations, from our investments in life insurance assets. In this regard, we believe that the larger the portfolio of life insurance assets we own, the greater likelihood there is that we will achieve results matching our expectations. Although we plan to expand the number of investments in life insurance assets using proceeds from the sale of our L Bond offering and from our sale of Redeemable Preferred Stock in this offering, we may be unable to meet this goal. Furthermore, even if we successfully grow our portfolio of life insurance assets, we nevertheless may not achieve the results we expect.
• Reliance on Financing : We have chosen to finance our business almost entirely through the issuance of debt, including, in addition to this offering, the sale of L Bonds in an ongoing continuous offering, Series I Secured Notes, and our use of a senior secured revolving credit facility. Our business model expects that we will have continued access to financing (including financing to expand or replace our existing financing) in order to purchase and finance a large and diversified portfolio of life insurance assets, and thereafter pay the attendant premiums and financing costs of maintaining that portfolio. We will be required to rely on our access to financing to pay premiums, interest and dividends until such time as we begin receiving significant revenues from the receipt of life insurance policy benefits from our portfolio. Even if we obtain the financing we require, we may not receive life insurance policy benefits that match our cash flow projections or meet them in time to earn profits after the payment of financing costs.
• Risk of Investment in Life Insurance Assets : Our investments in life insurance assets have inherent risks, including fraud and legal challenges to the validity of the life insurance policies. Examples of fraud include the possibility that the seller of a policy may have provided us with inaccurate or misleading information during the underwriting review process.
• Effects of Regulation : Our business is subject to complex state and federal regulation. Changes in state or federal laws and regulations governing our business, or changes in the interpretation of such laws and regulations, could materially and negatively affect our business.
Our business also involves certain challenges and risks described in the “Risk Factors” section of this prospectus and the “Risk Factors” sections of the documents incorporated into this prospectus by reference.
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Acquiring Life Insurance Assets
We seek to offer our services nationwide. In general, we work directly with consumers in states where we hold proper licensure, and in states where we are not licensed we work through other licensed providers. Historically, sourcing policy assets typically begins with life insurance agents and financial advisors (“agents”) that identify consumers owning life insurance who could benefit from the extraction of value from their life insurance in the secondary market. The agents typically work with professional life insurance policy brokers specializing in packaging the policies for presentation to participants in the secondary market. Their packaging includes obtaining medical records on the insured, life expectancy estimates from medical-actuarial firms, current insurance policy illustrations, and other information needed to properly evaluate the policy. The only parties able to evaluate the policies are regulated licensed “providers.” Once the providers have evaluated the policy, offers are made to the owner through a competitive auction process whereby brokers facilitate competing offers from providers, concurrently negotiating fees.
We maintain membership affiliations and representation within key industry groups, such as the Life Insurance Settlement Association. Our President, Michael Freedman, currently serves on the board of the Life Insurance Settlement Association. We typically sponsor events and/or maintain a trade booth at events where we are able to maintain contacts with existing life settlement brokers and meet new brokers who submit policies for purchase.
We are developing new channels for acquiring life insurance assets by soliciting consumers directly, which may eliminate fees we pay brokers and competition we experience when a policy is auctioned through a broker. While these new channels are as yet unproven, we believe that consumer awareness of the life insurance secondary market is relatively low while the consumer value proposition is very high. As a result, these new channels may provide a significant growth opportunity for our business.
Life Insurance Policy Underwriting and Investment Process
The process used to value and underwrite life insurance policies is relatively new and continues to be refined. We underwrite and service all the life insurance policies that we purchase. When we identify a life insurance policy that meets our criteria, we seek to invest in the policy at a discount sufficient to provide us with an expected internal rate of return that meets our internal guidelines. Once our offer to invest in a policy is accepted, we enter into a purchase agreement with the seller. This agreement gives us the right to, among other things, pay premiums, collect policy benefits, file collateral assignments, change the ownership, and obtain medical records. The general terms and conditions of the agreement are standardized and regulated by most states.
We maintain an underwriting department with experience in underwriting life insurance policies for investment. The underwriting due diligence process consists of a careful review and analysis of available materials related to a life insurance policy and the covered individual. The goal of the underwriting process is to make an informed investment decision with respect to the life insurance policy. While we believe that our underwriting policies and practices are consistent with industry best practices, it is possible that the processes may change or may not accurately reflect actual mortality experience or catch fraud or deception by sellers. To the extent the underwriting is not accurate or we are subject to fraud or deception by sellers, the performance of policies may be different from expected results, which could adversely affect our profitability.
Life Insurance Policy Characteristics
We typically invest in universal life insurance policies whose insureds are 65 years or older and whose actuarial life expectancies are estimated to be less than 168 months (14 years). In some cases, however, we invest in term life insurance policies that are convertible into universal life insurance policies, depending upon the analysis of the life insurance policy and the insured’s life expectancy estimate. The life expectancy estimate is the number of months the insured is expected to live based upon 50% mortality (meaning roughly half of the individuals with similar age, sex, smoking and medical statuses will have experienced mortality within that number of months), which is in turn based upon actuarial tables.
We invest only in life insurance assets that have been in force for more than two years from the policy issuance date and meet our other underwriting guidelines. We reserve the right to disqualify some life insurance companies or categories of life insurance policies for purchasing in our sole discretion.
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Pricing Life Insurance Policies
Pricing involves an analysis of both the policy and the insured. An analysis of the insurance policy starts with an illustration obtained from the insurance company providing a schedule of level premium payments until the insured reaches age 125. Then, utilizing pricing software now owned by Modeling Actuarial Pricing Systems, Inc. (“MAPS”), we reverse engineer the premium schedule of the policy to determine a premium schedule that provides for the minimum payments required to keep the policy in effect. An analysis of the insured involves an actuarial evaluation of the insured’s probable mortality at different points in the future—the mortality curve. This analysis covers the insured’s entire projected lifespan using life expectancy estimates generated by third-party medical-actuarial underwriting firms or generated from base actuarial tables in the case of small face policies.
In determining the life expectancy estimate, we generally require two life expectancy estimates from independent third-party medical-actuarial underwriting firms, unless the life insurance policy is a small face policy (defined by us as a policy with $1,000,000 in face value benefits or less), in which case we may use a life expectancy estimate derived from base actuarial mortality table assumptions. When a life expectancy estimate is obtained from a medical-actuarial firm, the health of the insured is summarized by the underwriters in a written health assessment based on a review of the insured’s historical and current medical records. Underwriting assesses the characteristics and health risks of the insured in order to quantify them into a mortality rating representing the life expectancy estimate. We currently average the life expectancy estimates provided by two independent medical-actuarial underwriting firms to form our life expectancy estimate for life insurance policies other than small face policies. In some cases, we may obtain more than two life expectancy estimates. In those cases, we average the two life expectancy estimates that we believe are the most reliable of those we have received, based on our own analyses and conclusions. In this regard, the two life expectancy estimates we ultimately choose to average may not always be the most conservative. If in the future we believe our business model will benefit from changes in our underwriting process and if such revisions are permitted under our borrowing covenants, we may change our underwriting processes and policies, including our present policy under which we generally obtain two life expectancy estimates from independent third-party medical-actuarial firms (other than for small face policies).
By combining the optimized premiums and the insured’s life expectancy estimate within the MAPS software, we generate detailed information, including the expected mortality curve over the insured’s total projected lifespan; the expected premiums and related costs over the insured’s total projected lifespan; the expected policy benefit paid over the insured’s total projected lifespan; the account values within the policy; and the expected internal rate of return we will achieve at various investment amounts. From this information, we are able to calculate the present value of the life insurance policy by discounting the anticipated cash flows at the targeted internal rate of return using the probabilistic pricing methodology used by the MAPS program. The actuarial value of the life insurance policy asset is the present value of the policy’s cash flows discounted at an expected internal rate of return. We intend that our investments in life insurance assets will generate yields in excess of our borrowing and operating costs.
On September 15, 2014, 21 st Services announced changes to its mortality tables primarily for insureds age 90 and older, as well as updated adjustment factors designed to better underwrite seniors with multiple impairments. We expect medical-actuarial underwriting firms to continue improving and refining their underwriting methodology. Future changes may impact the life expectancies of insureds within our portfolio and the value of those policies, which may in turn affect our results of operations. We generally expect to incorporate any such changes to the policies within our portfolio when and as we value that portfolio from time to time.
Portfolio Administration
We have developed a comprehensive administration and servicing platform to manage the life insurance assets we own. This allows us to safeguard our life insurance assets and to process and report on the assets in our portfolio. We regularly contact each insurance company on every policy we own to verify policy account values and to confirm the correct application of premium payments made, and the resulting account values inside the life insurance policy after application of the premium payment and the deduction of the cost of insurance. We typically maintain little account value inside the policy and seek to make only minimum premium payments necessary to keep the life insurance policy in force until the next scheduled premium payment.
In addition to policy servicing, we monitor insureds by periodically contacting them directly, or their appointed representatives, to confirm their location and health status. We monitor the social security database for mortalities as
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well as online obituary databases. When we are notified of an insured’s mortality, we are required to obtain a copy of the death certificate and present it to the life insurance company for payment of the face value of the policy benefit.
Portfolio Management
We realize profits by earning a spread between the cost of our investment in our life insurance assets and the face value of the policy benefits paid upon the insured’s mortality. We believe that building and managing a profitable portfolio of life insurance policies is complex, requires considerable technical knowledge and resources, and is subject to numerous regulations. We have developed extensive experience and discipline to work toward a stable and profitable portfolio. We update our actuarial projections each month for the portfolio based on the life expectancy estimates, premium payments made, and mortalities experienced. These data points combine to provide us with future forecasted cash flows with respect to our portfolio of life insurance assets. These forecasted future cash flows, along with our current financial position, are combined in a comprehensive model that includes detailed assumptions as to interest rates, financing costs, life insurance asset acquisitions, and capital markets activities. This comprehensive financial model enables us to closely monitor and manage our necessary capital reserves and attempt to project our future profitability.
While we believe our portfolio of life insurance assets represents a balanced and stable portfolio of life insurance assets, we seek to grow the size of the portfolio in order to further mitigate risk, enhance diversification, and improve our profitability. In order to assess the stability of our portfolio, we analyze longevity risk, which is the risk of the insured living longer than his or her life expectancy estimate. Longevity risk is the single largest variable affecting the returns on an investment in life insurance assets and the ability to predict the portfolio’s value over time. Research by A.M. Best and others indicates that, as the number of insured lives increase within a portfolio of life insurance policies, there is a decrease in the standard deviation of the value of the portfolio—i.e., longevity risk is reduced with an increase in the number of insured lives. While Standard & Poor’s has indicated that statistical credibility is unlikely to be achieved with a pool of less than 1,000 lives, a study published in 2014 by A.M. Best concluded that at least 300 lives is sufficient to narrow the band of expected cash flow volatility using the Monte Carlo simulations, which is the same methodology we use to evaluate our portfolios. Our internal analysis of our portfolio, which as of June 30, 2015 consisted of 286 lives, resulted in a standard deviation that is comparable with the A.M. Best measurement for a portfolio of 300 lives. We believe this result is due to the specific portfolio make up of our portfolio relative to the variation in underlying life expectancy estimates. Further, A.M. Best recommends that no one life should comprise more than 3.33% of the face value of an entire portfolio or collateral pool. As of June 30, 2015, the largest face value policy on one life in our portfolio represented approximately 1.24% of the total portfolio. We intend to maintain a well-diversified portfolio as we continue to expand our investments in life insurance assets.
We also believe our portfolio represents a profitable portfolio. In order to assess the profitability, we analyze the future cash flows expected from our portfolio of life insurance assets. The standard practice within the insurance industry is to analyze the timing of uncertain future cash flows through stochastic modeling, or Monte Carlo simulations. We continue to analyze the expected internal rates of return and spread against borrowing costs represented by our portfolio. As of March 31, 2015, the expected internal rate of return on our portfolio of life insurance assets was 11.33% and our weighted-average borrowing costs to finance our portfolio were 7.16%. As of June 30, 2015, the expected internal rate of return on our portfolio of life insurance assets was 11.24% and our weighted-average borrowing costs to finance our portfolio were 6.98%.
Portfolio Credit Risk Management
The life insurance assets in which we invest represent obligations of third-party life insurance companies to pay the benefits under the relevant policy. We rely on the payment of policy benefits by life insurance companies as our sole source of revenue collection. Accordingly, the possible insolvency of a life insurance company is a significant risk to our business. To manage this risk, we seek to invest in life insurance assets that are issued by insurance companies with investment-grade ratings from either A.M. Best, Moody’s or Standard & Poor’s. To further mitigate risk, we seek to have no more than 20% of our aggregate face value of policy benefits in our portfolio issued by any one life insurance company. In addition, to assure diversity and stability in our portfolio, we regularly review the various metrics of our portfolio relating to credit risk. We track industry rating agency reports and industry journals and articles in order to gain insight into possible financial problems of life insurance companies. Finally, we only invest in those life insurance policies that meet the underwriting standards established in the indenture governing our debt securities, as applicable.
28
As of June 30, 2015, 91.1% of insurance companies in our portfolio hold an investment-grade rating by Standard & Poor’s (BBB- or better), and the face value of policy benefits issued by one life insurance company with in the portfolio was 14.06%. Of the 45 insurance companies that insure the policies we own, ten companies insure approximately 73.07% of total face value of insurance benefits and the remaining 35 insurance companies insure the remaining approximately 26.93% of total face value of insurance benefits. The concentration risk of our ten largest insurance company holdings as of June 30, 2015 is set forth in the table below.
Servicing Agents
We have contracted with Wells Fargo Bank to provide servicing, collateral agent, trustee, and securities intermediary services with respect to certain life insurance policies owned by our subsidiaries DLP Funding II and DLP Funding III. We have contracted with Bank of Utah to provide trustee services with respect to all other life insurance policies we own. Wells Fargo Bank provides services for certain life insurance policies in connection with ownership and tracking of life insurance policies we own, including paying premiums, posting of payments (receipts) of the life insurance policies, certain monitoring, enforcement of rights and payer notifications, and related services. We reserve the right to service and provide collateral agent services for certain life insurance policies directly, or appoint additional or an alternative third-party servicer in the future.
Our Portfolio
Our portfolio of life insurance policies, owned by our subsidiaries as of June 30, 2015, is summarized below:
Life Insurance Portfolio Summary
Total portfolio face value of policy benefits |
|
$ |
806,274,000 |
|
Average face value per policy |
|
$ |
2,567,000 |
|
Average face value per insured life |
|
$ |
2,819,000 |
|
Average age of insured (yrs.)* |
|
|
82.9 |
|
Average life expectancy estimate (yrs.)* |
|
|
6.56 |
|
Total number of policies |
|
|
314 |
|
Number of unique lives |
|
|
286 |
|
Demographics |
|
|
68% Males; 32% Females |
|
Number of smokers |
|
|
4 |
|
Largest policy as % of total portfolio |
|
|
1.24 |
% |
Average policy as % of total portfolio |
|
|
0.32 |
% |
Average annual premium as % of face value |
|
|
3.34 |
% |
____________
* Averages presented in the table are weighted averages.
29
Our portfolio of life insurance policies, owned by our subsidiaries as of June 30, 2015, organized by the insured’s current age and the associated policy benefits, is summarized below:
Distribution of Policy Benefits by Current Age of Insured
Min Age |
|
Max Age |
|
Policy Benefits |
|
Weighted Average Life Expectancy (yrs.) |
|
Distribution |
||
90 |
|
94 |
|
$ |
47,497,000 |
|
3.02 |
|
5.89 |
% |
85 |
|
89 |
|
|
236,573,000 |
|
4.83 |
|
29.34 |
% |
80 |
|
84 |
|
|
278,567,000 |
|
6.92 |
|
34.55 |
% |
75 |
|
79 |
|
|
190,793,000 |
|
8.30 |
|
23.67 |
% |
70 |
|
74 |
|
|
42,437,000 |
|
9.90 |
|
5.26 |
% |
66 |
|
69 |
|
|
10,407,000 |
|
7.07 |
|
1.29 |
% |
Total |
|
|
|
$ |
806,274,000 |
|
6.56 |
|
100.00 |
% |
Our portfolio of life insurance policies, owned by our subsidiaries as of June 30, 2015, organized by the insured’s current age and number of policies owned, is summarized below:
Distribution of Policies by Current Age of Insured
Min Age |
|
Max Age |
|
Policies |
|
Weighted Average Life Expectancy (yrs.) |
|
Distribution |
|
90 |
|
94 |
|
22 |
|
3.02 |
|
7.01 |
% |
85 |
|
89 |
|
99 |
|
4.83 |
|
31.53 |
% |
80 |
|
84 |
|
103 |
|
6.92 |
|
32.79 |
% |
75 |
|
79 |
|
61 |
|
8.30 |
|
19.43 |
% |
70 |
|
74 |
|
20 |
|
9.90 |
|
6.37 |
% |
66 |
|
69 |
|
9 |
|
7.07 |
|
2.87 |
% |
Total |
|
|
|
314 |
|
6.56 |
|
100.00 |
% |
Our portfolio of life insurance policies, owned by our subsidiaries as of June 30, 2015, organized by the insured’s estimated life expectancy estimates and associated policy benefits, is summarized below:
Distribution of Policy Benefits by Current Life Expectancies of Insured
Min LE (Months) |
|
Max LE (Months) |
|
Policy Benefits |
|
Distribution |
||
8 |
|
47 |
|
$ |
145,242,000 |
|
18.01 |
% |
48 |
|
71 |
|
|
191,914,000 |
|
23.80 |
% |
72 |
|
95 |
|
|
244,522,000 |
|
30.33 |
% |
96 |
|
119 |
|
|
129,801,000 |
|
16.10 |
% |
120 |
|
143 |
|
|
54,793,000 |
|
6.80 |
% |
144 |
|
188 |
|
|
40,002,000 |
|
4.96 |
% |
Total |
|
|
|
$ |
806,274,000 |
|
100.00 |
% |
We track concentrations of pre-existing medical conditions among insured individuals within our portfolio based on information contained in life expectancy reports. We track these medical conditions with ten primary disease categories: (1) cardiovascular, (2) cerebrovascular, (3) dementia, (4) cancer, (5) diabetes, (6) respiratory disease, (7) neurological disorders, (8) other, no disease, or multiple. Our primary disease categories are summary generalizations based on the ICD-9 codes we track on each insured individuals within our portfolio. ICD-9 codes, published by the World Health Organization, are used worldwide for medical diagnoses and treatment systems, as well as morbidity and mortality statistics. Currently, cardiovascular is the only primary disease category within our portfolio that represents a concentration over 10%.
30
Our portfolio of life insurance policies, owned by our subsidiaries as of June 30, 2015, organized by the primary disease categories of the insured and associated policy benefits, is summarized below:
Distribution of Policy Benefits by Primary Disease Category
Primary Disease Category |
|
Policy Benefits |
|
Distribution |
||
Cancer |
|
$ |
59,750,000 |
|
7.41 |
% |
Cardiovascular |
|
|
145,121,000 |
|
18.00 |
% |
Cerebrovascular |
|
|
24,462,000 |
|
3.03 |
% |
Dementia |
|
|
59,699,000 |
|
7.40 |
% |
Diabetes |
|
|
63,617,000 |
|
7.89 |
% |
Multiple |
|
|
190,970,000 |
|
23.69 |
% |
Neurological Disorders |
|
|
24,974,000 |
|
3.10 |
% |
No Disease |
|
|
97,641,000 |
|
12.11 |
% |
Other |
|
|
98,590,000 |
|
12.23 |
% |
Respiratory Diseases |
|
|
41,450,000 |
|
5.14 |
% |
Total Policy Benefits |
|
$ |
806,274,000 |
|
100.00 |
% |
The primary disease category represents a general category of impairment. Within the primary disease category, there are a multitude of sub-categorizations defined more specifically by ICD-9 codes. For example, a primary disease category of cardiovascular includes subcategorizations such as atrial fibrillation, heart valve replacement, coronary atherosclerosis, etc. In addition, individuals may have more than one ICD-9 code describing multiple medical conditions within one or more primary disease categories. Where an individual’s ICD-9 codes indicate medical conditions in more than one primary disease categories, we categorize the individual as having multiple primary disease categories. We expect to continue to develop and refine our identification and tracking on the insured individuals medical conditions as we manage our portfolio of life insurance policies.
The complete detail of the portfolio of all life insurance policies, owned by our subsidiaries as of June 30, 2015, organized by the current age of the insured and the associated policy benefits, sex, estimated life expectancy, issuing insurance carrier, and the credit rating of the issuing insurance carrier is set forth below.
Life Insurance Portfolio Detail
(as of June 30, 2015)
|
|
Face Amount |
|
Gender |
|
Age (ALB) |
|
LE (mo.) |
|
Insurance Company |
|
S&P Rating |
|
1 |
|
$ |
4,000,000 |
|
Male |
|
94 |
|
35.5 |
|
MetLife Investors USA Insurance Company |
|
N/A |
2 |
|
$ |
1,100,000 |
|
Male |
|
94 |
|
30.0 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
3 |
|
$ |
1,500,000 |
|
Female |
|
94 |
|
33.4 |
|
Aviva Life Insurance Company |
|
A- |
4 |
|
$ |
3,200,000 |
|
Male |
|
94 |
|
28.1 |
|
West Coast Life Insurance Company |
|
AA- |
5 |
|
$ |
1,000,000 |
|
Female |
|
93 |
|
39.4 |
|
Transamerica Life Insurance Company |
|
AA- |
6 |
|
$ |
264,000 |
|
Female |
|
93 |
|
25.6 |
|
Lincoln Benefit Life Company |
|
BBB+ |
7 |
|
$ |
3,500,000 |
|
Male |
|
92 |
|
41.3 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
8 |
|
$ |
250,000 |
|
Male |
|
92 |
|
23.04 |
|
Transamerica Life Insurance Company |
|
AA- |
9 |
|
$ |
3,000,000 |
|
Male |
|
91 |
|
45.2 |
|
West Coast Life Insurance Company |
|
AA- |
10 |
|
$ |
500,000 |
|
Male |
|
91 |
|
15.2 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
11 |
|
$ |
5,000,000 |
|
Female |
|
91 |
|
52.7 |
|
American General Life Insurance Company |
|
A+ |
12 |
|
$ |
2,000,000 |
|
Female |
|
91 |
|
13.7 |
|
Pruco Life Insurance Company |
|
AA- |
13 |
|
$ |
5,000,000 |
|
Female |
|
91 |
|
32.5 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
14 |
|
$ |
300,000 |
|
Female |
|
91 |
|
31.0 |
|
West Coast Life Insurance Company |
|
AA- |
15 |
|
$ |
1,682,773 |
|
Female |
|
90 |
|
51.0 |
|
Hartford Life and Annuity Insurance Company |
|
BBB+ |
16 |
|
$ |
5,000,000 |
|
Male |
|
90 |
|
32.5 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
17 |
|
$ |
3,100,000 |
|
Female |
|
90 |
|
34.1 |
|
Lincoln Benefit Life Company |
|
BBB+ |
18 |
|
$ |
1,500,000 |
|
Female |
|
90 |
|
68.8 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
19 |
|
$ |
1,000,000 |
|
Male |
|
90 |
|
24.5 |
|
State Farm Life Insurance Company |
|
AA- |
20 |
|
$3,000,000 |
|
Female |
|
90 |
|
33.6 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
31
|
|
Face Amount |
|
Gender |
|
Age (ALB) |
|
LE (mo.) |
|
Insurance Company |
|
S&P Rating |
|
21 |
|
$ |
1,000,000 |
|
Male |
|
90 |
|
8.3 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
22 |
|
$ |
600,000 |
|
Female |
|
90 |
|
21.6 |
|
Columbus Life Insurance Company |
|
AA |
23 |
|
$ |
1,000,000 |
|
Female |
|
89 |
|
51.1 |
|
United of Omaha Life Insurance Company |
|
AA- |
24 |
|
$ |
3,500,000 |
|
Female |
|
89 |
|
56.7 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
25 |
|
$ |
2,500,000 |
|
Female |
|
89 |
|
7.9 |
|
AXA Equitable Life Insurance Company |
|
A+ |
26 |
|
$ |
2,500,000 |
|
Female |
|
89 |
|
7.9 |
|
AXA Equitable Life Insurance Company |
|
A+ |
27 |
|
$ |
5,000,000 |
|
Female |
|
89 |
|
40.4 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
28 |
|
$ |
5,000,000 |
|
Female |
|
89 |
|
18.2 |
|
Lincoln National Life Insurance Company |
|
AA- |
29 |
|
$ |
715,000 |
|
Female |
|
89 |
|
60.6 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
30 |
|
$ |
1,203,520 |
|
Male |
|
89 |
|
44.3 |
|
Columbus Life Insurance Company |
|
AA |
31 |
|
$ |
1,350,000 |
|
Female |
|
89 |
|
36.0 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
32 |
|
$ |
3,500,000 |
|
Female |
|
89 |
|
41.3 |
|
Lincoln National Life Insurance Company |
|
AA- |
33 |
|
$ |
5,000,000 |
|
Female |
|
88 |
|
50.6 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
34 |
|
$ |
2,500,000 |
|
Female |
|
88 |
|
48.2 |
|
American General Life Insurance Company |
|
A+ |
35 |
|
$ |
2,500,000 |
|
Male |
|
88 |
|
39.9 |
|
Pacific Life Insurance Company |
|
A+ |
36 |
|
$ |
4,000,000 |
|
Female |
|
88 |
|
72.3 |
|
Transamerica Life Insurance Company |
|
AA- |
37 |
|
$ |
5,000,000 |
|
Male |
|
88 |
|
53.6 |
|
AXA Equitable Life Insurance Company |
|
A+ |
38 |
|
$ |
1,103,922 |
|
Female |
|
88 |
|
61.9 |
|
Sun Life Assurance Company of Canada (U.S.) |
|
AA- |
39 |
|
$ |
1,500,000 |
|
Male |
|
88 |
|
43.5 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
40 |
|
$ |
1,500,000 |
|
Male |
|
88 |
|
43.5 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
41 |
|
$ |
1,000,000 |
|
Female |
|
88 |
|
65.6 |
|
Transamerica Life Insurance Company |
|
AA- |
42 |
|
$ |
250,000 |
|
Female |
|
88 |
|
65.6 |
|
Transamerica Life Insurance Company |
|
AA- |
43 |
|
$ |
1,050,000 |
|
Male |
|
88 |
|
45.4 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
44 |
|
$ |
1,000,000 |
|
Male |
|
88 |
|
55.3 |
|
AXA Equitable Life Insurance Company |
|
A+ |
45 |
|
$ |
500,000 |
|
Male |
|
88 |
|
61.9 |
|
Lincoln National Life Insurance Company |
|
AA- |
46 |
|
$ |
4,785,380 |
|
Female |
|
88 |
|
45.4 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
47 |
|
$ |
1,803,455 |
|
Female |
|
88 |
|
49.4 |
|
Metropolitan Life Insurance Company |
|
AA- |
48 |
|
$ |
1,529,270 |
|
Female |
|
88 |
|
49.4 |
|
Metropolitan Life Insurance Company |
|
AA- |
49 |
|
$ |
800,000 |
|
Male |
|
88 |
|
71.6 |
|
Lincoln National Life Insurance Company |
|
AA- |
50 |
|
$ |
5,000,000 |
|
Male |
|
88 |
|
52.5 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
51 |
|
$ |
2,225,000 |
|
Female |
|
88 |
|
85.7 |
|
Transamerica Life Insurance Company |
|
AA- |
52 |
|
$ |
357,014 |
|
Female |
|
88 |
|
36.7 |
|
RiverSource Life Insurance Company |
|
A+ |
53 |
|
$ |
3,000,000 |
|
Female |
|
88 |
|
82.0 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
54 |
|
$ |
1,500,000 |
|
Male |
|
88 |
|
46.5 |
|
Union Central Life Insurance Company |
|
A+ |
55 |
|
$ |
3,000,000 |
|
Male |
|
88 |
|
44.0 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
56 |
|
$ |
2,000,000 |
|
Male |
|
88 |
|
47.3 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
57 |
|
$ |
396,791 |
|
Male |
|
88 |
|
37.64 |
|
Lincoln National Life Insurance Company |
|
AA- |
58 |
|
$ |
3,000,000 |
|
Male |
|
88 |
|
33.26 |
|
American General Life Insurance Company |
|
A+ |
59 |
|
$ |
500,000 |
|
Female |
|
87 |
|
68.2 |
|
Sun Life Assurance Company of Canada (U.S.) |
|
AA- |
60 |
|
$ |
5,000,000 |
|
Female |
|
87 |
|
34.8 |
|
Transamerica Life Insurance Company |
|
AA- |
61 |
|
$ |
3,000,000 |
|
Male |
|
87 |
|
50.4 |
|
Transamerica Life Insurance Company |
|
AA- |
62 |
|
$ |
1,200,000 |
|
Male |
|
87 |
|
75.3 |
|
Transamerica Life Insurance Company |
|
AA- |
63 |
|
$ |
250,000 |
|
Male |
|
87 |
|
72.4 |
|
Metropolitan Life Insurance Company |
|
AA- |
64 |
|
$ |
6,000,000 |
|
Female |
|
87 |
|
56.2 |
|
Sun Life Assurance Company of Canada (U.S.) |
|
AA- |
65 |
|
$ |
3,000,000 |
|
Male |
|
87 |
|
81.8 |
|
AXA Equitable Life Insurance Company |
|
A+ |
66 |
|
$ |
1,000,000 |
|
Female |
|
87 |
|
35.7 |
|
New York Life Insurance Company |
|
AA+ |
67 |
|
$ |
10,000,000 |
|
Female |
|
87 |
|
72.0 |
|
West Coast Life Insurance Company |
|
AA- |
68 |
|
$ |
2,500,000 |
|
Male |
|
87 |
|
48.3 |
|
Transamerica Life Insurance Company |
|
AA- |
69 |
|
$ |
1,000,000 |
|
Female |
|
87 |
|
51.1 |
|
West Coast Life Insurance Company |
|
AA- |
32
|
|
Face Amount |
|
Gender |
|
Age (ALB) |
|
LE (mo.) |
|
Insurance Company |
|
S&P Rating |
|
70 |
|
$ |
2,000,000 |
|
Female |
|
87 |
|
51.1 |
|
West Coast Life Insurance Company |
|
AA- |
71 |
|
$ |
800,000 |
|
Male |
|
87 |
|
55.7 |
|
National Western Life Insurance Company |
|
A |
72 |
|
$ |
200,000 |
|
Male |
|
87 |
|
48.8 |
|
Lincoln Benefit Life Company |
|
BBB+ |
73 |
|
$ |
4,445,467 |
|
Male |
|
87 |
|
58.9 |
|
Penn Mutual Life Insurance Company |
|
A+ |
74 |
|
$ |
7,500,000 |
|
Male |
|
87 |
|
50.6 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
75 |
|
$ |
3,600,000 |
|
Female |
|
87 |
|
57.9 |
|
AXA Equitable Life Insurance Company |
|
A+ |
76 |
|
$ |
5,000,000 |
|
Male |
|
87 |
|
81.3 |
|
Lincoln National Life Insurance Company |
|
AA- |
77 |
|
$ |
1,000,000 |
|
Female |
|
87 |
|
27.7 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
78 |
|
$ |
4,513,823 |
|
Female |
|
87 |
|
23.4 |
|
Aviva Life Insurance Company |
|
A- |
79 |
|
$ |
100,000 |
|
Female |
|
87 |
|
56.9 |
|
American General Life Insurance Company |
|
A+ |
80 |
|
$ |
100,000 |
|
Female |
|
87 |
|
56.9 |
|
American General Life Insurance Company |
|
A+ |
81 |
|
$ |
2,000,000 |
|
Female |
|
87 |
|
75.79 |
|
U.S. Financial Life Insurance Company |
|
A+ |
82 |
|
$ |
1,000,000 |
|
Male |
|
86 |
|
61.1 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
83 |
|
$ |
2,000,000 |
|
Male |
|
86 |
|
61.1 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
84 |
|
$ |
5,000,000 |
|
Male |
|
86 |
|
49.2 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
85 |
|
$ |
1,365,000 |
|
Female |
|
86 |
|
95.6 |
|
Transamerica Life Insurance Company |
|
AA- |
86 |
|
$ |
1,000,000 |
|
Female |
|
86 |
|
84.4 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
87 |
|
$ |
200,000 |
|
Female |
|
86 |
|
86.9 |
|
Lincoln National Life Insurance Company |
|
AA- |
88 |
|
$ |
1,000,000 |
|
Male |
|
86 |
|
40.1 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
89 |
|
$ |
2,000,000 |
|
Male |
|
86 |
|
84.6 |
|
Transamerica Life Insurance Company |
|
AA- |
90 |
|
$ |
8,500,000 |
|
Male |
|
86 |
|
81.2 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
91 |
|
$ |
1,000,000 |
|
Male |
|
86 |
|
25.8 |
|
Transamerica Life Insurance Company |
|
AA- |
92 |
|
$ |
500,000 |
|
Male |
|
86 |
|
82.0 |
|
Metropolitan Life Insurance Company |
|
AA- |
93 |
|
$ |
2,000,000 |
|
Male |
|
86 |
|
61.8 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
94 |
|
$ |
347,211 |
|
Male |
|
86 |
|
43.9 |
|
Prudential Life Insurance Company |
|
AA- |
95 |
|
$ |
500,000 |
|
Female |
|
86 |
|
55.2 |
|
Beneficial Life Insurance Company |
|
N/A |
96 |
|
$ |
1,800,000 |
|
Male |
|
86 |
|
53.3 |
|
John Hancock Variable Life Insurance Company |
|
AA- |
97 |
|
$ |
4,000,000 |
|
Male |
|
86 |
|
52.8 |
|
Metropolitan Life Insurance Company |
|
AA- |
98 |
|
$ |
2,000,000 |
|
Male |
|
86 |
|
96.7 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
99 |
|
$ |
2,000,000 |
|
Male |
|
86 |
|
96.7 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
100 |
|
$ |
2,000,000 |
|
Male |
|
86 |
|
96.7 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
101 |
|
$ |
1,500,000 |
|
Male |
|
85 |
|
49.3 |
|
Transamerica Life Insurance Company |
|
AA- |
102 |
|
$ |
3,750,000 |
|
Male |
|
85 |
|
76.4 |
|
AXA Equitable Life Insurance Company |
|
A+ |
103 |
|
$ |
1,000,000 |
|
Male |
|
85 |
|
60.1 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
104 |
|
$ |
2,000,000 |
|
Female |
|
85 |
|
84.5 |
|
AXA Equitable Life Insurance Company |
|
A+ |
105 |
|
$ |
3,000,000 |
|
Female |
|
85 |
|
83.3 |
|
Sun Life Assurance Company of Canada (U.S.) |
|
AA- |
106 |
|
$ |
829,022 |
|
Female |
|
85 |
|
24.9 |
|
Hartford Life and Annuity Insurance Company |
|
BBB+ |
107 |
|
$ |
1,500,000 |
|
Male |
|
85 |
|
79.2 |
|
AXA Equitable Life Insurance Company |
|
A+ |
108 |
|
$ |
2,328,547 |
|
Male |
|
85 |
|
44.6 |
|
Metropolitan Life Insurance Company |
|
AA- |
109 |
|
$ |
2,000,000 |
|
Male |
|
85 |
|
44.6 |
|
Metropolitan Life Insurance Company |
|
AA- |
110 |
|
$ |
5,000,000 |
|
Male |
|
85 |
|
88.9 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
111 |
|
$ |
1,500,000 |
|
Male |
|
85 |
|
49.3 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
112 |
|
$ |
1,500,000 |
|
Male |
|
85 |
|
49.3 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
113 |
|
$ |
3,000,000 |
|
Female |
|
85 |
|
70.9 |
|
Transamerica Life Insurance Company |
|
AA- |
114 |
|
$ |
5,000,000 |
|
Male |
|
85 |
|
73.2 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
115 |
|
$ |
1,000,000 |
|
Male |
|
85 |
|
47.4 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
116 |
|
$ |
4,000,000 |
|
Female |
|
85 |
|
50.5 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
117 |
|
$ |
5,000,000 |
|
Female |
|
85 |
|
92.2 |
|
American General Life Insurance Company |
|
A+ |
118 |
|
$ |
2,000,000 |
|
Male |
|
85 |
|
63.8 |
|
AXA Equitable Life Insurance Company |
|
A+ |
33
|
|
Face Amount |
|
Gender |
|
Age (ALB) |
|
LE (mo.) |
|
Insurance Company |
|
S&P Rating |
|
119 |
|
$ |
1,750,000 |
|
Male |
|
85 |
|
63.8 |
|
AXA Equitable Life Insurance Company |
|
A+ |
120 |
|
$ |
2,000,000 |
|
Male |
|
85 |
|
35.0 |
|
Transamerica Life Insurance Company |
|
AA- |
121 |
|
$ |
1,425,000 |
|
Male |
|
85 |
|
80.31 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
122 |
|
$ |
5,000,000 |
|
Female |
|
84 |
|
100.4 |
|
AXA Equitable Life Insurance Company |
|
A+ |
123 |
|
$ |
1,000,000 |
|
Female |
|
84 |
|
83.0 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
124 |
|
$ |
6,000,000 |
|
Female |
|
84 |
|
110.3 |
|
American General Life Insurance Company |
|
A+ |
125 |
|
$ |
1,500,000 |
|
Female |
|
84 |
|
108.4 |
|
Lincoln Benefit Life Company |
|
BBB+ |
126 |
|
$ |
750,000 |
|
Male |
|
84 |
|
88.91 |
|
West Coast Life Insurance Company |
|
AA- |
127 |
|
$ |
4,000,000 |
|
Male |
|
84 |
|
37.2 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
128 |
|
$ |
1,000,000 |
|
Male |
|
84 |
|
78.4 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
129 |
|
$ |
2,000,000 |
|
Female |
|
84 |
|
98.1 |
|
Lincoln Benefit Life Company |
|
BBB+ |
130 |
|
$ |
1,000,000 |
|
Male |
|
84 |
|
54.2 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
131 |
|
$ |
5,000,000 |
|
Male |
|
84 |
|
74.8 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
132 |
|
$ |
2,700,000 |
|
Male |
|
84 |
|
61.7 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
133 |
|
$ |
2,400,000 |
|
Male |
|
84 |
|
37.9 |
|
Genworth Life Insurance Company |
|
BBB- |
134 |
|
$ |
7,600,000 |
|
Female |
|
84 |
|
98.8 |
|
Transamerica Life Insurance Company |
|
AA- |
135 |
|
$ |
2,500,000 |
|
Female |
|
84 |
|
64.7 |
|
American General Life Insurance Company |
|
A+ |
136 |
|
$ |
2,500,000 |
|
Male |
|
84 |
|
59.5 |
|
AXA Equitable Life Insurance Company |
|
A+ |
137 |
|
$ |
3,000,000 |
|
Male |
|
84 |
|
59.5 |
|
Lincoln National Life Insurance Company |
|
AA- |
138 |
|
$ |
500,000 |
|
Male |
|
84 |
|
41.6 |
|
Genworth Life Insurance Company |
|
BBB- |
139 |
|
$ |
3,000,000 |
|
Female |
|
84 |
|
43.7 |
|
AXA Equitable Life Insurance Company |
|
A+ |
140 |
|
$ |
1,703,959 |
|
Male |
|
84 |
|
67.5 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
141 |
|
$ |
500,000 |
|
Male |
|
84 |
|
18.8 |
|
Great Southern Life Insurance Company |
|
N/A |
142 |
|
$ |
1,000,000 |
|
Male |
|
84 |
|
58.1 |
|
Hartford Life and Annuity Insurance Company |
|
BBB+ |
143 |
|
$ |
3,500,000 |
|
Female |
|
84 |
|
107.2 |
|
Lincoln Benefit Life Company |
|
BBB+ |
144 |
|
$ |
10,000,000 |
|
Female |
|
84 |
|
59.05 |
|
American National Insurance Company |
|
A |
145 |
|
$ |
500,000 |
|
Male |
|
84 |
|
25.82 |
|
West Coast Life Insurance Company |
|
AA- |
146 |
|
$ |
5,000,000 |
|
Male |
|
83 |
|
65.9 |
|
AXA Equitable Life Insurance Company |
|
A+ |
147 |
|
$ |
500,000 |
|
Male |
|
83 |
|
100.7 |
|
Metropolitan Life Insurance Company |
|
AA- |
148 |
|
$ |
2,000,000 |
|
Male |
|
83 |
|
40.3 |
|
National Life Insurance Company |
|
A |
149 |
|
$ |
3,000,000 |
|
Male |
|
83 |
|
41.3 |
|
U.S. Financial Life Insurance Company |
|
A+ |
150 |
|
$ |
2,147,816 |
|
Female |
|
83 |
|
120.2 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
151 |
|
$ |
4,200,000 |
|
Female |
|
83 |
|
118.3 |
|
Transamerica Life Insurance Company |
|
AA- |
152 |
|
$ |
1,900,000 |
|
Male |
|
83 |
|
66.5 |
|
American National Insurance Company |
|
A |
153 |
|
$ |
500,000 |
|
Male |
|
83 |
|
46.6 |
|
New York Life Insurance Company |
|
AA+ |
154 |
|
$ |
500,000 |
|
Male |
|
83 |
|
46.6 |
|
New York Life Insurance Company |
|
AA+ |
155 |
|
$ |
5,000,000 |
|
Male |
|
83 |
|
73.7 |
|
AXA Equitable Life Insurance Company |
|
A+ |
156 |
|
$ |
385,000 |
|
Male |
|
83 |
|
74.6 |
|
Metropolitan Life Insurance Company |
|
AA- |
157 |
|
$ |
500,000 |
|
Male |
|
83 |
|
74.6 |
|
Metropolitan Life Insurance Company |
|
AA- |
158 |
|
$ |
250,000 |
|
Male |
|
83 |
|
33.1 |
|
Jackson National Life Insurance Company |
|
AA |
159 |
|
$ |
1,500,000 |
|
Male |
|
83 |
|
76.5 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
160 |
|
$ |
3,500,000 |
|
Female |
|
83 |
|
88.6 |
|
AXA Equitable Life Insurance Company |
|
A+ |
161 |
|
$ |
3,000,000 |
|
Female |
|
83 |
|
93.9 |
|
MetLife Investors USA Insurance Company |
|
N/A |
162 |
|
$ |
750,000 |
|
Male |
|
83 |
|
82.39 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
163 |
|
$ |
4,500,000 |
|
Male |
|
83 |
|
74.3 |
|
AXA Equitable Life Insurance Company |
|
A+ |
164 |
|
$ |
250,000 |
|
Male |
|
83 |
|
52.9 |
|
Transamerica Life Insurance Company |
|
AA- |
165 |
|
$ |
2,275,000 |
|
Male |
|
83 |
|
93.8 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
166 |
|
$ |
10,000,000 |
|
Male |
|
83 |
|
79.7 |
|
AXA Equitable Life Insurance Company |
|
A+ |
167 |
|
$ |
2,000,000 |
|
Male |
|
83 |
|
86.0 |
|
Pacific Life Insurance Company |
|
A+ |
34
|
|
Face Amount |
|
Gender |
|
Age (ALB) |
|
LE (mo.) |
|
Insurance Company |
|
S&P Rating |
|
168 |
|
$ |
3,500,000 |
|
Male |
|
83 |
|
72.9 |
|
AXA Equitable Life Insurance Company |
|
A+ |
169 |
|
$ |
6,217,200 |
|
Female |
|
83 |
|
106.2 |
|
Phoenix Life Insurance Company |
|
B+ |
170 |
|
$ |
3,000,000 |
|
Male |
|
83 |
|
61.5 |
|
Metropolitan Life Insurance Company |
|
AA- |
171 |
|
$ |
1,500,000 |
|
Male |
|
83 |
|
26.1 |
|
Pacific Life Insurance Company |
|
A+ |
172 |
|
$ |
2,000,000 |
|
Female |
|
83 |
|
98.0 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
173 |
|
$ |
3,000,000 |
|
Male |
|
82 |
|
69.2 |
|
Protective Life Insurance Company |
|
AA- |
174 |
|
$ |
1,500,000 |
|
Male |
|
82 |
|
69.2 |
|
American General Life Insurance Company |
|
A+ |
175 |
|
$ |
2,000,000 |
|
Female |
|
82 |
|
117.1 |
|
Transamerica Life Insurance Company |
|
AA- |
176 |
|
$ |
3,500,000 |
|
Female |
|
82 |
|
92.6 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
177 |
|
$ |
1,000,000 |
|
Male |
|
82 |
|
69.4 |
|
Lincoln National Life Insurance Company |
|
AA- |
178 |
|
$ |
1,500,000 |
|
Male |
|
82 |
|
58.5 |
|
Pacific Life Insurance Company |
|
A+ |
179 |
|
$ |
5,000,000 |
|
Male |
|
82 |
|
111.0 |
|
American General Life Insurance Company |
|
A+ |
180 |
|
$ |
250,000 |
|
Male |
|
82 |
|
150.5 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
181 |
|
$ |
5,000,000 |
|
Female |
|
82 |
|
76.6 |
|
Sun Life Assurance Company of Canada (U.S.) |
|
AA- |
182 |
|
$ |
1,995,000 |
|
Female |
|
82 |
|
80.9 |
|
Transamerica Life Insurance Company |
|
AA- |
183 |
|
$ |
4,000,000 |
|
Male |
|
82 |
|
57.4 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
184 |
|
$ |
1,250,000 |
|
Female |
|
82 |
|
61.5 |
|
Columbus Life Insurance Company |
|
AA |
185 |
|
$ |
10,000,000 |
|
Male |
|
82 |
|
81.9 |
|
New York Life Insurance Company |
|
AA+ |
186 |
|
$ |
2,300,000 |
|
Male |
|
82 |
|
22.5 |
|
American General Life Insurance Company |
|
A+ |
187 |
|
$ |
2,500,000 |
|
Female |
|
82 |
|
72.5 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
188 |
|
$ |
5,000,000 |
|
Female |
|
82 |
|
57.6 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
189 |
|
$ |
5,000,000 |
|
Male |
|
82 |
|
76.5 |
|
Transamerica Life Insurance Company |
|
AA- |
190 |
|
$ |
2,000,000 |
|
Male |
|
82 |
|
72.2 |
|
Ohio National Life Assurance Corporation |
|
AA- |
191 |
|
$ |
1,000,000 |
|
Male |
|
82 |
|
72.2 |
|
Ohio National Life Assurance Corporation |
|
AA- |
192 |
|
$ |
350,000 |
|
Male |
|
82 |
|
37.2 |
|
Reassure America Life Insurance Company |
|
AA |
193 |
|
$ |
5,000,000 |
|
Male |
|
82 |
|
84.44 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
194 |
|
$ |
5,000,000 |
|
Male |
|
81 |
|
94.1 |
|
AXA Equitable Life Insurance Company |
|
A+ |
195 |
|
$ |
8,000,000 |
|
Male |
|
81 |
|
86.7 |
|
AXA Equitable Life Insurance Company |
|
A+ |
196 |
|
$ |
550,000 |
|
Male |
|
81 |
|
105.8 |
|
Genworth Life Insurance Company |
|
BBB- |
197 |
|
$ |
1,680,000 |
|
Female |
|
81 |
|
70.8 |
|
AXA Equitable Life Insurance Company |
|
A+ |
198 |
|
$ |
1,000,000 |
|
Female |
|
81 |
|
99.0 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
199 |
|
$ |
1,250,000 |
|
Male |
|
81 |
|
103.2 |
|
Metropolitan Life Insurance Company |
|
AA- |
200 |
|
$ |
1,000,000 |
|
Male |
|
81 |
|
68.2 |
|
AXA Equitable Life Insurance Company |
|
A+ |
201 |
|
$ |
1,250,000 |
|
Female |
|
81 |
|
77.0 |
|
Principal Life Insurance Company |
|
A+ |
202 |
|
$ |
1,000,000 |
|
Male |
|
81 |
|
59.2 |
|
AXA Equitable Life Insurance Company |
|
A+ |
203 |
|
$ |
3,000,000 |
|
Male |
|
81 |
|
101.4 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
204 |
|
$ |
2,000,000 |
|
Male |
|
81 |
|
42.8 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
205 |
|
$ |
1,750,000 |
|
Male |
|
81 |
|
85.7 |
|
AXA Equitable Life Insurance Company |
|
A+ |
206 |
|
$ |
5,000,000 |
|
Male |
|
81 |
|
75.3 |
|
AXA Equitable Life Insurance Company |
|
A+ |
207 |
|
$ |
300,000 |
|
Female |
|
81 |
|
76.2 |
|
Hartford Life and Annuity Insurance Company |
|
BBB+ |
208 |
|
$ |
250,000 |
|
Male |
|
81 |
|
82.8 |
|
American General Life Insurance Company |
|
A+ |
209 |
|
$ |
2,502,000 |
|
Male |
|
81 |
|
154.5 |
|
Transamerica Life Insurance Company |
|
AA- |
210 |
|
$ |
10,000,000 |
|
Male |
|
81 |
|
116.5 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
211 |
|
$ |
1,210,000 |
|
Male |
|
81 |
|
68.75 |
|
Lincoln National Life Insurance Company |
|
AA- |
212 |
|
$ |
3,000,000 |
|
Female |
|
81 |
|
109.1 |
|
West Coast Life Insurance Company |
|
AA- |
213 |
|
$ |
7,000,000 |
|
Male |
|
81 |
|
89.53 |
|
Genworth Life Insurance Company |
|
BBB- |
214 |
|
$ |
3,000,000 |
|
Male |
|
80 |
|
154.4 |
|
Metropolitan Life Insurance Company |
|
AA- |
215 |
|
$ |
2,000,000 |
|
Male |
|
80 |
|
30.4 |
|
Metropolitan Life Insurance Company |
|
AA- |
35
|
|
Face Amount |
|
Gender |
|
Age (ALB) |
|
LE (mo.) |
|
Insurance Company |
|
S&P Rating |
|
216 |
|
$ |
6,000,000 |
|
Male |
|
80 |
|
127.1 |
|
AXA Equitable Life Insurance Company |
|
A+ |
217 |
|
$ |
320,987 |
|
Female |
|
80 |
|
109.2 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
218 |
|
$ |
130,000 |
|
Male |
|
80 |
|
54.0 |
|
Genworth Life Insurance Company |
|
BBB- |
219 |
|
$ |
1,000,000 |
|
Male |
|
80 |
|
128.1 |
|
Empire General Life Assurance Corporation |
|
AA- |
220 |
|
$ |
2,000,000 |
|
Female |
|
80 |
|
92.6 |
|
Pacific Life Insurance Company |
|
A+ |
221 |
|
$ |
2,000,000 |
|
Female |
|
80 |
|
91.1 |
|
Transamerica Life Insurance Company |
|
AA- |
222 |
|
$ |
3,000,000 |
|
Male |
|
80 |
|
114.9 |
|
Principal Life Insurance Company |
|
A+ |
223 |
|
$ |
200,000 |
|
Male |
|
80 |
|
49.65 |
|
Prudential Life Insurance Company |
|
AA- |
224 |
|
$ |
500,000 |
|
Male |
|
80 |
|
51.25 |
|
Transamerica Life Insurance Company |
|
AA- |
225 |
|
$ |
3,000,000 |
|
Male |
|
79 |
|
45.9 |
|
Pacific Life Insurance Company |
|
A+ |
226 |
|
$ |
3,000,000 |
|
Male |
|
79 |
|
45.9 |
|
Minnesota Life Insurance Company |
|
A+ |
227 |
|
$ |
3,000,000 |
|
Male |
|
79 |
|
45.9 |
|
Prudential Life Insurance Company |
|
AA- |
228 |
|
$ |
3,000,000 |
|
Male |
|
79 |
|
94.7 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
229 |
|
$ |
5,000,000 |
|
Male |
|
79 |
|
82.6 |
|
Pacific Life Insurance Company |
|
A+ |
230 |
|
$ |
5,000,000 |
|
Male |
|
79 |
|
82.6 |
|
Pacific Life Insurance Company |
|
A+ |
231 |
|
$ |
4,000,000 |
|
Male |
|
79 |
|
84.6 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
232 |
|
$ |
3,601,500 |
|
Male |
|
79 |
|
98.5 |
|
Transamerica Life Insurance Company |
|
AA- |
233 |
|
$ |
1,000,000 |
|
Male |
|
79 |
|
100.9 |
|
Sun Life Assurance Company of Canada (U.S.) |
|
AA- |
234 |
|
$ |
5,000,000 |
|
Male |
|
79 |
|
134.0 |
|
Principal Life Insurance Company |
|
A+ |
235 |
|
$ |
5,000,000 |
|
Male |
|
79 |
|
94.8 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
236 |
|
$ |
7,000,000 |
|
Male |
|
79 |
|
90.4 |
|
Lincoln Benefit Life Company |
|
BBB+ |
237 |
|
$ |
476,574 |
|
Male |
|
79 |
|
76.4 |
|
Transamerica Life Insurance Company |
|
AA- |
238 |
|
$ |
2,250,000 |
|
Male |
|
79 |
|
98.9 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
239 |
|
$ |
4,300,000 |
|
Female |
|
79 |
|
114.2 |
|
American National Insurance Company |
|
A |
240 |
|
$ |
1,000,000 |
|
Female |
|
79 |
|
128.6 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
241 |
|
$ |
6,000,000 |
|
Male |
|
79 |
|
111.8 |
|
AXA Equitable Life Insurance Company |
|
A+ |
242 |
|
$ |
5,000,000 |
|
Female |
|
79 |
|
121.4 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
243 |
|
$ |
750,000 |
|
Male |
|
79 |
|
74.0 |
|
Lincoln National Life Insurance Company |
|
AA- |
244 |
|
$ |
3,000,000 |
|
Male |
|
79 |
|
100.3 |
|
Principal Life Insurance Company |
|
A+ |
245 |
|
$ |
5,000,000 |
|
Male |
|
78 |
|
123.5 |
|
Jefferson-Pilot Life Insurance Company |
|
AA- |
246 |
|
$ |
5,000,000 |
|
Male |
|
78 |
|
83.1 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
247 |
|
$ |
500,000 |
|
Male |
|
78 |
|
71.4 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
248 |
|
$ |
5,000,000 |
|
Male |
|
78 |
|
93.4 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
249 |
|
$ |
1,009,467 |
|
Male |
|
78 |
|
63.2 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
250 |
|
$ |
4,000,000 |
|
Male |
|
78 |
|
54.0 |
|
MetLife Investors USA Insurance Company |
|
N/A |
251 |
|
$ |
2,500,000 |
|
Male |
|
78 |
|
92.5 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
252 |
|
$ |
2,500,000 |
|
Male |
|
78 |
|
92.5 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
253 |
|
$ |
5,000,000 |
|
Male |
|
78 |
|
60.8 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
254 |
|
$ |
500,000 |
|
Female |
|
78 |
|
121.3 |
|
Columbus Life Insurance Company |
|
AA |
255 |
|
$ |
775,000 |
|
Male |
|
78 |
|
129.4 |
|
Lincoln National Life Insurance Company |
|
AA- |
256 |
|
$ |
3,750,000 |
|
Male |
|
78 |
|
63.2 |
|
AXA Equitable Life Insurance Company |
|
A+ |
257 |
|
$ |
1,000,000 |
|
Male |
|
78 |
|
115.3 |
|
Metropolitan Life Insurance Company |
|
AA- |
258 |
|
$ |
5,000,000 |
|
Male |
|
78 |
|
187.8 |
|
West Coast Life Insurance Company |
|
AA- |
259 |
|
$ |
2,000,000 |
|
Female |
|
78 |
|
61.19 |
|
Transamerica Life Insurance Company |
|
AA- |
260 |
|
$ |
1,000,000 |
|
Male |
|
77 |
|
119.9 |
|
Metropolitan Life Insurance Company |
|
AA- |
261 |
|
$ |
2,840,000 |
|
Male |
|
77 |
|
103.9 |
|
Transamerica Life Insurance Company |
|
AA- |
262 |
|
$ |
1,000,000 |
|
Female |
|
77 |
|
80.5 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
263 |
|
$ |
1,750,000 |
|
Male |
|
77 |
|
67.4 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
36
|
|
Face Amount |
|
Gender |
|
Age (ALB) |
|
LE (mo.) |
|
Insurance Company |
|
S&P Rating |
|
264 |
|
$ |
5,000,000 |
|
Male |
|
77 |
|
108.9 |
|
Transamerica Life Insurance Company |
|
AA- |
265 |
|
$ |
600,000 |
|
Male |
|
77 |
|
89.89 |
|
Protective Life Insurance Company |
|
AA- |
266 |
|
$ |
3,000,000 |
|
Male |
|
76 |
|
103.9 |
|
Prudential Life Insurance Company |
|
AA- |
267 |
|
$ |
3,000,000 |
|
Male |
|
76 |
|
110.3 |
|
Protective Life Insurance Company |
|
AA- |
268 |
|
$ |
2,000,000 |
|
Female |
|
76 |
|
126.3 |
|
Aviva Life Insurance Company |
|
A- |
269 |
|
$ |
4,000,000 |
|
Male |
|
76 |
|
73.0 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
270 |
|
$ |
7,000,000 |
|
Female |
|
76 |
|
129.3 |
|
Pacific Life Insurance Company |
|
A+ |
271 |
|
$ |
2,000,000 |
|
Male |
|
76 |
|
113.0 |
|
Genworth Life Insurance Company |
|
BBB- |
272 |
|
$ |
1,000,000 |
|
Male |
|
76 |
|
89.5 |
|
Pacific Life Insurance Company |
|
A+ |
273 |
|
$ |
2,000,000 |
|
Male |
|
76 |
|
126.3 |
|
Transamerica Life Insurance Company |
|
AA- |
274 |
|
$ |
150,000 |
|
Male |
|
76 |
|
112.5 |
|
Genworth Life Insurance Company |
|
BBB- |
275 |
|
$ |
490,620 |
|
Male |
|
76 |
|
92.63 |
|
Ameritas Life Insurance Corporation |
|
A+ |
276 |
|
$ |
5,000,000 |
|
Male |
|
76 |
|
65.26 |
|
West Coast Life Insurance Company |
|
AA- |
277 |
|
$ |
5,000,000 |
|
Male |
|
75 |
|
156.1 |
|
Prudential Life Insurance Company |
|
AA- |
278 |
|
$ |
3,000,000 |
|
Male |
|
75 |
|
61.4 |
|
Aviva Life Insurance Company |
|
A- |
279 |
|
$ |
200,000 |
|
Male |
|
75 |
|
76.6 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
280 |
|
$ |
3,000,000 |
|
Male |
|
75 |
|
121.0 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
281 |
|
$ |
5,000,000 |
|
Male |
|
75 |
|
149.7 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
282 |
|
$ |
5,000,000 |
|
Male |
|
75 |
|
149.7 |
|
Massachusetts Mutual Life Insurance Company |
|
AA+ |
283 |
|
$ |
8,000,000 |
|
Male |
|
75 |
|
110.4 |
|
Metropolitan Life Insurance Company |
|
AA- |
284 |
|
$ |
5,000,000 |
|
Male |
|
75 |
|
37.7 |
|
Lincoln Benefit Life Company |
|
BBB+ |
285 |
|
$ |
850,000 |
|
Male |
|
75 |
|
74.0 |
|
New York Life Insurance Company |
|
AA+ |
286 |
|
$ |
4,000,000 |
|
Female |
|
74 |
|
151.4 |
|
American General Life Insurance Company |
|
A+ |
287 |
|
$ |
300,000 |
|
Male |
|
74 |
|
21.1 |
|
Lincoln National Life Insurance Company |
|
AA- |
288 |
|
$ |
2,000,000 |
|
Male |
|
74 |
|
106.4 |
|
American General Life Insurance Company |
|
A+ |
289 |
|
$ |
10,000,000 |
|
Female |
|
74 |
|
147.9 |
|
Voya Retirement Insurance and Annuity Company |
|
A |
290 |
|
$ |
3,000,000 |
|
Female |
|
74 |
|
123.5 |
|
General American Life Insurance Company |
|
AA- |
291 |
|
$ |
500,000 |
|
Male |
|
73 |
|
42.8 |
|
Midland National Life Insurance Company |
|
A+ |
292 |
|
$ |
3,000,000 |
|
Male |
|
73 |
|
82.3 |
|
AXA Equitable Life Insurance Company |
|
A+ |
293 |
|
$ |
500,000 |
|
Male |
|
72 |
|
135.4 |
|
Ameritas Life Insurance Corporation |
|
A+ |
294 |
|
$ |
370,000 |
|
Male |
|
72 |
|
135.4 |
|
Ameritas Life Insurance Corporation |
|
A+ |
295 |
|
$ |
2,500,000 |
|
Male |
|
72 |
|
106.1 |
|
American General Life Insurance Company |
|
A+ |
296 |
|
$ |
1,167,000 |
|
Male |
|
72 |
|
33.9 |
|
Transamerica Life Insurance Company |
|
AA- |
297 |
|
$ |
1,500,000 |
|
Male |
|
72 |
|
120.9 |
|
Metropolitan Life Insurance Company |
|
AA- |
298 |
|
$ |
3,000,000 |
|
Male |
|
71 |
|
84.9 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
299 |
|
$ |
2,000,000 |
|
Male |
|
71 |
|
111.5 |
|
New York Life Insurance Company |
|
AA+ |
300 |
|
$ |
2,000,000 |
|
Male |
|
71 |
|
111.5 |
|
New York Life Insurance Company |
|
AA+ |
301 |
|
$ |
2,500,000 |
|
Male |
|
71 |
|
126.9 |
|
Lincoln National Life Insurance Company |
|
AA- |
302 |
|
$ |
2,500,000 |
|
Male |
|
71 |
|
126.9 |
|
John Hancock Life Insurance Company (U.S.A) |
|
AA- |
303 |
|
$ |
600,000 |
|
Male |
|
71 |
|
94.9 |
|
AXA Equitable Life Insurance Company |
|
A+ |
304 |
|
$ |
500,000 |
|
Male |
|
70 |
|
102.6 |
|
Transamerica Life Insurance Company |
|
AA- |
305 |
|
$ |
500,000 |
|
Male |
|
70 |
|
102.6 |
|
North American Company for Life And Health Insurance |
|
A+ |
306 |
|
$ |
2,000,000 |
|
Male |
|
68 |
|
124.2 |
|
Transamerica Life Insurance Company |
|
AA- |
307 |
|
$ |
1,000,000 |
|
Male |
|
68 |
|
124.2 |
|
Genworth Life Insurance Company |
|
BBB- |
308 |
|
$ |
1,000,000 |
|
Male |
|
68 |
|
71.2 |
|
Protective Life Insurance Company |
|
AA- |
309 |
|
$ |
2,000,000 |
|
Male |
|
68 |
|
58.2 |
|
MetLife Investors USA Insurance Company |
|
N/A |
310 |
|
$ |
2,000,000 |
|
Male |
|
68 |
|
58.2 |
|
MetLife Investors USA Insurance Company |
|
N/A |
37
|
|
Face Amount |
|
Gender |
|
Age (ALB) |
|
LE (mo.) |
|
Insurance Company |
|
S&P Rating |
|
311 |
|
$ |
156,538 |
|
Female |
|
67 |
|
117.0 |
|
New York Life Insurance Company |
|
AA+ |
312 |
|
$ |
1,000,000 |
|
Male |
|
66 |
|
55.5 |
|
Lincoln National Life Insurance Company |
|
AA- |
313 |
|
$ |
1,000,000 |
|
Male |
|
66 |
|
89.1 |
|
Transamerica Life Insurance Company |
|
AA- |
314 |
|
$ |
250,000 |
|
Male |
|
66 |
|
176.3 |
|
Prudential Life Insurance Company |
|
AA- |
|
|
|
806,273,856 |
|
|
|
|
|
|
|
|
|
|
____________
(1) The insured’s age is current as of the measurement date.
(2) The insured’s life expectancy estimate, other than for a small face value insurance policy benefit, is the average of two life expectancy estimates provided by independent third-party medical actuarial underwriting firms actuarially adjusted through the measurement date.
Competition
We encounter significant competition in the life insurance purchasing and financing business from numerous companies, including hedge funds, investment banks, secured lenders, specialty life insurance finance companies and life insurance companies themselves. Many of these competitors have greater financial and other resources than we do and may have significantly lower cost of funds because they have greater access to insured deposits or the capital markets. Moreover, some of these competitors have significant cash reserves and can better fund shortfalls in collections that might have a more pronounced impact on companies such as ours. They also have greater market share. In the event that certain better-financed life insurance companies make a significant effort to compete against our business or the secondary market in general, we would experience significant challenges with our business model.
Competition can take many forms, including the pricing of the financing, transaction structuring, timeliness and responsiveness in processing a seller’s application and customer service. Some competitors may outperform us in these areas. Some competitors target the same type of life insurance clients as we do and generally have operated in the markets we service for a longer period of time. Increased competition may result in increased costs of purchasing policies or may affect the availability and quality of policies that are available for our purchase. These factors could adversely affect our profitability by reducing our return on investment or increasing our risk.
Government Regulation
The life insurance sector is highly regulated at both the federal and state levels. We are subject to federal and state regulation and supervision in the life insurance purchasing and finance business. There are significant regulations in many states that require us to obtain specific licenses or approvals to be able to purchase life insurance policies in those states. We continually research and monitor regulations and apply for the appropriate licenses in the required states.
Governments at both the federal and state levels have continued to review the impact of the business on the life insurance industry. Moreover, recent federal government actions with respect to insurance companies have increased the federal government’s role in regulating the insurance industry. Recently we have seen legislative efforts by state governments to mandate the sale or liquidation of life insurance policies as part of the Patient Protection and Affordable Care Act in order to increase the number of Americans covered by health insurance and decrease the cost of health care. This legislative effort is designed to monetize all assets of the insured prior to eligibility for health care provided under the Patient Protection and Affordable Care Act. These efforts may affect the number of life insurance policies available for purchase and their attractiveness.
State statutes typically provide state regulatory agencies with significant powers to interpret, administer and enforce the laws relating to the purchase of life insurance policies in those states. Under statutory authority, state regulators have broad discretionary power and may impose new licensing requirements, interpret or enforce existing regulatory requirements in different ways or issue new administrative rules (even if not contained in state statutes). State regulators may also impose rules that are generally adverse to our industry. Because the life insurance secondary market is relatively new and because of the history of certain abuses in the industry, we believe it is likely that state regulation will increase and grow more complex in the foreseeable future. We cannot, however, predict what any new regulation would specifically involve or how it might affect our industry or our business.
38
Any adverse change in present laws or regulations, or their interpretation, in one or more states in which we operate (or an aggregation of states in which we conduct a significant amount of business) could result in a curtailment or termination of operations in such jurisdictions by us, or cause us to modify our operations in a way that adversely affects our ultimate profitability. Any such action could have a corresponding material and negative impact on our results of operations and financial condition, primarily through a material decrease in revenues, and could also negatively affect our general business prospects.
On occasion, the SEC has attempted to regulate the purchase of non-variable life insurance policies as transactions in securities under federal securities laws. In July of 2010, the SEC issued a Staff Report of its Life Settlement Task Force. In that report, the Staff recommended that certain types of purchased life insurance policies be classified as securities. The SEC has not taken any position on the Staff Report, and there is no indication if the SEC will take any action to implement the recommendations of the Staff Report. In addition, there has been several federal court cases in which transactions involving the purchase and fractionalization of life insurance contracts have been held to be transactions in securities under the federal Securities Act of 1933. We presently believe that the matters discussed in the Staff Report, and existing case law, do not impact our current business model since our purchases of life settlements are distinguishable from those cases that have been held by courts, and advocated by the Staff Report, to be transactions in securities. For example, we are not involved in fractionalization of any life insurance policies, and we presently do not purchase variable life insurance policies.
If federal law were to change, whether by action of the Congress or through the courts, with the result that purchases of non-fractionalized and non-variable life insurance policies would be considered transactions in “securities,” we would be in violation of existing covenants under our revolving credit facility requiring us to not operate or be characterized as an “investment company” under the Investment Company Act of 1940. This could in the short-term or long-term affect our liquidity and increase our cost of capital and operational expenses, all of which would adversely affect our operating results. It is possible that such an outcome could threaten the viability of our business and our ability to satisfy our obligations as they come due.
With respect to state securities laws, almost all states currently treat the sale of a life insurance policy as a securities transaction under state laws, although some states exclude from the definition of a security the original sale from the insured or the policy owner to the life settlement provider. To date, due to the manner in which we conduct and structure our activities and the availability, in certain instances, of exceptions and exemptions under securities laws, such laws have not adversely impacted our business model.
State Life Settlement License Requirements
State laws differ as to the extent to which purchasers of life insurance policies are required to be licensed by a state regulatory agency. We may elect to conduct life insurance policy purchasing only in those states in which we are licensed or where no licensure is required. The licensing requirements differ from state to state, but where they exist, they typically require the payment of licensing fees, periodic reporting, and submission to audit by state regulators. We do not intend to purchase any life insurance policies in any states that require a license or similar qualification without first obtaining such license or qualification or purchasing through a licensed provider in that state.
The table below identifies all states (and the District of Columbia) in which we can conduct business directly with the seller of a life insurance policy or through a licensed provider. An asterisk (*) indicates that the state does not require licensing. In those states identified in the right-hand column, we can purchase policies through our provider relationships with Magna Administrative Services, Inc. Abacus Settlements, LLC, and Lotus Life, LLC. If our relationships with either Magna Administrative Services, Abacus Settlements or Lotus Life were to end, for any reason, we believe we would be able to enter into a relationship with a replacement provider shortly thereafter.
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States
Where
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States
Where We Conduct Business
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Alabama* |
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Louisiana |
Arizona |
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Nevada |
Arkansas |
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New Jersey |
California |
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Colorado |
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Connecticut |
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Delaware |
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District of Columbia* |
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Florida |
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Georgia |
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Hawaii |
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Idaho |
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Illinois |
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Indiana |
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Iowa |
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Kansas |
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Kentucky |
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Maine |
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Maryland |
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Massachusetts |
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Michigan* |
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Minnesota |
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Mississippi |
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Missouri* |
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Nebraska |
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New Mexico* |
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New York |
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North Carolina |
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Ohio |
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Oklahoma |
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Oregon |
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Pennsylvania |
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Rhode Island |
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South Carolina* |
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South Dakota* |
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Tennessee |
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Texas |
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Utah |
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Virginia |
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Washington |
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West Virginia |
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Wisconsin |
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Wyoming* |
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We are not presently able to conduct business in the following states due to the fact that we neither have a license to operate in the state nor do we have a relationship with another licensed provider in such state: Alaska, Montana, New Hampshire, North Dakota, and Vermont.
Health Insurance Portability and Accountability Act (HIPAA)
HIPAA requires that holders of medical records maintain such records and implement procedures in ways designed to assure the privacy of patient records. HIPAA has precipitated widespread changes in record keeping, including
40
patient consent forms and access restrictions in data processing software. In order to carry out our business, we receive medical records and obtain a release to share such records with a defined group of persons. We are entitled to have access to patient information, take on the responsibility for preserving the privacy of that information, and use the information only for purposes related to the life insurance policies.
Employees
We employ approximately 40 total, full-time employees.
Company Website Access and SEC Filings
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 are filed with the SEC. We are subject to the informational requirements of the Securities Exchange Act of 1934 and we file or furnish reports, proxy statements and other information with the SEC.
Our general website address is www.gwglife.com . Our website has a wealth of information about our company, its mission, and our business. The contents of the website are not incorporated by reference in, or otherwise a part of, this prospectus.
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DESCRIPTION OF THE REDEEMABLE PREFERRED STOCK
General
We are offering a maximum of 100,000 shares of our Redeemable Preferred Stock, par value $.001 per share, referred to as our “Redeemable Preferred Stock,” in this offering. Each share of Redeemable Preferred Stock has an initial Stated Value of $1,000 per share. Up to a maximum 15% of the aggregate Stated Value of preferred shares purchased from us may be converted into our common stock at a conversion price equal to the volume-weighted average price of our common stock for the 20 trading days immediately prior to the date on which notice of conversion is delivered to us, subject, however, to a minimum conversion price of $15.00. This minimum conversion price will be equitably adjusted upon customary events affecting our share capital, such as stock dividends, subdivisions (splits), and combinations. For more detailed information, see “Redeemable Preferred Stock—Conversion by a Holder” below.
Redeemable Preferred Stock
Our Board of Directors has created, out of our authorized and unissued shares of our preferred stock, a series of preferred stock designated as the Redeemable Preferred Stock. Our Redeemable Preferred Stock is being offered pursuant to this prospectus and will be issued in up to 100,000 shares.
The following is a brief description of the terms of our Redeemable Preferred Stock. The description of our Redeemable Preferred Stock contained herein does not purport to be complete and is qualified in its entirety by reference to the Certificate of Designation for our Redeemable Preferred Stock, which is filed with the SEC as an exhibit to the registration statement, of which this prospectus is a part.
Rank . With respect to dividend rights and rights upon our liquidation, winding-up or dissolution, our Redeemable Preferred Stock ranks:
• senior to our common stock and any other class or series of our capital stock, including capital stock issued in the future, the terms of which expressly provide that our Redeemable Preferred Stock ranks senior to such class or series as to dividend rights or rights on our liquidation, winding-up and dissolution;
• pari passu with our Series A Convertible Preferred Stock;
• senior or pari passu with all other classes and series of our preferred stock;
• junior to each class or series of our capital stock, including capital stock issued in the future, the terms of which expressly provide that such class or series ranks senior to the Redeemable Preferred Stock as to dividend rights or rights on our liquidation, winding up and dissolution; and
• junior to all our existing and future debt obligations.
“Pari passu” means that in determining priority of payment in respect of entitlement to dividends and rights upon our liquidation, winding-up or dissolution, the holders of our Redeemable Preferred Stock, together with the holders of any other class of “pari passu” equity, will be treated equally and without preference.
Stated Value . Each share of Redeemable Preferred Stock has an initial “Stated Value” of $1,000, subject to appropriate adjustment upon certain events such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events as set forth in the Certificate of Designation for our Redeemable Preferred Stock.
Dividends . Subject to the preferential rights of the holders of any class or series of our capital stock ranking senior to our Redeemable Preferred Stock, if any such class or series is authorized in the future, the holders of Redeemable Preferred Stock are entitled to receive, when and as declared by our Board of Directors out of legally available funds, cumulative cash dividends on each share of Redeemable Preferred Stock at an annual rate of 7.00% of the Stated Value on such share.
Dividends on each share of Redeemable Preferred Stock begin accruing on, and are cumulative from, the date of issuance. We expect to pay dividends on the Redeemable Preferred Stock monthly on the first day of each month (or the next following business day thereafter in the event such date is not a business day). In the event that provisions of Delaware law, our Certificate of Incorporation, as amended, or our borrowing agreements prohibit us from paying
42
dividends in cash, and we do not pay dividends through the issuance of preferred stock as described below, unpaid dividends will cumulate.
At our option, we may pay dividends in the form of duly authorized, validly issued, fully paid and non-assessable shares of the Redeemable Preferred Stock. Any Redeemable Preferred Stock we issue in satisfaction of our dividend-payment obligations will be valued at the Stated Value of such shares. We may exercise this option even if we are legally permitted to pay dividends in cash.
At or prior to such time as dividends are due and payable, a holder of Redeemable Preferred Stock may elect to convert all or any portion of such holder’s accrued but unpaid dividends into additional shares of Redeemable Preferred Stock, with each share having a value equal to the Stated Value, subject to adjustment for stock dividends, splits or combinations. In order to exercise this option, a holder must deliver written notice to us before such dividends are paid. We will permit holders to change their election to receive dividends in cash, or dividends through the issuance of additional preferred shares, once per calendar year.
No commissions or additional compensation will be payable on preferred shares issued in satisfaction of our dividend-payment obligations.
Unless full cumulative dividends on our shares of Redeemable Preferred Stock for all past dividend periods through the most recent payment date have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof is set apart for payment, we will not:
• declare a dividend on any other series or class or classes of capital stock as to which the Redeemable Preferred Stock ranks senior or pari passu as to dividends or liquidation, including without limitation shares of common stock, in respect of any period; or
• redeem, purchase or otherwise acquire any series or class of capital stock that ranks junior or pari passu to the Redeemable Preferred Stock (except for the repurchase of shares of common stock from employees, officers, directors, consultants or other persons performing services for us or any of our subsidiaries pursuant to agreements under which we have the right or option to repurchase such shares upon the occurrence of certain events or otherwise, or of shares of Series A Convertible Preferred Stock pursuant to the terms of the Certificate of Designation of Series A Convertible Preferred Stock, or terms superior to those contained within such Certificate of Designation of Series A Convertible Preferred Stock) for any consideration (or any money to be paid into any sinking fund or otherwise set apart for the purchase of any such junior stock).
Redemption Request at the Option of a Holder . Beginning one year from the date of original issuance of any shares of Redeemable Preferred Stock to be redeemed (and subject to the limitations described below under “Restrictions on Redemptions and Repurchases”), the holder will have the opportunity to request once per calendar quarter that we redeem up to 25% of such holder’s Redeemable Preferred Stock originally purchased from us (plus any preferred shares issued in satisfaction of dividends thereon) at a redemption price equal to the Stated Value of the shares to be redeemed, plus any accrued but unpaid dividends thereon, less an applicable redemption fee. As a percentage of the aggregate redemption price of a holder’s shares to be redeemed, the redemption fee shall be:
• 8% if the redemption is requested after the first anniversary and before the second anniversary of the original issuance of such shares.
• 5% if the redemption is requested after the second anniversary and before the third anniversary of the original issuance of such shares.
• Beginning three years from the date of original issuance of such shares, no redemption fee shall be subtracted from the redemption price.
Optional Repurchase Upon Death, Disability or Bankruptcy of a Holder. Subject to certain restrictions and conditions, we will also redeem shares of Redeemable Preferred Stock of a holder who is a natural person (including an individual beneficial holder who holds our preferred shares through a custodian or nominee, such as a broker-dealer) upon his or her death, total disability or bankruptcy, within 60 days of our receipt of a written request from the holder or the holder’s estate at a redemption price equal to the Stated Value, plus accrued and unpaid dividends thereon.
43
A “total disability” means a determination by a physician approved by us that a holder, who was gainfully employed and working on a full-time basis as of the date on which his or her Redeemable Preferred Stock was purchased, has been unable to work on a full-time basis for at least 24 consecutive months. In this regard, the Certificate of Designation for the Redeemable Preferred Stock defines working “on a full-time basis” to mean working at least 40 hours per week.
Optional Redemption by the Company . We will have the right to redeem any or all shares of our Redeemable Preferred Stock beginning on the one-year anniversary of the date of original issuance of such shares of Redeemable Preferred Stock to be redeemed. We will redeem such shares of Redeemable Preferred Stock at a redemption price equal to 100% of the Stated Value per share of Redeemable Preferred Stock, plus any accrued but unpaid dividends thereon.
We may exercise our redemption right by delivering a written notice thereof to all, but not less than all, of the holders of Redeemable Preferred Stock. Each such notice will state the date on which the redemption by us shall occur, which date will be no later than 60 days following the notice date.
Restrictions on Redemption and Repurchase . We will not be obligated in all cases to redeem shares of Redeemable Preferred Stock, whether upon a redemption request by a holder, at the option of the Company, or upon the death, total disability or bankruptcy of a holder. In particular, we will not redeem or repurchase any preferred shares if we are restricted by applicable law or our Certificate of Incorporation, as amended, from making such redemption or to the extent any such redemption would cause or constitute a default under any borrowing agreements to which we or any of our subsidiaries are a party or otherwise bound. In addition, we will have no obligation to redeem preferred shares upon a redemption request made by a holder if we do not have sufficient funds available to fund that redemption. We will have discretion under the Certificate of Designation for the Redeemable Preferred Stock to determine whether we are in possession of “sufficient funds” to fund a redemption request. To the extent we have requests for redemptions that we are unable to satisfy, we will honor redemption requests promptly after we become able to do so, with all such deferred redemption requests being satisfied on a prorated basis, regardless of the order in which we received the requests.
Conversion by a Holder. Subject to the limitations described below, holders of Redeemable Preferred Stock will have the option to convert the Redeemable Preferred Stock they purchase from us and hold into common stock at a conversion price equal to the volume-weighted average price of our common stock for the 20 trading days immediately prior to the date on which notice of conversion is delivered to us, subject, however, to a minimum conversion price of $15.00. This minimum conversion price will be equitably adjusted upon customary events affecting our share capital, such as stock dividends, subdivisions (splits), and combinations.
The right of holders to convert their Redeemable Preferred Stock is limited to 15% of the Stated Value of Redeemable Preferred Stock originally purchased by such holder from us and still held by such holder. For this purpose, shares of Redeemable Preferred Stock issued to holders in satisfaction of our dividend-payment obligations will not count as shares “originally purchased” from us. For example, if you purchase 5,000 shares of Redeemable Preferred Stock having an aggregate Stated Value of $50,000, and over the following one-year period either we ourselves elect to, or you elect to have us, satisfy our dividend-payment obligation through the issuance of additional preferred shares (resulting in our issuance to you of 3.5 additional shares of Redeemable Preferred Stock), the maximum number of shares of Redeemable Preferred Stock you may convert into our common stock will be 750 (having an aggregate Stated Value of $7,500, which is 15% of $50,000).
In the event that we deliver a notice of proposed redemption of an investor’s preferred shares (see the caption “Optional Redemption by the Company” above), the right of a holder to convert those shares into our common stock will be suspended until the redemption date. If, however, we do not consummate the redemption on the redemption date, then the suspension on the right to convert will terminate and holders will once again have the right to convert their preferred shares into our common stock.
Liquidation Preference . Upon any voluntary or involuntary liquidation, dissolution or winding-up of our affairs, before any distribution or payment shall be made to holders of our common stock or any other class or series of capital stock ranking junior to our shares of Redeemable Preferred Stock, the holders of shares of Redeemable Preferred Stock will be entitled to be paid out of our assets legally available for distribution to our stockholders, after payment or provision for our debts and other liabilities, a liquidation preference equal to the Stated Value per share, plus an amount equal to any accrued and unpaid dividends (whether or not declared) to and including the date of payment.
44
After payment of the full amount of the liquidating distributions to which they are entitled, the holders of our shares of Redeemable Preferred Stock will have no right or claim to any of our remaining assets. Our consolidation or merger with or into any other corporation, trust or other entity, the consolidation or merger of any other corporation, trust or entity with or into us, the sale or transfer of any or all our assets or business, or a statutory share exchange will not be deemed to constitute a liquidation, dissolution or winding-up of our affairs.
In determining whether a distribution (other than upon voluntary or involuntary liquidation) by dividend, redemption or other acquisition of shares of our capital stock, or otherwise, is permitted under Delaware law, amounts that would be needed, if we were to be dissolved at the time of any such distribution, to satisfy the preferential rights of the holders of Redeemable Preferred Stock will not be added to our total liabilities.
Voting Rights . Our Redeemable Preferred Stock has no voting rights.
Protective Provisions . Although the Redeemable Preferred Stock has no voting rights relative to matters submitted to a vote of our stockholders (other than as required by law), the affirmative vote or written consent of holders of at least a majority of the then-outstanding shares of Redeemable Preferred Stock, voting together as a single class, either given in writing or by vote at a meeting, is required for us to:
• amend, modify, add, repeal or waive any provision of the Certificate of Designation for the Redeemable Preferred Stock or otherwise take any action that modifies any powers, rights, preferences, privileges or restrictions of the Redeemable Preferred Stock;
• authorize, create or issue shares of any class of stock having rights, preferences or privileges upon our liquidation that are superior to the Redeemable Preferred Stock; or
• amend our Certificate of Incorporation in a manner that adversely and materially affects the rights of the Redeemable Preferred Stock.
Exchange Listing . We do not plan on making an application to list the shares of our Redeemable Preferred Stock on The NASDAQ Capital Market, any other national securities exchange or any other nationally recognized trading system. Our common stock is listed on The NASDAQ Capital Market.
No Sinking Fund
The Redeemable Preferred Stock is not associated with any sinking fund.
Reports
We will publish annual reports containing financial statements and quarterly reports containing financial information for the first three quarters of each fiscal year. We will send copies of these reports, at no charge, to any holder of Redeemable Preferred Stock who sends us a written request.
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PLAN OF DISTRIBUTION
General
We are offering up to a maximum of 100,000 shares of our Redeemable Preferred Stock in this offering through Emerson Equity LLC, our dealer manager, on a “reasonable best efforts” basis, which means that the dealer manager is only required to use its good faith efforts and reasonable diligence to sell the Redeemable Preferred Stock and has no firm commitment or obligation to purchase any specific number or dollar amount of the Redeemable Preferred Stock.
The Redeemable Preferred Stock will be sold at a public offering price of $1,000 per share. Investors may pay cash or exchange their outstanding debt securities of the Company in satisfaction of the aggregate purchase price for the Redeemable Preferred Stock. Redeemable Preferred Stock will not be issued or certificated. This offering is a continuous offering, and we may terminate this offering at any time.
We will sell Redeemable Preferred Stock using DTC settlement and direct settlement with the Company. See “Settlement Procedures” below for more detail.
Emerson Equity LLC is a securities broker-dealer registered with the SEC and a member firm of FINRA. The principal business address of Emerson Equity is 155 Bovet Road, Suite 725, San Mateo, CA 94402. Our dealer manager will manage, direct and supervise its associated persons who will be wholesalers in connection with the offering. We expect our dealer manager to authorize other broker-dealers that are members of FINRA, which we refer to as soliciting broker-dealers, to sell our Redeemable Preferred Stock.
Compensation of Dealer Manager and Soliciting Broker-Dealers
We will pay to our dealer manager and soliciting broker-dealers a selling commission of 6.00% of the gross offering proceeds from this offering for a maximum of $6,000,000. We will also pay additional compensation to soliciting broker-dealers. In particular, the managing dealer and soliciting broker dealers may receive up to 2.00% of the gross offering proceeds as additional compensation consisting of (i) an accountable and non-accountable expense allowance, (ii) a dealer manager fee (payable only to Emerson Equity) for managing and coordinating the offering, (iii) a wholesaling fee (payable only to wholesaling dealers), and (iv) non-cash compensation. We will not pay referral or similar fees to any accountants, attorneys or other persons in connection with the distribution of the debentures.
Additional compensation includes (i) a non-accountable expense allowance of up to 0.60% of gross offering proceeds for a maximum of $600,000; (ii) an accountable allowance expense of up to 0.40% of gross offering proceeds for a maximum of $400,000; (iii) a dealer manager fee of 0.40% gross offering proceeds for a maximum of $400,000; (iv) a wholesaling fee of 0.50% of gross offering proceeds for a maximum of $500,000; and (v) non-cash compensation of up to 0.10% of gross offering proceed for a maximum of $100,000. Final additional compensation will not exceed 2.00% of gross offering proceeds, and the combined selling commission and such additional compensation under this offering will not exceed 8.00% of gross offering proceeds. Our dealer manager will repay to us any payments exceeding 8.00% of gross offering proceeds if this offering is terminated before reaching the maximum amount of offering proceeds.
Our dealer manager may reallow up to 0.60% of any additional compensation it receives to a soliciting broker-dealer. The amount of any such reallowance will be determined by our dealer manager in its sole discretion.
We will not pay any selling commissions, but will pay dealer manager fees, in connection with the sale of Redeemable Preferred Stock to investors whose contracts for investment advisory and related brokerage services include a fixed or “wrap” fee feature. Investors may agree with their broker-dealers to reduce the amount of selling commissions payable with respect to the sale of their Redeemable Preferred Stock down to zero (i) if the investor has engaged the services of a registered investment advisor, or RIA, or other financial advisor who will be paid compensation for investment advisory services or other financial or investment advice, or (ii) if the investor is investing through a bank trust account with respect to which the investor has delegated the decision-making authority for investments made through the account to a bank trust department. The net proceeds to us will not be affected by reducing the commissions payable in connection with such sales. Neither our dealer manager nor its affiliates will directly or indirectly compensate any person engaged as an investment advisor or a bank trust department by a potential investor as an inducement for such investment advisor or bank trust department to advise favorably for an investment in Redeemable Preferred Stock.
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No commissions or additional compensation will be payable on preferred shares issued in satisfaction of our dividend-payment obligations.
Dealer Manager and Soliciting Broker-Dealer Compensation
The table below sets forth the nature and estimated amount of all items viewed as compensation by FINRA, assuming we sell all the Redeemable Preferred Stock offered hereby.
|
|
Per Share |
|
Maximum Offering |
||
Public offering price |
|
$ |
1,000 |
|
$ |
100,000,000 |
Selling commissions (1)(3) |
|
$ |
60 |
|
$ |
6,000,000 |
Additional compensation (2)(3) |
|
$ |
20 |
|
$ |
2,000,000 |
Proceeds, before expenses, to us |
|
$ |
9,200 |
|
$ |
92,000,000 |
____________
(1) Selling commissions will equal 6.00% of aggregate gross proceeds, and will be payable to each soliciting broker-dealer as authorized by us and Emerson Equity LLC, the managing broker-dealer or “dealer manager” for this offering.
(2) Additional compensation consists of (i) a non-accountable expense allowance of up to 0.60% of gross offering proceeds, (ii) an accountable expense allowance of up to 0.40% of gross offering proceeds, (iii) a dealer manager fee (payable only to Emerson Equity) of 0.40% of gross offering proceeds for managing and coordinating the offering, (iv) a wholesaling fee (payable only to wholesaling dealers) of 0.50% of gross offering proceeds, and (v) non-cash compensation of up to 0.10% of gross offering proceeds. Aggregate additional compensation will not exceed 2.0% of gross offering proceeds. The dealer manager may reallow up to 0.60% of additional compensation to other soliciting broker-dealers. The amount of the reallowance to any soliciting broker-dealer will be determined by the dealer manager in its sole discretion.
(3) The combined selling commissions and additional compensation for this offering will not exceed 8.00% of the aggregate gross proceeds of this offering. Our dealer manager will repay us any selling commission and additional compensation payments exceeding 8.00% of gross offering proceeds if this offering is terminated before reaching the maximum amount of offering proceeds.
To the extent permitted by law and our Certificate of Incorporation, we will indemnify the soliciting broker-dealers and the dealer manager against certain civil liabilities, including certain liabilities arising under the Securities Act of 1933 and liabilities arising from breaches of our representations and warranties contained in the dealer manager agreement. Nevertheless, the SEC takes the position that indemnification against liabilities arising under the Securities Act of 1933 is against public policy and is not enforceable.
We will be responsible for the expenses of issuance and distribution of the Redeemable Preferred Stock in this offering, including registration fees, printing expenses and our legal and accounting fees, which we estimate will total approximately $300,000 (excluding selling commissions and dealer manager fees).
The obligations of the dealer manager may be terminated in the event of a material adverse change in economic, political or financial conditions or upon the occurrence of certain other conditions specified in the dealer manager agreement.
Settlement Procedures
We are settling purchases of our Redeemable Preferred Stock through a DTC participant (referred to as “DTC settlement”) or directly with the Company.
If your broker-dealer uses DTC settlement, then you may place an order for the purchase of Redeemable Preferred Stock through your broker-dealer. Investors purchasing Redeemable Preferred Stock through DTC settlement will coordinate with their registered representatives to pay the full purchase price for their Redeemable Preferred Stock by the applicable settlement date, and such payments will not be held in escrow. When settling their purchase through DTC settlement, investors purchasing Redeemable Preferred Stock will coordinate with their registered representatives of broker-dealer firms to pay the full purchase price for their Redeemable Preferred Stock by the settlement date, and such payments will not be held in escrow. Your broker-dealer will ensure your order is electronically placed with us and that we timely receive your subscription amount. There is no need to furnish us with a Subscription Agreement when you purchase through a DTC participant. Once we have received your subscription amount, we will either reject or accept your subscription. Once accepted based on our monthly closing cycle, we will have immediate access to your subscription amount and we will issue you the shares of Redeemable Preferred Stock you have purchased.
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When settling their purchase directly with the Company, investors will send their completed and executed Subscription Agreement, together with their subscription amount, to us at the address listed in “How to Purchase Redeemable Preferred Stock.” Your subscription amount should be paid through a certified check or personal check payable to the order of “GWG Holdings, Inc.—Subscription Account.” In lieu of paying by check, you may wire your subscription amount to the account referenced in “How to Purchase Redeemable Preferred Stock.” If you are working with a broker-dealer or other investment professional, your broker-dealer or professional will gather and send in the required information on your behalf, and may facilitate your payment of the subscription amount. Once we have received your subscription amount and required documentation, we will either reject or accept your subscription. Once accepted, we will have immediate access to your subscription amount and we will issue you, in book-entry form, the shares of Redeemable Preferred Stock you have purchased. See “Settlement Procedures” below for a description of the closing procedures.
Each soliciting dealer who sells shares on our behalf has the responsibility to make every reasonable effort to determine that the purchase of shares is appropriate for the investor. In making this determination, the soliciting broker-dealer will rely on relevant information provided by the investor, including information as to the investor’s age, investment objectives, investment experience, income, net worth, financial situation, other investments and other pertinent information. Each investor should be aware that the soliciting broker-dealer will be responsible for determining whether this investment is appropriate for your portfolio. Nevertheless, you may be required to represent and warrant to the registered representative that you have received a copy of this prospectus and have had sufficient time to review this prospectus. The selling broker-dealer will maintain records of any information used to determine that an investment in the Redeemable Preferred Stock is suitable and appropriate for an investor.
Minimum Purchase Requirements
For your initial investment in our Redeemable Preferred Stock, you must invest at least $10,000, or such lesser amount as we in our discretion accept. In order to satisfy the minimum purchase requirement for retirement plans, unless otherwise prohibited by state law, a husband and wife may jointly contribute funds from their separate IRAs. You should note that an investment in the Redeemable Preferred Stock will not, in itself, create a retirement plan and that, in order to create a retirement plan, you must comply with all applicable provisions of the Internal Revenue Code of 1986.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material United States federal income tax considerations relating to the initial purchase, ownership and disposition of shares of Redeemable Preferred Stock. This discussion is a summary only and is not a complete analysis of all the potential tax considerations relating to the purchase, ownership and disposition of the Redeemable Preferred Stock. We have based this summary on current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable U.S. Treasury Regulations promulgated thereunder, judicial opinions, and published rulings of the Internal Revenue Service (the “IRS”), all as in effect on the date of this prospectus. However, these laws and other guidance are subject to differing interpretations or change, possibly with retroactive effect. In addition, we have not sought, and will not seek, a ruling from the IRS or an opinion of counsel with respect to any tax consequences of purchasing, owning or disposing of Redeemable Preferred Stock. Thus, the IRS could take a different position regarding one or more of the tax consequences or matters described in this prospectus; and there can be no assurance that any position taken by the IRS would not be sustained.
This discussion is limited to purchasers of Redeemable Preferred Stock who acquire the Redeemable Preferred Stock from us in this offering and hold the Redeemable Preferred Stock as capital assets for federal income tax purposes. This discussion does not address all possible tax consequences that may be applicable to you in light of your specific circumstances. For instance, this discussion does not address the alternative minimum tax provisions of the Code, or special rules applicable to some categories of investors such as financial institutions, insurance companies, tax-exempt organizations, securities dealers, real estate investment trusts, regulated investment companies, or persons who hold Redeemable Preferred Stock as part of a hedge, conversion or constructive sale transaction, straddle or other risk reduction transaction that may be subject to special rules. This discussion also does not address the tax consequences arising under the laws of any foreign, state or local jurisdiction; or any U.S. estate or gift tax laws.
If you are considering the purchase of Redeemable Preferred Stock, you should consult your own tax advisors as to the particular tax consequences to you of acquiring, holding or otherwise disposing of the Redeemable Preferred Stock, including the effect and applicability of state, local or foreign tax laws, or any U.S. estate and gift tax laws.
U.S. Holders
As used in this discussion, the term “U.S. holder” means a holder of Redeemable Preferred Stock that is:
• for United States federal income tax purposes, a citizen or resident of the United States;
• a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof or other entity characterized as a corporation or partnership for federal income tax purposes;
• an estate, the income of which is subject to United States federal income taxation regardless of its source; or
• a trust, the administration of which is subject to the primary supervision of a court within the United States and which has one or more United States persons with authority to control all substantial decisions, or if the trust was in existence on August 20, 1996, and has elected to continue to be treated as a United States trust.
Cash Distributions. In general, cash distributions, if any, made with respect to our Redeemable Preferred Stock will be treated as dividends to the extent of our current and accumulated earnings and profits as determined for U.S. federal income tax purposes. Any portion of a distribution that exceeds our current and accumulated earnings and profits will first reduce a U.S. holder’s tax basis in the Redeemable Preferred Stock, and the excess will be treated as gain from the disposition of Redeemable Preferred Stock, the tax treatment of which is discussed below under “Disposition of Redeemable Preferred Stock, Including Redemptions.” We currently do not have accumulated earnings and profits. Additionally, we may not have sufficient current earnings and profits during future fiscal years for any distributions on the Redeemable Preferred Stock to qualify as dividends for U.S. federal income tax purposes.
Dividends received by individual holders of Redeemable Preferred Stock will generally be subject to a maximum tax rate of up to 20% if such dividends are treated as “qualified dividend income” for U.S. federal income tax purposes. That preferential rate does not apply to dividends received to the extent that the individual shareholder elects to treat
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the dividends as “investment income,” which may be offset against investment expenses. Furthermore, the preferential rate does not apply to dividends that are paid to individual shareholders with respect to the Redeemable Preferred Stock that is held for 60 days or less during the 121-day period beginning on the date which is 60 days before the date on which the Redeemable Preferred Stock becomes ex-dividend (or where the dividend is attributable to a period or periods in excess of 366 days, Redeemable Preferred Stock that is held for 90 days or less during the 181-day period beginning on the date which is 90 days before the date on which the Redeemable Preferred Stock becomes ex-dividend). In addition, if a dividend received by an individual shareholder that qualifies for the rate reduction is an “extraordinary dividend” within the meaning of Section 1059 of the Code, any loss recognized by such individual holder on a subsequent disposition of the stock will be treated as long-term capital loss to the extent of such “extraordinary dividend.” In addition, dividends recognized by certain U.S. holders could be subject to the 3.8% Medicare tax on net investment income. Shareholders should consult their own tax advisors regarding the implications of these rules in light of their particular circumstances.
Dividends received by corporate holders of Redeemable Preferred Stock generally will be eligible for the dividends-received deduction. Generally, this deduction is allowed if the underlying stock is held for at least 46 days during the 91 day period beginning on the date 45 days before the ex-dividend date of the stock, and for cumulative preferred stock with an arrearage of dividends attributable to a period in excess of 366 days, the holding period is at least 91 days during the 181-day period beginning on the date 90 days before the ex-dividend date of the stock. Corporate holders of Redeemable Preferred Stock should also consider the effect of Section 246A of the Code, which reduces the dividends-received deduction allowed to a corporate shareholder that has incurred indebtedness that is “directly attributable” to an investment in portfolio stock such as preferred stock. If a corporate shareholder receives a dividend on the Redeemable Preferred Stock that is an “extraordinary dividend” within the meaning of Section 1059 of the Code, the shareholder in certain instances must reduce its tax basis in the Redeemable Preferred Stock by the amount of the “nontaxed portion” of such “extraordinary dividend” that results from the application of the dividends-received deduction. If the “nontaxed portion” of such “extraordinary dividend” exceeds such corporate shareholder’s tax basis, any excess will be taxed as gain as if such shareholder had disposed of its shares in the year the “extraordinary dividend” is paid. Each corporate U.S. holder is urged to consult with its tax advisors with respect to the eligibility for and amount of any dividends received deduction and the application of Section 1059 of the Code to any dividends it receives on our Redeemable Preferred Stock.
Constructive Distributions on Redeemable Preferred Stock. A distribution of stock by a corporation may be deemed made with respect to its preferred stock in certain circumstances, even when no distribution of cash or property occurs, and such a deemed distribution is treated as a distribution of property under Code Section 301. If a corporation issues preferred stock that may be redeemed at a price higher than its issue price, the difference between the two prices (“redemption premium”) is treated under certain circumstances as a constructive distribution (or series of constructive distributions) of additional preferred stock.
The constructive distribution of property would accrue without regard to the holder’s method of accounting for U.S. federal income tax purposes at a constant yield determined under principles similar to the determination of original issue discount (“OID”) under Treasury regulations under Sections 1271 through 1275 of the Code (the “OID Rules”). The constructive distributions of property would be treated for U.S. federal income tax purposes as distributions of preferred stock that would constitute a dividend, return of capital or capital gain to the holder of the stock in the same manner as cash distributions described under “Material U.S. Federal Income Tax Considerations—U.S. Holders: Cash Distributions.” The application of principles similar to those applicable to debt instruments with OID to a redemption premium for the Redeemable Preferred Stock is uncertain.
We have the right to call the Redeemable Preferred Stock for redemption one year after the date of original issuance of shares of Redeemable Preferred Stock (the “call option”) at a price of 100% of the Stated Value plus any accrued but unpaid dividends thereon. We are required to redeem the Redeemable Preferred Stock of a holder who is a natural person upon his or her death, disability or bankruptcy within 60 days of receipt of a written request of the holder or the holder’s estate at a redemption price equal to the Stated Value plus accrued and unpaid dividends thereon through and including the date of redemption.
If the redemption price of the Redeemable Preferred Stock exceeds the issue price of Redeemable Preferred Stock upon any redemption, the excess will be treated as a redemption premium that may result in certain circumstances in a constructive distribution or series of constructive distributions of additional Redeemable Preferred Stock. Assuming that the issue price of the Redeemable Preferred Stock is determined under principles similar to the OID Rules, the
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issue price for the Redeemable Preferred Stock should be the initial offering price to the public (excluding bond houses and brokers) at which a substantial amount of the Redeemable Preferred Stock is sold.
A redemption premium for the Redeemable Preferred Stock should not result in constructive distributions if the redemption premium is less than a de minimis amount as determined under principles similar to the OID Rules. A redemption premium should be considered de minimis if such premium is less than one quarter of one percent of the Redeemable Preferred Stock’s liquidation value, multiplied by the number of complete years such stock was held. Because the determination under the OID Rules of a maturity date for the Redeemable Preferred Stock is unclear, the remainder of this discussion assumes that the Redeemable Preferred Stock is issued with a redemption premium greater than a de minimis amount.
The call option should not require constructive distributions of the redemption premium, if based on all of the facts and circumstances as of the issue date, a redemption pursuant to the call option is not more likely than not to occur. The Treasury regulations provide that an issuer’s right to redeem will not be treated as more likely than not to occur if: (i) the issuer and the holder of the stock are not related within the meaning of Section 267(b) or Section 707(b) of the Code (substituting “20%” for the phrase “50%”); (ii) there are no plans, arrangements, or agreements that effectively require or are intended to compel the issuer to redeem the stock; and (iii) exercise of the right to redeem would not reduce the yield on the stock determined using principles applicable to the determination of OID under the OID rules. The fact that a redemption right is not within the safe harbor described in the preceding sentence does not mean that an issuer’s right to redeem is more likely than not to occur and the issuer’s right to redeem must still be tested under all the facts and circumstances to determine if it is more likely than not to occur. We do not believe that redemption pursuant to the call option should be treated as more likely than not to occur under the foregoing test. Accordingly, no U.S. holder of the Redeemable Preferred Stock should be required to recognize constructive distributions of the redemption premium because of our call option.
Prospective purchasers of Redeemable Preferred Stock should consult their own tax advisors regarding the potential implications of these constructive distribution rules.
Holder’s Conversion Option . If a U.S. holder’s shares of Redeemable Preferred Stock are converted into our common stock, the holder should not recognize gain or loss upon the conversion except as noted below. If a U.S. holder receives cash in lieu of a fractional share of stock, the holder should recognize gain or loss equal to the difference between the cash received and that portion of such holder’s basis in the stock attributable to the fractional share. The U.S. holder’s conversion of Redeemable Preferred Stock into common stock may result in a deemed distribution taxed in the same manner as a cash distribution described under the heading “Material U.S. Federal Income Tax Consequences—U.S. Holder: Cash Distributions” if either: (i) the holder’s right is pursuant to a plan to periodically increase a shareholder’s proportionate interest in our assets or earnings and profits, or (ii) there are dividends in arrears on the Redeemable Preferred Stock at the time of the conversion, and as a result, the holder’s interest in our assets or earnings and profits increases. In the latter case, the amount of the constructive distribution is limited to the lesser of (i) the redemption premium; or (ii) the amount of dividends in arrears on the Redeemable Preferred Stock. We believe that any conversion of the Redeemable Preferred Stock into common stock should not be treated as pursuant to a plan to periodically increase the holders’ interest in the assets or earnings and profits of the Company. Accordingly, the amount of any deemed distribution upon conversion should be the lesser of: (i) the redemption premium for Redeemable Preferred Stock or (ii) the amount of dividends in arrears.
A U.S. holder’s initial tax basis in common stock received in the conversion will be equal to such holder’s basis in the Redeemable Preferred Stock surrendered in the exchange (taking into account the basis of any fractional share for which cash is paid), and the holding period for such common stock will include the period during which the holder held such Redeemable Preferred Stock. Generally, a U.S. holder’s initial tax basis in any common stock (or portion thereof) considered received as a constructive distribution will be equal to its fair market value, and the holding period with respect to such common stock will begin on the date of the exchange.
Disposition of Redeemable Preferred Stock, Including Redemptions. Upon any sale, exchange, redemption (except as discussed below) or other disposition of the Redeemable Preferred Stock, a U.S. holder will recognize capital gain or loss equal to the difference between the amount realized by the U.S. holder and the U.S. holder’s adjusted tax basis in the Redeemable Preferred Stock. Such capital gain or loss will be long-term capital gain or loss if the U.S. holder’s holding period for the Redeemable Preferred Stock is longer than one year. A U.S. holder should consult its own tax advisors with respect to applicable tax rates and netting rules for capital gains and losses. Certain
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limitations exist on the deduction of capital losses by both corporate and non-corporate taxpayers. In addition, gains recognized by non-corporate U.S. holders could be subject to the 3.8% tax on net investment income.
A redemption of shares of Redeemable Preferred Stock will generally be a taxable event. If the redemption is treated as a sale or exchange, instead of a dividend, a U.S. holder will recognize capital gain or loss (which will be long-term capital gain or loss, if the U.S. holder’s holding period for such shares exceeds one year) equal to the difference between the amount realized by the U.S. holder and the U.S. holder’s adjusted tax basis in the Redeemable Preferred Stock redeemed, except to the extent that any cash received is attributable to any declared but unpaid dividends, which will be subject to the rules discussed above in “Material U.S. Federal Income Tax Considerations—U.S. Holders: Cash Distributions.” A payment made in redemption of Redeemable Preferred Stock may be treated as a distribution, rather than as payment in exchange for the Redeemable Preferred Stock, unless the redemption:
• is “not essentially equivalent to a dividend” with respect to a U.S. holder under Section 302(b)(1) of the Code;
• is a “substantially disproportionate” redemption with respect to a U.S. holder under Section 302(b)(2) of the Code;
• results in a “complete redemption” of a U.S. holder’s stock interest in the company under Section 302(b)(3) of the Code; or
• is a redemption of stock held by a non-corporate shareholder, which results in a partial liquidation of the company under Section 302(b)(4) of the Code.
In determining whether any of these tests has been met, a U.S. holder must take into account not only shares of the Redeemable Preferred Stock and our common stock that the U.S. holder actually owns, but also shares of stock that the U.S. holder owns through attribution under Code Section 318.
A redemption payment will be treated as “not essentially equivalent to a dividend” if it results in a “meaningful reduction” in a U.S. holder’s aggregate stock interest in the company, which will depend on the U.S. holder’s particular facts and circumstances at such time. If the redemption payment is treated as a distribution, the rules discussed above in “Material U.S. Federal Income Tax Considerations—U.S. Holders: Cash Distributions” apply.
Satisfaction of the “complete redemption” and “substantially disproportionate” exceptions is dependent upon compliance with the objective tests set forth in Code Section 302(b). A redemption will result in a “complete redemption” if either all of the shares of our stock actually and constructively owned by a U.S. holder are exchanged in the redemption or all of the shares of our stock actually owned by the U.S. holder are exchanged in the redemption and the U.S. holder effectively waives the attribution of shares of our stock constructively owned by the U.S. holder in accordance with Code Section 302(c)(2). A redemption does not qualify for the “substantially disproportionate” exception if the stock redeemed is only non-voting stock, and for this purpose, stock which does not have voting rights until the occurrence of an event is not voting stock until the occurrence of the specified event. Accordingly, any redemption of the Redeemable Preferred Stock will not qualify for this exception because the Redeemable Preferred Stock does not have voting rights.
For purposes of the “redemption from non-corporate shareholders in a partial liquidation” test, a distribution will be treated as in partial liquidation if the distribution is not essentially equivalent to a dividend (determined at the corporate level rather than the shareholder level) and the distribution is pursuant to a plan and occurs within the taxable year in which the plan was adopted or within the succeeding taxable year. For these purposes, a distribution is generally not essentially equivalent to a dividend if the distribution results in a corporate contraction. The determination of what constitutes a corporate contraction is factual in nature, and has been interpreted under case law to include the termination of a business or line of business.
Each U.S. holder of the Redeemable Preferred Stock should consult its own tax advisors to determine whether a payment made in redemption of the Redeemable Preferred Stock will be treated as a dividend or a payment in exchange for the Redeemable Preferred Stock. If the redemption payment is treated as a dividend, the rules discussed above in “Material U.S. Federal Income Tax Considerations—U.S. Holders: Cash Distributions” apply.
Information Reporting and Backup Withholding. Information reporting and backup withholding may apply with respect to payments of dividends on, and to certain payments of proceeds on the redemption of, the Redeemable
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Preferred Stock. Certain non-corporate U.S. holders may be subject to U.S. backup withholding (currently at a rate of 28%) on payments of dividends on, and certain payments of proceeds on the sale or other disposition of, the Redeemable Preferred Stock unless the beneficial owner thereof furnishes the payor or its agent with a taxpayer identification number, certified under penalties of perjury, and certain other information, or otherwise establishes, in the manner prescribed by law, an exemption from backup withholding.
U.S. backup withholding tax is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder’s U.S. federal income tax liability, which may entitle the U.S. holder to a refund, provided the U.S. holder timely furnishes the required information to the IRS.
Non-U.S. Holders
For the purposes of this discussion, a “non-U.S. holder” means any holder of Redeemable Preferred Stock other than a U.S. holder. Any Redeemable Preferred Stock purchaser who is not a U.S. citizen will be required to furnish appropriate documentation that clearly states whether it is subject to U.S. withholding taxes, in accordance with applicable requirements of the IRS.
Distributions on the Redeemable Preferred Stock. If distributions are made with respect to the Redeemable Preferred Stock (including constructive distributions as discussed under the heading “Material U.S. Federal Income Tax Considerations—Constructive Distributions on Redeemable Preferred Stock”), such distributions will be treated as dividends to the extent of our current and accumulated earnings and profits as determined under the Code and may be subject to withholding as discussed below. Any portion of a distribution that exceeds our current and accumulated earnings and profits will first be applied to reduce the Non-U.S. holder’s basis in the Redeemable Preferred Stock and, to the extent such portion exceeds the Non-U.S. holder’s basis, the excess will be treated as gain from the disposition of the Redeemable Preferred Stock, the tax treatment of which is discussed below under “Material U.S. Federal Income Tax Considerations—Non-U.S. Holders: Disposition of Redeemable Preferred Stock, Including Redemptions.” In addition, if we are a U.S. real property holding corporation (a “USRPHC”) and any distribution exceeds our current and accumulated earnings and profits, we will need to choose to satisfy our withholding requirements either by treating the entire distribution as a dividend, subject to the withholding rules in the following paragraph (and withhold at the applicable rate), or by treating only the amount of the distribution equal to our reasonable estimate of our current and accumulated earnings and profits as a dividend, subject to the withholding rules in the following paragraph, with the excess portion of the distribution subject to withholding at the applicable rate (discussed below under “Material U.S. Federal Income Tax Considerations—Non-U.S. Holders: Disposition of Redeemable Preferred Stock, Including Redemptions”), with a credit generally allowed against the Non-U.S. holder’s U.S. federal income tax liability in an amount equal to the amount withheld from such excess.
Dividends paid to a Non-U.S. holder of the Redeemable Preferred Stock will be subject to withholding of U.S. federal income tax at a 30% rate or the rate specified by an applicable income tax treaty. However, dividends that are effectively connected with the conduct of a trade or business by the Non-U.S. holder within the United States (and, where a tax treaty applies, are attributable to a permanent establishment (or in the case of an individual, a fixed base) maintained by the Non-U.S. holder in the United States) are not subject to the withholding tax, provided that certain certification and disclosure requirements are satisfied including completing IRS Form W-8ECI (or other applicable form). Instead, such dividends are subject to U.S. federal income tax on a net income basis in the same manner as if the Non-U.S. holder were a United States person as defined under the Code, unless an applicable income tax treaty provides otherwise. Any such effectively connected dividends received by a foreign corporation may be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
A Non-U.S. holder who wishes to claim the benefit of an applicable treaty rate and avoid backup withholding, as discussed below, for dividends will be required to (i) complete IRS Form W-8BEN (or other applicable form) and certify under penalty of perjury that such holder is not a United States person as defined under the Code and is eligible for treaty benefits, or (ii) if the Redeemable Preferred Stock is held through certain foreign intermediaries, satisfy the relevant certification requirements of applicable Treasury regulations.
A Non-U.S. holder eligible for a reduced rate of U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.
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Disposition of Redeemable Preferred Stock, Including Redemptions. Any gain realized by a Non-U.S. holder on the disposition of the Redeemable Preferred Stock will not be subject to U.S. federal income or withholding tax unless:
• the gain is effectively connected with a trade or business of the Non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment (or, in the case of an individual, a fixed base) maintained by the Non-U.S. holder in the United States);
• the Non-U.S. holder is an individual who is present in the United States for 183 days or more in the taxable year of disposition, and certain other conditions are met; or
• we are or have been a USRPHC for U.S. federal income tax purposes, as such term is defined in Section 897(c) of the Code, and such Non-U.S. holder owned directly or pursuant to attribution rules at any time during the five-year period ending on the date of disposition more than 5% of the Redeemable Preferred Stock. This assumes that the Redeemable Preferred Stock is regularly traded on an established securities market, within the meaning of Section 897(c)(3) of the Code. We do not believe that we are currently a USRPHC or that we will become one in the future although we cannot be certain of our future operations and asset holdings.
A Non-U.S. holder described in the first bullet point immediately above will generally be subject to tax on the net gain derived from the sale under regular graduated U.S. federal income tax rates in the same manner as if the Non-U.S. holder were a United States person as defined under the Code, and if it is a corporation, may also be subject to the branch profits tax equal to 30% of its effectively connected earnings and profits or at such lower rate as may be specified by an applicable income tax treaty. An individual Non-U.S. holder described in the second bullet point immediately above will be subject to a flat 30% tax (or at such reduced rate as may be provided by an applicable treaty) on the gain derived from the sale, which may be offset by U.S. source capital losses, even though the individual is not considered a resident of the United States. A Non-U.S. holder described in the third bullet point above will be subject to U.S. federal income tax under regular graduated U.S. federal income tax rates with respect to the gain recognized in the same manner as if the Non-U.S. holder were a United States person as defined under the Code.
If a Non-U.S. holder is subject to U.S. federal income tax on any sale, exchange, redemption (except as discussed below), or other disposition of the Redeemable Preferred Stock, such a Non-U.S. holder will recognize capital gain or loss equal to the difference between the amount realized by the Non-U.S. holder and the Non-U.S. holder’s adjusted tax basis in the Redeemable Preferred Stock. Such capital gain or loss will be long-term capital gain or loss if the Non-U.S. holder’s holding period for the Redeemable Preferred Stock is longer than one year. A Non-U.S. holder should consult its own tax advisors with respect to applicable tax rates and netting rules for capital gains and losses. Certain limitations exist on the deduction of capital losses by both corporate and non-corporate taxpayers.
If a Non-U.S. holder is subject to U.S. federal income tax on any disposition of the Redeemable Preferred Stock, a redemption of shares of the Redeemable Preferred Stock will be a taxable event. If the redemption is treated as a sale or exchange, instead of a dividend, a Non-U.S. holder generally will recognize long-term capital gain or loss, if the Non-U.S. holder’s holding period for such Redeemable Preferred Stock exceeds one year, equal to the difference between the amount of cash received and fair market value of property received and the Non-U.S. holder’s adjusted tax basis in the Redeemable Preferred Stock redeemed, except that to the extent that any cash received is attributable to any declared but unpaid dividends on the Redeemable Preferred Stock, which generally will be subject to the rules discussed above in “Material U.S. Federal Income Tax Considerations—Non-U.S. Holders: Distributions on the Redeemable Preferred Stock.” A payment made in redemption of the Redeemable Preferred Stock may be treated as a dividend, rather than as payment in exchange for the Redeemable Preferred Stock, in the same circumstances discussed above under “Material U.S. Federal Income Tax Considerations—U.S. Holders: Disposition of Redeemable Preferred Stock, Including Redemptions.” Each Non-U.S. holder of the Redeemable Preferred Stock should consult its own tax advisors to determine whether a payment made in redemption of the Redeemable Preferred Stock will be treated as a dividend or as payment in exchange for the Redeemable Preferred Stock.
Information Reporting and Backup Withholding. We must report annually to the IRS and to each Non-U.S. holder the amount of dividends paid to such Non-U.S. holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns may also be made available to the tax authorities in the country in which the Non-U.S. holder resides under the provisions of an applicable income tax treaty.
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A Non-U.S. holder will not be subject to backup withholding on dividends paid to such Non-U.S. holder as long as such Non-U.S. holder certifies under penalty of perjury that it is a Non-U.S. holder (and the payor does not have actual knowledge or reason to know that such Non-U.S. holder is a United States person as defined under the Code), or such Non-U.S. holder otherwise establishes an exemption.
Depending on the circumstances, information reporting and backup withholding may apply to the proceeds received from a sale or other disposition of the Redeemable Preferred Stock unless the beneficial owner certifies under penalty of perjury that it is a Non-U.S. holder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a United States person as defined under the Code), or such owner otherwise establishes an exemption.
U.S. backup withholding tax is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.
Accounts at Foreign Financial Institutions. The Foreign Account Tax Compliance Act (“FATCA”), will generally impose a 30% withholding tax on dividends on, and the gross proceeds of a disposition of, Redeemable Preferred Stock that are paid to: (i) a foreign financial institution (as that term is defined in Section 1471(d)(4) of the Code) unless that foreign financial institution satisfies certain requirements, including entering into an agreement with the U.S. Treasury Department to collect and disclose information regarding U.S. account holders of that foreign financial institution (directly or indirectly); and (ii) certain other foreign entities unless such entity certifies that it does not have any substantial U.S. owners or provides information for each substantial U.S. owner and such entity satisfies other specified requirements. Foreign financial institutions located in jurisdictions that have an “intergovernmental agreement” with the United States governing FATCA may be subject to different rules.
Although FATCA generally applies now, IRS guidance indicates that the FATCA withholding tax of 30% will not apply to gross proceeds from the disposition of shares of our Redeemable Preferred Stock until after December 31, 2016.
Although administrative guidance and final Treasury regulations regarding the FATCA rules have recently been issued, the exact scope of these rules remains unclear. Prospective investors should consult their own tax advisors regarding the possible impact of these rules on their investment in the Redeemable Preferred Stock.
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STATE, LOCAL AND FOREIGN TAXES
We make no representations regarding the tax consequences of the purchase, ownership or disposition of the Redeemable Preferred Stock under the tax laws of any state, locality or foreign country. You should consult your own tax advisors regarding these state and foreign tax consequences.
LEGAL MATTERS
Certain legal matters in connection with the Redeemable Preferred Stock will be passed upon for us by Maslon LLP, of Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of GWG Holdings, Inc. and its subsidiaries as of and for the years ended December 31, 2014 and December 31, 2013, incorporated by reference in this prospectus and in the registration statement of which this prospectus is a part, have been audited by Baker Tilly Virchow Krause, LLP, an independent registered public accounting firm. As indicated in their report with respect thereto, these consolidated financial statements are included in this prospectus in reliance upon the authority of such firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the Redeemable Preferred Stock to be offered and sold pursuant to the prospectus which is a part of that registration statement. This prospectus does not contain all the information contained in the registration statement. For further information with respect to us and the Redeemable Preferred Stock to be sold in this offering, we refer you to the registration statement, including the agreements, other documents and schedules filed as exhibits to the registration statement, and the documents incorporated by reference into the prospectus.
We file annual, quarterly and current reports, and other information with the SEC. We intend to make these filings available on our website at www.gwglife.com . Information on our website is not incorporated by reference in this prospectus. We maintain an office at 220 South Sixth Street, Suite 1200, Minneapolis, MN 55402, where all records concerning the Redeemable Preferred Stock are to be retained. Redeemable Preferred Stock holders and their representatives can request information regarding the Redeemable Preferred Stock by contacting our office by mail at our address or by telephone at (612) 746-1944 or by fax at (612) 746-0445. Upon request, we will provide copies of our filings with the SEC free of charge to our investors. Our SEC filings, including the registration statement of which this prospectus is a part, will also be available on the SEC’s Internet site at http://www.sec.gov . You may read and copy all or any portion of the registration statement or any reports, statements or other information we file at the SEC’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. In addition, you may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. You may receive copies of these documents upon payment of a duplicating fee by writing to the SEC.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We are incorporating certain information about us that we have filed with the SEC by reference in this prospectus, which means that we are disclosing important information to you by referring you to those documents. The information we incorporate by reference is an important part of this prospectus.
We incorporate by reference the following documents we have filed with the SEC:
• Our Annual Report on Form 10-K for the period ended December 31, 2014, filed with the SEC on March 13, 2015;
• Our Quarterly Reports on Form 10-Q for the period ended June 30, 2015, filed with the SEC on August 13, 2015 and for the period ended March 31, 2015, filed with the SEC on May 14, 2015;
• Our Current Reports on Form 8-K filed with the SEC on August 11, 2015, June 2, 2015, May 13, 2015, May 12, 2015, May 6, 2015, and February 18, 2015; and
• Our definitive proxy statement filed with the SEC on April 30, 2015.
We are not, however, incorporating by reference any documents or portions thereof, whether specifically listed above or filed in the future, that are not deemed “filed” with the SEC or any information furnished pursuant to Items 2.02 or 7.01 of Form 8-K or certain exhibits furnished pursuant to Item 9.01 of Form 8-K.
The section entitled “Where You Can Find More Information” above describes how you can obtain or access any documents or information that we have incorporated by reference herein. The information relating to us contained in this prospectus does not purport to be comprehensive and should be read together with the information contained in the documents incorporated or deemed to be incorporated by reference in this prospectus.
Upon written or oral request, we will provide, free of charge, to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the reports or documents that are incorporated by reference into this prospectus. Such written or oral requests should be made to:
Jon L. Gangelhoff, Chief Operating Officer
220 South Sixth Street, Suite 1200
Minneapolis, MN 55402
Telephone Number: (612) 746-1944
In addition, such reports and documents may be found on our website at www.gwglife.com.
57
$100,000,000 of Redeemable Preferred Stock
Maximum of 100,000 Shares of Redeemable Preferred Stock
GWG HOLDINGS, INC.
______________________________
PROSPECTUS
______________________________
October 23, 2015
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below are expenses (other than the dealer manager commissions and fees) we expect to be incurred in connection with the issuance and distribution of the securities registered hereby. With the exception of the Securities and Exchange Commission registration fee, the amounts set forth below are estimates and actual expenses may vary considerably from these estimates:
Securities and Exchange Commission registration fee |
|
$ |
11,620 |
Accounting fees and expenses |
|
$ |
50,000 |
Legal fees and expenses |
|
$ |
75,000 |
FINRA filing fees |
|
$ |
15,500 |
Blue sky fees and expenses |
|
$ |
0 |
Printing expenses |
|
$ |
75,000 |
Miscellaneous |
|
$ |
72,880 |
Total |
|
$ |
300,000 |
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides for, under certain circumstances, the indemnification of our officers, directors, employees and agents against liabilities that they may incur in such capacities. A summary of the circumstances in which such indemnification provided for is contained herein, but that description is qualified in its entirety by reference to the relevant Section of the Delaware General Corporation Law.
In general, the statute provides that any director, officer, employee or agent of a corporation may be indemnified against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred in a proceeding (including any civil, criminal, administrative or investigative proceeding) to which the individual was a party by reason of such status. Such indemnity may be provided if the indemnified person’s actions resulting in the liabilities: (i) were taken in good faith; (ii) were reasonably believed to have been in or not opposed to our best interest; and (iii) with respect to any criminal action, such person had no reasonable cause to believe the actions were unlawful. Unless ordered by a court, indemnification generally may be awarded only after a determination of independent members of the Board of Directors or a committee thereof, by independent legal counsel or by vote of the stockholders that the applicable standard of conduct was met by the individual to be indemnified.
The statutory provisions further provide that to the extent a director, officer, employee or agent is wholly successful on the merits or otherwise in defense of any proceeding to which he was a party, he is entitled to receive indemnification against expenses, including attorneys’ fees, actually and reasonably incurred in connection with the proceeding.
Indemnification in connection with a proceeding by or in the right of GWG Holdings, Inc. (the “Company”) in which the director, officer, employee or agent is successful is permitted only with respect to expenses, including attorneys’ fees actually and reasonably incurred in connection with the defense. In such actions, the person to be indemnified must have acted in good faith, in a manner believed to have been in our best interest and must not have been adjudged liable to us unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expense which the Court of Chancery or such other court shall deem proper. Indemnification is otherwise prohibited in connection with a proceeding brought on behalf of the Company in which a director is adjudged liable to us, or in connection with any proceeding charging improper personal benefit to the director in which the director is adjudged liable for receipt of an improper personal benefit.
Delaware law authorizes us to reimburse or pay reasonable expenses incurred by a director, officer, employee or agent in connection with a proceeding in advance of a final disposition of the matter. Such advances of expenses are permitted if the person furnishes to us a written agreement to repay such advances if it is determined that he is not entitled to be indemnified by us.
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The statutory section cited above further specifies that any provisions for indemnification of or advances for expenses does not exclude other rights under our certificate of incorporation, corporate bylaws, resolutions of our stockholders or disinterested directors, or otherwise. These indemnification provisions continue for a person who has ceased to be a director, officer, employee or agent of the corporation and inure to the benefit of the heirs, executors and administrators of such persons.
The statutory provision cited above also grants the power to the Company to purchase and maintain insurance policies that protect any director, officer, employee or agent against any liability asserted against or incurred by him in such capacity arising out of his status as such. Such policies may provide for indemnification whether or not the corporation would otherwise have the power to provide for it.
Article 6 of our corporate bylaws provides that we shall indemnify our directors, officers, employees and agents to the fullest extent permitted by the Delaware General Corporation Law. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, we understand that in the opinion of the SEC such indemnification is against public policy as expressed in that Act and is therefore unenforceable.
We have purchased directors’ and officers’ liability insurance in order to limit the exposure to liability for indemnification of directors and officers, including liabilities under the Securities Act of 1933.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In 2012, the Company’s wholly owned subsidiary, GWG Life, sold $50,000 in principal amount of Series I Secured notes for cash. In addition, $141,052 in principal amount of such notes were sold in consideration of reinvested interest payable on account of earlier issued notes. The Company is a guarantor of GWG Life’s obligations under the Series I Secured notes. The notes were offered and sold solely to accredited investors in a private placement under Section 4(a)(2) of the Securities Act of 1933, and Regulation D/Rule 506 thereunder.
In 2012, the Company sold a total of 855,240 shares of Series A Preferred Stock for aggregate cash consideration of $6,414,300. In addition, 563,467 preferred shares were sold in consideration of converted principal and interest owing under Series I Secured notes, and 82,323 preferred shares were issued as in-kind dividends payable on account of the preferred stock. In connection with the sales of preferred stock, the Company issued three-year warrants for the purchase of up to 694,034 shares of common stock at the per-share price of $6.25. The preferred stock and warrants were offered and sold solely to accredited investors in a private placement under Section 4(a)(2) of the Securities Act of 1933, and Regulation D/Rule 506 thereunder. Arque Capital Ltd. was the managing broker-dealer for the offering of the preferred stock and received customary sales commissions aggregating $1,051,000.
In 2013, the Company’s wholly owned subsidiary, GWG Life, sold $196,484 in principal amount of Series I Secured notes in consideration of reinvested interest payable on account of earlier issued notes. The Company is a guarantor of GWG Life’s obligations under the Series I Secured notes. The notes were offered and sold solely to accredited investors in a private placement under Section 4(a)(2) of the Securities Act of 1933, and Regulation D/Rule 506 thereunder. Arque Capital Ltd. was the managing broker-dealer for the offering of the notes.
In 2013, the Company issued 82,606 shares of Series A Preferred Stock as in-kind dividends payable on account of the preferred stock. The preferred stock was sold solely to accredited investors in a private placement under Section 4(a)(2) of the Securities Act of 1933, and Regulation D/Rule 506 thereunder.
In 2014, the Company issued 110,584 shares of Series A Preferred Stock as in-kind dividends payable on account of the preferred stock. The preferred stock was sold solely to accredited investors in a private placement under Section 4(a)(2) of the Securities Act of 1933, and Regulation D/Rule 506 thereunder.
In 2014, the Company issued 60,000 shares of common stock to Brewer Consulting Group in exchange for certain advisory services including financial consulting and marketing support to be provided to the Company by Brewer Consulting Group. The common stock was sold to Brewer Consulting Group, as accredited investor, in a private placement under Section 4(a)(2) of the Securities Act of 1933, and Regulation D/Rule 506 thereunder.
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits . The exhibits listed below are filed as a part of this registration statement.
Exhibit Number |
|
Description |
1.1 |
|
Agreement with Dealer Manager ( filed herewith ) |
3.1 |
|
Certificate of Incorporation (1) |
3.2 |
|
Certificate of Amendment of Certificate of Incorporation, dated July 29, 2011 (2) |
3.3 |
|
Certificate of Designation for Series A Convertible Preferred Stock (2) |
3.4 |
|
Form of Certificate of Designation for Redeemable Preferred Stock (filed herewith) |
3.5 |
|
Bylaws (as amended and restated through November 14, 2014) (17) |
3.6 |
|
Certificate of Amendment of Certificate of Incorporation, dated June 24, 2014 (13) |
4.1 |
|
Form of Subscription Agreement (filed herewith) |
5.1 |
|
Opinion of Maslon LLP ( filed herewith ) |
10.1 |
|
Amended and Restated Credit and Security Agreement with DZ Bank AG Deutsche Zentral- Genossenschaftsbank (as agent), and Autobahn Funding Company LLC (as lender), dated effective January 25, 2013 (7) * |
10.2 |
|
Performance Guaranty of GWG Holdings, LLC dated July 15, 2008, delivered in favor of DZ Bank AG Deutsche Zentral-Genossenschaftsbank (as agent), and Autobahn Funding Company LLC (as lender) (2) |
10.3 |
|
General Reaffirmation and Modification Agreement dated effective January 29, 2013 delivered in favor of DZ Bank AG Deutsche Zentral-Genossenschaftsbank (as agent), and Autobahn Funding Company LLC (as lender) (7) ** |
10.4 |
|
Third Amended and Restated Note Issuance and Security Agreement dated November 1, 2011, with Lord Securities Corporation (as trustee), GWG LifeNotes Trust (as secured party), and noteholders (11) |
10.5 |
|
Pledge Agreement dated November 15, 2010, by and among Jon R. Sabes, Steven F. Sabes, Opportunity Finance, LLC, SFS Trust 1976, SFS Trust 1992 Esther, SFS Trust 1982, Mokeson, LLC (collectively as pledgors), and Lord Securities Corporation (as trustee and pledgee) (2) |
10.6 |
|
Amended and Restated Investment Agreement with Insurance Strategies Fund, LLC, dated as of September 3, 2009 (2) |
10.7 |
|
Addendum No. 1 to Sub-Sublease Agreement effective as of July 14, 2008 by Opportunity Finance, LLC and GWG Life, LLC (5) |
10.8 |
|
Employment Agreement with Jon R. Sabes, dated June 14, 2011 (4) |
10.9 |
|
Employment Agreement with Steven F. Sabes, dated June 14, 2011 (4) |
10.10 |
|
Employment Agreement with Paul A. Siegert, dated June 14, 2011 (4) |
10.11 |
|
Purchase and Sale Agreement with Athena Securities Group Ltd. and Athena Structured Funds PLC, dated July 11, 2011 (2) |
10.12 |
|
Shareholders’ Agreement with respect to Athena Structured Funds PLC, dated July 11, 2011 (2)(10) |
10.13 |
|
Amendment to Third Amended and Restated Note Issuance and Security Agreement, dated as of November 18, 2013, with Lord Securities Corporation (as trustee for the GWG LifeNotes Trust) (11) |
10.14 |
|
Purchase and Sale Agreement among GWG Holdings, Inc., Athena Securities Group Limited and GWG Securities International Public Limited Company, dated June 28, 2013 (9) |
10.15 |
|
2013 Stock Incentive Plan dated March 27, 2013 (8) |
10.16 |
|
Form of Stock Option Agreement used under 2013 Stock Incentive Plan (revised June 2014) (12) |
10.17 |
|
Employment Agreement with William Acheson, dated May 30, 2014 (12) |
10.18 |
|
Amendment No. 1 to Amended and Restated Credit and Security Agreement with DZ Bank AG Deutsche Zentral-Genossenschaftsbank and Autobahn Funding Company LLC, dated May 29, 2014 (12) |
10.19 |
|
Employment Agreement with Michael D. Freedman, dated September 22, 2014 (15) |
10.20 |
|
Stock Option Agreement with Michael D. Freedman, dated September 22, 2014 (15) |
21 |
|
List of Subsidiaries (8) |
23.1 |
|
Consent of Baker Tilly Virchow Krause, LLP (filed herewith) |
23.2 |
|
Consent of Maslon LLP (f/k/a Maslon Edelman Borman & Brand, LLP) (contained within Exhibit 5.1 above) |
____________
(1) Incorporated by reference to Form S-1 Registration Statement filed on June 14, 2011 (File No. 333-174887).
(2) Incorporated by reference to Form S-1/A Registration Statement filed on August 23, 2011 (File No. 333-174887).
(3) Incorporated by reference to Form S-1/A Registration Statement filed on October 20, 2011 (File No. 333-174887).
II-3
(4) Incorporated by reference to Form S-1/A Registration Statement filed on September 20, 2011 (File No. 333-174887).
(5) Incorporated by reference to Form S-1/A Registration Statement filed on July 26, 2011 (File No. 333-174887).
(6) Incorporated by reference to Post-Effective Amendment No. 1 to Form S-1/A filed on April 30, 2012 (File No. 333-174887).
(7) Incorporated by reference to Current Report on Form 8-K filed on February 1, 2013.
(8) Incorporated by reference to Annual Report on Form 10-K for the period ended December 31, 2013, filed on March 20, 2014.
(9) Incorporated by reference to Current Report on Form 8-K filed on July 8, 2013.
(10) Agreement was terminated effective June 28, 2013.
(11) Incorporated by reference to Post-Effective Amendment No. 8 to Form S-1/A filed on November 12, 2013 (File No. 333-174887).
(12) Incorporated by reference to Form S-1/A Registration Statement filed on June 6, 2014 (File No. 333-195505).
(13) Incorporated by reference to Quarterly Report on Form 10-Q for the period ended June 30, 2014, filed on August 8, 2014.
(14) Incorporated by reference to Form S-1/A Registration Statement filed on November 4, 2014 (File No. 333-197227).
(15) Incorporated by reference to Form S-1/A Registration Statement filed on December 18, 2014 (File No. 333-197227).
(16) Incorporated by reference to Form S-1/A Registration Statement filed on January 7, 2015 (File No. 333-197227).
(17) Incorporated by reference to Post-Effective Amendment No. 1 to Form S-1 Registration Statement filed on January 20, 2015 (File No. 333-197227).
* The registrant earlier filed the original Credit and Security Agreement dated July 15, 2008, Consent and Amendment No. 1 to the Credit and Security Agreement dated December 14, 2010, and Consent and Amendment No. 2 to the Credit and Security Agreement dated June 10, 2011. These documents were filed as Exhibits 10.1, 10.2 and 10.3, respectively, to the Form S-1/A Registration Statement filed on August 23, 2011.
** The registrant earlier filed a Reaffirmation of Guaranty dated as of June 10, 2011, which was filed as Exhibit 10.7 to the Form S-1/A Registration Statement filed on August 23, 2011.
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Securities Act”) may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, an increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) [intentionally omitted]
(5) For the purpose of determining any liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(6) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(b) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Minneapolis, State of Minnesota, on October 23, 2015.
|
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GWG HOLDINGS, INC. |
||
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By: |
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/s/ Jon R. Sabes |
|
|
|
|
Chief Executive Officer |
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Jon R. Sabes and William Acheson, and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed, as of October 23, 2015, by the following persons in the capacities indicated below.
Name |
|
|
|
Title |
|
|
|
|
|
/s/ Jon R. Sabes |
|
|
|
Director, Chief Executive Officer |
Jon R. Sabes |
|
|
|
(Principal Executive Officer) |
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|
|
/s/ Paul A. Siegert* |
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|
Director, Executive Chairman |
Paul A. Siegert |
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/s/ William Acheson |
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|
|
Chief Financial Officer |
William Acheson |
|
|
|
(Principal Financial and Accounting Officer) |
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|
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/s/ Steven F. Sabes* |
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Director, Executive Vice President and Secretary |
Steven F. Sabes |
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/s/ David H. Abramson |
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Director |
David H. Abramson |
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/s/ Charles H. Maguire III* |
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Director |
Charles H. Maguire III |
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Jeffrey
L. McGregor
|
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Director |
Jeffrey L. McGregor |
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/s/ Shawn R. Gensch |
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Director |
Shawn R. Gensch |
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|
____________
* By Jon R. Sabes, Attorney-in-Fact, October 23, 2015
II-6
Exhibit 1.1
GWG HOLDINGS, INC.
220 South Sixth Street Suite 1200
Minneapolis, Minnesota 55402
August 31, 2015
Emerson Equity LLC
155 Bovet Rd. Suite 725
San Mateo, CA 94402
RE: Managing Broker-Dealer Agreement
Ladies and Gentlemen:
This letter confirms and comprises the agreement (the “Agreement”) between GWG Holdings, Inc., a Delaware corporation (the “Company”), and Emerson Equity LLC, a California limited liability company (the “ Managing Broker-Dealer ”), regarding the offering and sale (the “ Offering ”) of up to $100,000,000 of Redeemable Preferred Stock (the “ Preferred ”) of the Company to be sold pursuant to a Registration Statement on Form S-1 filed with the United States Securities and Exchange Commission (the “ SEC ”), as the same is later declared effective by the SEC and as it may be amended and supplemented from time to time (SEC File No. 333-206626, the “ Registration Statement ”). The prospectus that forms a part of the Registration Statement is hereinafter referred to as the “Prospectus.” References to the Registration Statement include all exhibits to the Registration Statements and any documents incorporated into the Registration Statement by reference.
Capitalized terms used herein and not otherwise defined herein shall have the same meaning as described in the Registration Statement.
1. Appointment of Managing Broker-Dealer .
1.1 On the basis of the representations and warranties and covenants herein contained, and subject to the terms and conditions set forth herein and in the Prospectus, the Company hereby appoints the Managing Broker-Dealer as its exclusive agent for purposes of offering and selling the Preferred pursuant to the Registration Statement and upon the terms and conditions set forth herein, including without limitation compliance and conformity with Accepted Preferred Practices; and the Managing Broker-Dealer hereby accepts such exclusive appointment and agrees to use its best efforts as such agent to offer and sell the Preferred to Investors until the later of the termination of the Offering or the sale of all of the Preferred, or until the termination of this Agreement, if earlier. In connection with the offer and sale of the Preferred under this Agreement, the Managing Broker Dealer will carry out the duties provided for herein and as described in the Prospectus as being carried out by the Managing Broker-Dealer. The Managing Broker-Dealer is exclusively authorized to enlist as soliciting dealers other members of the Financial Industry Regulatory Authority, Inc. (“ FINRA ”) and other authorized agents appointed by the Managing Broker-Dealer (collectively, the “ Soliciting Dealers ”) to offer and sell the Preferred, subject to Section 4.1.
1.2 It is understood that no sale of the Preferred shall be regarded as effective unless and until the Company shall have accepted a subscription or DTC order for such Preferred in the manner prescribed in the prospectus. The Company reserves the right in its sole discretion to accept or reject any subscription or order for Preferred as described in the prospectus. The Preferred will be offered during a period commencing on the effectiveness of the Registration Statement, and continuing thereafter until the earlier of (i) the date that $100,000,000 in the Preferred shall have been sold or (ii) the date on which the Company, in its sole and absolute discretion, terminates the Offering (as applicable, the “ Offering Termination Date ”).
1.3 The following capitalized terms shall have the meanings set forth below:
(a) “ Accepted Preferred Practices ” means, as applicable to the context in which this term is used, those procedures and practices with respect to the offering, marketing and selling the Preferred that: (i) meet at least the same demonstrable standards that the Managing Broker-Dealer or any Soliciting Dealer would follow in exercising reasonable care in offering, marketing and selling similar publicly offered securities; (ii) comply with all Governmental Rules; and (iii) comply with the provisions of this Agreement.
(b) “ Governmental Rules ” means any law, rule, regulation, ordinance, order, code, interpretation, judgment, decree, policy, binding decision or guideline of any governmental agency, court or authority.
2. Representations and Warranties of the Company . The Company hereby represents, warrants and covenants to the Managing Broker-Dealer that:
2.1 The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own, lease and operate its properties and conduct its business as described in the Registration Statement. The Company is duly qualified to do business and is in good standing in each jurisdiction in which the ownership or lease of its properties or the conduct of its business requires such qualification and in which the failure to be qualified or in good standing would be expected to have a material adverse effect on the condition (financial or otherwise), earnings, operations or business of the Company and its subsidiaries taken as a whole (a “ Material Adverse Effect ”), and has all requisite authority to enter into this Agreement.
2.2 The Preferred will have been registered with the SEC upon the effectiveness of the Registration Statement. So far as is under the control of the Company, the Preferred will be offered and sold consistent with the description contained in the Prospectus.
2.3 The Company shall provide to the Managing Broker-Dealer and to Soliciting Dealers for delivery to offerees and purchasers and their representatives the information and documents that the Company deems appropriate, or that the Managing Broker-Dealer or any Soliciting Dealer reasonably requests to comply with all laws, rules, regulations and judicial and administrative interpretations in all jurisdictions in which the Preferred are offered and sold.
2.4 Except as disclosed in the Prospectus, no defaults exist in the due performance and observance of any material obligation, term, covenant or condition of any agreement or instrument to which the Company is a party or by which it is bound.
2 |
2.5 The holders of the Preferred (the “ Holders ”) will have the rights set forth in the Prospectus.
2.6 This Agreement has been duly and validly authorized, executed and delivered by the Company and is a valid and binding agreement on the part of the Company, enforceable against the Company in accordance with its terms subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general principles of equity. The performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under: (i) any indenture, mortgage, deed or trust, voting trust agreement, note, lease or other agreement or instrument to which the Company or any subsidiary is a party or by which the Company or any subsidiary or their respective properties may be bound; (ii) the certificate of incorporation or bylaws of the Company; or (iii) any applicable law, order or Governmental Rule, except in any case for any breach, violation or default that would not have a Material Adverse Effect and no consent, approval, authorization or order of any court or governmental agency or body or under any Governmental Rules has been or is required by the Company for the performance of this Agreement or the consummation of the transactions contemplated hereby (except as may be required under the Securities Act, as defined below, or from FINRA).
2.7 The Registration Statement, in the form in which it becomes effective and also in such form as it may be when any post-effective amendment thereto shall become effective, and the Prospectus, and any supplement or amendment thereto when filed with the SEC under Rule 424 under the Securities Act of 1933 (the “ Securities Act ”), complied and will comply with the provisions of the Securities Act, and did not and will not at any such times contain an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading, except that this representation and warranty does not apply to any statements in, or omissions from the Managing Broker-Dealer Disclosure Statements (as defined in Section 5.6 below), in the Registration Statement or the Prospectus, or any amendment thereof or supplement thereto.
2.8 The Preferred has been duly authorized for issuance and sale pursuant to the Prospectus and this Agreement and, when issued and delivered against payment therefor in accordance with the terms of the Prospectus and this Agreement, will constitute valid and legally binding obligations of the Company enforceable in accordance with the terms of the Preferred as set forth in the Certificate of Designation for the Preferred and described in the Prospectus, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general principles of equity.
2.9 There is no material action, suit or proceeding pending or, to the knowledge of the Company, threatened, to which the Company is a party, before or by any court or governmental agency or body which adversely affects the Offering.
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3. Covenants of the Company . The Company hereby agrees that:
3.1 The Company will notify the Managing Broker-Dealer promptly of the time when the Registration Statement or any post-effective amendment to the Registration Statement has become effective or any supplement to the Prospectus has been filed, and of any request by the SEC for any post-effective amendment or supplement to the Registration Statement or Prospectus. In addition, the Company will prepare and file with the SEC, promptly upon the Managing Broker-Dealer’s reasonable request, any amendments or supplements to the Registration Statement or Prospectus that, in the Managing Broker-Dealer’s opinion may be reasonably necessary or advisable in connection with the Offering or the Preferred. The Company will also provide promptly to the Managing Broker-Dealer copies of any correspondence received from the SEC and advance copies of any correspondence to the SEC (which the Managing Broker-Dealer shall have the right to provide comments to). The Company will provide the Managing Broker-Dealer with an advance copy of any the Registration Statement (including any amendment or supplement thereto), and provide the Managing Broker-Dealer with the opportunity to provide comments to any such filings.
3.2 The Company will advise the Managing Broker-Dealer, promptly after it shall receive notice or obtain knowledge thereof, of the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement, of the suspension of the qualification of the Preferred for offering or sale in any jurisdiction, or of the initiation or receipt of any specific threat of any proceeding for any such purpose, and will use commercial reasonable efforts to prevent the issuance of any such order and, if any such order is issued, to obtain the removal thereof as promptly as possible.
3.3 Within the time during which a Prospectus relating to the Preferred is required to be delivered under the Securities Act, the Company will use commercially reasonable efforts to comply with all requirements imposed upon it by the Securities Act as promptly as possible, so far as necessary to permit it the continuance of sales of or dealings in the Preferred as contemplated by the provisions hereof and the Prospectus. If, during the longer of such period or the term of this Agreement, any event or change occurs that is material to the Offering or that causes any of the representations and warranties of the Company contained herein to be untrue in any material respect, or as a result of which the Prospectus would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances then existing, not misleading, or if, during such period, it is necessary to amend the Registration Statement or supplement the Prospectus to comply with the Securities Act, then the Company will promptly notify the Managing Broker-Dealer, and, if necessary, will amend the Registration Statement or supplement the Prospectus (at the sole expense of the Company) so as to correct such statement or omission or effect such compliance.
3.4 The Company will furnish to the Managing Broker Dealer copies of the Registration Statement, the Prospectus, and all amendments and supplements to such documents, in each case as soon as available and in such quantities as the Managing Broker-Dealer may from time to time reasonably request.
3.5 If at any time any event occurs as a result of which the Registration Statement would include an untrue statement of a material fact or, in view of the circumstances under which they were made, omit to state any material fact necessary to make the statements therein not misleading, the Company will promptly in writing notify the Managing Broker-Dealer thereof, promptly prepare an amendment to the Registration Statement correcting such statement or omission, and promptly deliver to Managing Broker-Dealer as many copies of such amended Registration Statement as Managing Broker-Dealer may reasonably request
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3.6 The Company will deliver to the Managing Broker-Dealer one copy of each report furnished to the Holders at the time that such reports are furnished to the Holders, and such other information concerning Preferred as may reasonably be requested.
3.7 The Company shall use reasonable efforts in taking all necessary action and filing all necessary forms and documents deemed reasonable by it in order to qualify or register Preferred for offer and sale under the securities laws of the jurisdictions in which the Managing Broker-Dealer is intending to offer the Preferred. Notwithstanding the foregoing, the Company may in its sole discretion elect not to qualify or register Preferred in any jurisdiction in which it deems the qualification or registration unwarranted for any reason. The Company or its counsel shall inform the Managing Broker-Dealer as to the jurisdictions in which the Preferred have been qualified for sale or are exempt under the respective laws of those jurisdictions. The Company will, at the Managing Broker-Dealer’s request, furnish the Managing Broker-Dealer with copies of all material documents and correspondence sent to or received from such jurisdictions (including, but not limited to, summaries of telephone calls and copies of facsimiles or emails) and will promptly advise the Managing Broker-Dealer as soon as the Company obtains knowledge thereof to the effect that the Preferred is qualified for offering and sale in each such jurisdiction. The Company will promptly advise the Managing Broker- Dealer of any request made by the securities administrators of each such jurisdiction for revising the Registration Statement or the Prospectus or for additional information or of the issuance by such securities administrators of any stop order preventing or suspending the use of the Prospectus or of the institution of any proceedings for that purpose, and will use its commercially reasonable efforts to prevent the issuance of any such order and if any such order is issued, to obtain the removal thereof as promptly as possible.
3.8 In addition to and apart from the Prospectus, the Company may use certain supplemental sales material in connection with the offering of the Preferred. This material, prepared by the Company, may consist of sales literature, advertising, or presentations highlighting and explaining various features of the Offering or the Company. Any such sales literature shall be approved by the Managing Broker-Dealer and, to the extent required or otherwise determined by the Managing Broker-Dealer, be filed with and approved by the appropriate securities agencies and bodies and with FINRA. Any and all Approved Sales Literature did not or will not, at the time provided for use, include any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Such sales literature shall be categorized as either: (i) “Broker/Dealer Use Only” educational materials, which are, for purposes of this Agreement, materials prepared for or by the Company for the sole purpose of educating the Managing Broker-Dealer or Soliciting Dealers, as the case may be, in preparation to solicit sales of the Preferred and shall not be used with members of the general investing public (collectively, “ B/D Use Only Approved Sales Literature ”), or (ii) “Investor” sales materials, which are, for purposes of this Agreement, materials prepared for or by the Company and may be used by the Managing Broker-Dealer or Soliciting Dealers, as the case may be, with members of the general investing public (collectively, “ Investor Use Approved Sales Literature ” and, together with the B/D Use Only Approved Sales Literature, the “ Approved Sales Literature ”). Although it is believed that the information contained in the Approved Sales Literature will not conflict with any of the Information set forth in the Prospectus, the Approved Sales Literature will not purport to be complete, and should not be considered as a part of the Prospectus, or as incorporated in the Prospectus by reference, or as forming the basis of the Offering.
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4. Covenants of the Managing Broker-Dealer . The Managing Broker-Dealer hereby agrees that:
4.1 The Managing Broker-Dealer will use “best efforts” in the offering, sale and distribution of the Preferred. The Managing Broker-Dealer may offer the Preferred as an agent, but all sales shall be made by the Company acting through the Managing Broker-Dealer as an agent, and not by Managing Broker-Dealer as a principal. The Managing Broker-Dealer shall have no authority to appoint any person or other entity as an agent or sub-agent of the Managing Broker-Dealer or the Company, except to appoint Soliciting Dealers not objectionable to the Company in its sole and absolute discretion. The Managing Broker-Dealer will not enter into soliciting dealer agreements, however denominated, with other Soliciting Dealers without first providing the Company with a meaningful opportunity to review and comment on the same; provided, however, that the Managing Broker-Dealer will not be required to provide the Company with an opportunity to review and comment on a soliciting dealer agreement the form of which has been earlier received, reviewed and commented upon by the Company.
4.2 Within the shorter of the time during which a Prospectus relating to the Preferred is required to be delivered under the Securities Act or the term of this Agreement, the Managing Broker-Dealer will comply with all requirements imposed upon it by the Securities Act, so far as is necessary to permit the continuance of sales of or dealings in the Preferred as contemplated by the provisions hereof and the Prospectus. If, during the shorter of such period or the term of this Agreement, to the Managing Broker-Dealer’s actual knowledge, any event or change occurs that could reasonably be considered material to the Offering or that causes any of the representations and warranties of the Managing Broker-Dealer contained herein to be untrue in any material respect, or as a result of which the Prospectus would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances then existing not misleading, or if, during such period, to the Managing Broker-Dealer’s actual knowledge, it is necessary to amend the Registration Statement or supplement the Prospectus to comply with the Securities Act, then the Managing Broker-Dealer will promptly notify the Company, and, if necessary, use reasonable efforts to assist the Company in amending the Registration Statement or supplementing the Prospectus (at the expense of the Company) so as to correct such statement or omission or effect such compliance.
4.3 The Managing Broker-Dealer shall make no representations to any prospective investor or purchaser other than those contained in the Registration Statement, and will not allow any other written materials to be used to describe the potential investment to prospective purchasers or investors other than the Registration Statement and Approved Sales Literature.
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4.4 For sales made directly, the Managing Broker-Dealer will limit the Offering to persons whom the Managing Broker-Dealer has reasonable grounds to believe meet appropriate financial suitability standards per FINRA Rule 2111 and 2090, together with any other purchaser suitability requirements set forth in the Prospectus. In addition, the Managing Broker-Dealer will require through a Soliciting Dealer Agreement that each Soliciting Dealer will limit the Offering to persons whom the Soliciting Dealer has reasonable grounds to believe meet appropriate financial suitability standards per FINRA Rule 2111 and 2090, together with any other purchaser suitability requirements set forth in the Prospectus.
4.5 The Managing Broker-Dealer, in coordination with the Company, will request and arrange for the Company to send to Soliciting Dealers all necessary due diligence materials as well as Registration Statements and Prospectuses, supplements thereto, marketing materials, and support Soliciting Dealers regarding the Company and the Offering.
4.6 The Managing Broker-Dealer, directly or indirectly through Soliciting Dealers, will provide each prospective investor or purchaser with a copy of the Prospectus and supplements thereto during the course of the Offering, and before a related sale, advise each such prospective purchaser at the time of the initial offering to him or her that the Company and/or its agents and consultants will, during the course of the Offering and prior to any sale, afford said purchaser and his or her purchaser representative, if any, the opportunity to ask questions of and to receive answers from the Company and/or its agents and consultants concerning the terms and conditions of the Offering and to obtain any additional information, which information is possessed by the Company or may be obtained by it without unreasonable effort or expense and which is necessary to verify the accuracy of the information contained in the Prospectus.
4.7 For sales made directly, the Managing Broker-Dealer shall maintain in its files, for a period of six years following the Offering Termination Date, documents disclosing the basis upon which the above determination of suitability was reached as to each purchaser. In addition, the Managing Broker-Dealer will require through a Soliciting Dealer Agreement that each Soliciting Dealer maintain in its files, for a period of six years following the Offering Termination Date, documents disclosing the basis upon which the above determination of suitability was reached as to each purchaser of the Soliciting Dealer.
4.8 The Managing Broker-Dealer will comply, and will require under a Soliciting Dealer Agreement that other Soliciting Dealers comply, in all respects with the subscription procedures and plan of distribution set forth in the Prospectus.
4.9 In the event the Managing Broker-Dealer receives any customer funds for the purchase of the Preferred, the Managing Broker- Dealer will transmit such customer funds, not later than noon of the next business day following receipt of such funds, to such account as determined by the Company pursuant to the Subscription Agreement of each potential purchaser of Preferred.
4.10 When any Soliciting Dealers are utilized in the Offering, the Managing Broker-Dealer agrees to cause such Soliciting Dealers to comply with all of the obligations of the Managing Broker-Dealer set forth in this Agreement (including the obligations set forth in this Article 4), as if such Soliciting Dealers were a party to this Agreement. In this regard, the Managing Broker-Dealer will provide each Soliciting Dealer with a true, correct and complete copy of this Agreement and will obtain the written acknowledgment and agreement of each Soliciting Dealer to abide by the obligations contained herein.
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4.11 In the event the Company has paid the Managing Broker-Dealer any compensation or expense reimbursements under this Agreement, the Managing Broker-Dealer shall be obligated to pay all Soliciting Dealers from such funds on the next business day following the receipt of such funds from the Company. For purposes of this Agreement, “receipt of such funds” shall mean such funds that have cleared normal banking channels and have been settled in the form of cash in the Managing Broker Dealer’s bank account.
4.12 The Managing Broker-Dealer agrees to allow Company wholesalers to maintain necessary licensing with the Managing Broker-Dealer and to receive sales compensation related to the Offering. Notwithstanding the foregoing, the Managing Broker-Dealer shall have the right to refuse any wholesaler in its sole discretion.
5. Representations and Warranties of the Managing Broker-Dealer . The Managing Broker-Dealer hereby represents and warrants to the Company as follows:
5.1 The Managing Broker-Dealer (i) has been duly organized, is validly existing and in good standing in the State or California, (ii) has qualified to do business as a foreign limited liability company and is in good standing in each jurisdiction where the character of its properties or the nature of its activities makes such qualification necessary, and (iii) has full power, authority and legal right to own its property, to carry on its business as presently conducted, and to enter into and perform its obligations under this Agreement. The Managing Broker-Dealer is a member in good standing of FINRA.
5.2 The Managing Broker-Dealer has full power and authority to enter into this Agreement and perform the transactions contemplated hereby. This Agreement has been duly authorized, executed and delivered by the Managing Broker-Dealer and is a valid and binding agreement on the part of the Managing Broker-Dealer, enforceable against it in accordance with its terms subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general principles of equity. The performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach or violation of any of the terms and provisions of, or constitute a default under: (i) any material agreement to which the Managing Broker-Dealer is a party or by which it or its properties may be bound; (ii) the articles or certificate of formation or operating agreement of the Managing Broker-Dealer; or (iii) any applicable law, order or Governmental Rules.
5.3 The Managing Broker-Dealer has obtained all governmental consents, licenses, approvals and authorizations, registrations and declarations which are necessary for the execution, delivery, performance, validity and enforceability of the Managing Broker-Dealer’s obligations under this Agreement. The Managing Broker-Dealer is a registered broker-dealer in good standing under the appropriate laws and regulations of each of the states in which offers or solicitations of offers to subscribe for the Preferred will be made by the Managing Broker-Dealer (or is exempt from such registration).
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5.4 There are no actions, suits or proceedings pending or, to the knowledge of the Managing Broker-Dealer, threatened against or affecting the Managing Broker-Dealer, before or by any court, administrative agency, arbitrator or governmental body with respect to any of the transactions contemplated by this Agreement, or which will, if determined adversely to the Managing Broker-Dealer, materially and adversely affect it or its business, assets, operations or condition, financial or otherwise, or adversely affect the Managing Broker-Dealer’s ability to perform its obligations under this Agreement. The Managing Broker Dealer is not in default with respect to any order of any court, administrative agency, arbitrator or governmental body so as to materially and adversely affect the transactions contemplated by this Agreement.
5.5 The Managing Broker-Dealer has obtained all necessary consents, approvals, waivers and notifications of creditors, lessors and other nongovernmental persons in connection with the execution and delivery of this Agreement, and the consummation of all the transactions herein contemplated.
5.6 The Managing Broker-Dealer Disclosure Statements in the Prospectus (as amended or supplemented, if the Company shall have filed with the SEC any amendment thereof or supplement thereto) will not and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading. For purposes of this Agreement, the “ Managing Broker-Dealer Disclosure Statements ” means any statements or disclosures included within or the subject of the Registration Statement or the Prospectus, which, when filed with the SEC and at all times subsequent thereto, are either (i) included within the disclosure under the heading “Plan of Distribution” in the Prospectus, or (ii) based upon and conform to written information relating to the Managing Broker-Dealer furnished in writing to the Company by the Managing Broker-Dealer specifically for use in the preparation of the Prospectus, or any supplement to the Prospectus, with respect to any of which the Managing Broker-Dealer shall have the rights set forth in Section 3.1.
5.7 The Managing Broker-Dealer has operated and is operating in material compliance with all authorizations, licenses, certificates, consents, permits, approvals and orders of and from all state, federal and other governmental regulatory officials and bodies necessary to conduct its business as contemplated by and described in this Agreement, all of which are, to the Managing Broker Dealers knowledge, valid and in full force and effect. The Managing Broker-Dealer is conducting its business in substantial compliance with all applicable laws and Governmental Rules of the jurisdictions in which it is conducting business, and the Managing Broker Dealer is not in material violation of any applicable laws or Governmental Rules.
5.8 The Managing Broker-Dealer has not distributed, and will not distribute prior to the completion of the Offering, any offering material, in connection with the Offering, other than the Prospectus, the Registration Statement, the incorporated documents, Approved Sales Literature and other materials, if any, permitted by and in compliance with the Securities Act.
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6. Conditions .
6.1 The obligation of the Managing Broker-Dealer to sell the Preferred on a best-efforts basis as provided herein shall be subject to the accuracy of the representations and warranties of the Company hereunder, to the performance by the Company of its obligations hereunder, and to the satisfaction of the following additional conditions:
(a) The Registration Statement shall be effective, and no stop order suspending the effectiveness thereof shall have been issued and no proceedings for that purpose shall have been initiated or, to the knowledge of the Company or the Managing Broker-Dealer, threatened by the SEC or any state securities commission or similar regulatory body. Any request by the SEC for additional information (to be included in the Registration Statement or the Prospectus or otherwise) shall have been complied with to the satisfaction of the Managing Broker- Dealer.
(b) The Managing Broker-Dealer shall have received from the Company a certificate, dated as of the initial date of effectiveness of the Registration Statement (the “ Initial Effective Date ”), of an executive officer of the Company, as to: (i) the accuracy of the representations and warranties of the Company in this Agreement, compliance by the Company with all the agreements and satisfaction of all the conditions to be performed or satisfied by the Company under this Agreement; (ii) the absence of any stop order or similar order or related proceedings; and (iii) the absence of any material adverse change in the condition (financial or otherwise), earnings, operations or business of the Company and its subsidiaries taken as a whole or might materially and adversely affect its properties, assets or rights, except as contemplated in the Prospectus or related documents.
(c) The Managing Broker-Dealer shall have received a certificate of Secretary of the Company (or other officer of the Company), dated as of the Initial Effective Date, certifying as to (i) the certificate of incorporation and bylaws of the Company, and (ii) the resolutions of the Board of Directors of the Company relating to the preparation and signing of the Registration Statement and this Agreement, the issuance and sale of the Preferred and other related matters. The Managing Broker-Dealer may waive in writing the performance of any one or more of the conditions specified in this Section or extend the time for their performance. If any of the conditions specified in this Section shall not have been fulfilled when and as required by this Agreement to be fulfilled, and if the fulfillment of said condition has not been waived by the Managing Broker-Dealer, then this Agreement and all obligations of the Managing Broker-Dealer hereunder may be canceled at, or at any time prior to, the Initial Effective Date by the Managing Broker-Dealer.
7. Compensation . Subject to Section 12, as compensation for services rendered by the Managing Broker Dealer hereunder, the Managing Broker-Dealer will be entitled to receive from the Company the following:
7.1 A “ Dealer-Manager Fee ” of 0.40% of aggregate gross offering proceeds based upon the principal amount of every Preferred sold during the term of the Agreement excluding shares purchased via the dividend re-investment plan.
7.2 A “ Selling Commission ” of 6.0% of aggregate gross offering proceeds based upon the principal amount of every Preferred sold directly by the Managing Broker-Dealer excluding shares purchased via the dividend re-investment plan.
7.3 A “ Wholesale Commission ” of 0.50% of gross offering proceeds that the Company may agree to pay certain specified wholesalers of the Preferred sold excluding and shares purchased via the dividend re-investment plan but subject in all cases to the limitations prescribed in Section 7.7.
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7.4 A “ Non-Accountable Expense Allowance ” of up to 0.60% of gross offering proceeds which may be re-allowed to Soliciting Dealers as determined via a Soliciting Dealer Agreement.
7.5 “ Non-Cash Compensation ” of up to 0.10% of gross offering proceeds .
7.6 Any and all Dealer-Manager Fees, Commissions, Wholesale Commissions, Non-Accountable Expense Allowance and Non-Cash Compensation (collectively, the “ Fees ”), together with any expenses reimbursable pursuant to Section 8 below, shall be payable regularly once every two weeks.
7.7 The Company shall pay all Fees and Accountable Expenses (as defined in Section 8) as directed on any invoice provided by the Managing Broker-Dealer, and the Managing Broker-Dealer shall, with respect to any disputes arising among or between the Managing Broker-Dealer and any Soliciting Dealers or any wholesalers, hold the Company harmless for any such payments made as directed on such invoices.
7.8 Notwithstanding anything else to the contrary contained in this Agreement, under no circumstance will the aggregate of all Dealer-Manager Fees, Selling Commissions, Wholesale Commissions, Non-Accountable Expenses, Accountable Expenses as discussed in Section 8 and non-transaction-based and non-cash selling compensation (collectively, the “ Total Compensation ”), exceed Eight Percent (8.00%) of gross offering proceeds. The Company shall prepare comprehensive sales data and e-mail such data to the Managing Broker-Dealer every two weeks, five days before each payment date for any Fees. The Managing Broker-Dealer shall use such data to constantly calculate and insure that the Total Compensation paid to the Managing Broker-Dealer and Soliciting Dealers does not exceed Eight Percent (8.00%) of gross offering proceeds. The Managing Broker-Dealer will create an invoice for Fees, which shall be presented to the Company at least two days before each payment date for Fees. The Managing Broker-Dealer shall have the right to actively advise Company as to how to remedy the Offering variables if the Total Compensation paid at any given time is over Eight Percent (8.00%) of gross offering proceeds, and Company agrees to work in cooperation with the Managing Broker-Dealer until such time the remedy begins to work. The Company and the Managing Broker-Dealer will, in good faith and in a timely manner, negotiate any dispute relating to any Fees or any other amounts payable hereunder. Disputes that cannot be resolved by discussion will be resolved through FINRA binding arbitration.
8. Accountable Expenses . Subject to Section 13, the Company will reimburse the Managing Broker-Dealer and Soliciting Dealers for their expenses, on an accountable basis, in an amount up to 0.40% of the gross offering proceeds from the sale of Preferred, subject to the limitation set forth in Section 7.8. The accountable expenses reimbursable under this Section 8 are referred to as “ Accountable Expenses .” The Company and Managing Broker-Dealer shall work proactively with each other to ensure that each are timely informed of all Accountable Expenses and commitments to pay such expenses as they are made. Accountable Expenses shall be payable in the same manner and on the same terms as Fees are payable under Section 7.
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9. INTENTIONALLY OMITTED.
10. Company Expenses . The Company will pay all fees and expenses incident to the performance of its obligations under this Agreement. Without limiting the foregoing, the Company’s obligations hereunder to pay for expenses will include, but not be limited to, the payment of:
(a) any SEC filing or registration fees;
(b) expenses of printing the Registration Statement, the Prospectus and any amendment or supplement thereto and the expense of furnishing to the Managing Broker-Dealer copies of the Registration Statement, the Prospectus and any amendment or supplement thereto, all sales materials and any other documents in connection with the Offering, purchase, sale and delivery of the Preferred as herein provided;
(c) fees and expenses of the Company’s accountants and counsel in connection with the Offering;
(d) the FINRA filing fee;
(e) all state Blue Sky registration fees;
(f) all DTC fees associated with the Offering;
(g) all transfer agent fees associated with the Offering; and
(h) all of the Company’s other own expenses in connection with the Offering, including, but not limited to, the salaries, travel expenses and similar expenses of Company employees and personnel incurred in connection with the Offering.
11. Offering . The Offering of Preferred shall be at and upon the terms and conditions set forth in the Registration Statement and the exhibits and appendices thereto and any amendments or supplements thereto.
12. Conditions to Payment of Fees and Expense Reimbursements .
12.1 No selling commissions, allowances, reimbursements or other compensation will be payable with respect to any subscriptions for the Preferred that are rejected by the Company, or if the Company terminates the Offering for any reason whatsoever or for no reason. No selling commissions, allowances, reimbursements or other compensation will be payable by the Company with respect to any sale of the Preferred unless and until such time as the Company has received the total proceeds of any such sale.
12.2 With the exception of the expenses described in Section 10, all attorneys’ fees and all other costs and expenses incurred by the Managing Broker-Dealer in the performance of any obligations hereunder, including but not limited to expenses otherwise related to the Offering, shall be the sole and exclusive responsibility of the Managing Broker-Dealer unless otherwise approved by the Company and the foregoing shall apply notwithstanding the fact that the Offering is not consummated for any reason.
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12.3 No Dealer-Manager Fee will be payable with respect to any subscriptions for the Preferred that are sold to non-U.S. investors unless otherwise agreed in writing by the Company.
13. Indemnification of the Managing Broker-Dealer .
13.1 Subject to the conditions set forth below, the Company agrees to indemnify and hold harmless (i) the Managing Broker- Dealer, each Soliciting Dealer, their affiliates and each of their respective officers, directors, owners, members, managers, partners, employees, agents and (ii) each person, if any, who controls the Managing Broker-Dealer and Soliciting Dealer (all of the foregoing persons described in clauses (i) and (ii) being collectively referred to as the “ Selling Parties ”), against any and all loss, liability, claim, damage and expense (including reasonable legal and other expenses incurred in investigation and defending such claims or liabilities) whatsoever arising out of or based upon the following:
(a) Any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (Including any post-effective amendment or supplement thereto), in any Approved Sales Literature, or in any application or other document filed in any jurisdiction in order to qualify or register the Preferred in connection with the Offering (in all cases, other than Managing Broker-Dealer Disclosure Statements);
(b) The omission or alleged omission from the Registration Statement, in any Approved Sales Literature, or in any application or other document filed in any jurisdiction in order to quality or register the Preferred in connection with the Offering of a material fact required to be stated therein or necessary to make the statements therein not misleading (in all cases, other than omissions from Managing Broker-Dealer Disclosure Statements);
(c) Any verbal or written representations in connection with the Offering made by the Company or its agents (other than by the Managing Broker-Dealer, the Soliciting Dealers, or any of their respective employees or affiliates), employees or affiliates in violation of the Securities Act, or any other applicable federal or state securities laws and regulations; or
(d) A material inaccuracy in a representation or warranty contained herein by the Company, a material breach by the Company of any term, condition, representation, warranty or covenant of this Agreement, or a material failure by the Company to comply with state or federal securities laws and regulations applicable to the Offering (in all cases, other than with respect to included or omitted Managing Broker-Dealer Disclosure Statements).
13.2 If any action (including any third-party action) is brought against the Managing Broker-Dealer or Soliciting Dealer in respect of which indemnity may be sought hereunder, the Managing Broker-Dealer, upon obtaining actual knowledge of such action shall promptly notify the Company in writing of the institution of such action.
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13.3 Upon proper notice from an indemnified Selling Party, the Company will be entitled to participate therein and, to the extent that it may wish, to assume the defense thereof, with counsel who shall be reasonably satisfactory to the indemnified party, at the Company’s sole cost and expense. After notice from the Company of its election to assume the defense thereof, the Company will not be liable to the Selling Party under Section 13.1 for any legal or other expenses subsequently incurred by such Selling Party in connection with the defense thereof; provided, however, that if the defendants in any such action include both a Selling Party and the Company, and the Selling Party shall have reasonably concluded that there may be legal defenses available to it or other indemnified parties which are different from or additional to those available to the Company, then the Selling Party or Parties shall have the right to select one separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on their behalf, in which event the fees and expenses of such separate counsel shall be borne by the Company. In no event shall the Company be liable for fees and expenses of more than one counsel for each Selling Party separate from the Company’s own legal counsel. The Company shall not be liable to any Selling Party on account of any settlement of any claim or action effected without the consent of such Selling Party.
13.4 The Company agrees to promptly notify the Managing Broker-Dealer of the commencement of any litigation or proceedings against the Company, or any of its officers, directors, employees or agents in connection with the issuance and sale of Preferred, or in connection with the Registration Statement
13.5 The indemnity provided to the Selling Parties pursuant to this Section 13 shall not apply to any such person or entity to the extent that any loss arises out of or is based upon any untrue statement or alleged untrue statement of material fact made by the Selling Parities or any of their respective agents; provided, that indemnification shall apply to the extent that the untrue statement or alleged untrue statement in question is contained in the Registration Statement (including any post-effective amendment or supplement thereto), or in any application or other document filed in any jurisdiction in order to qualify or register the Preferred in connection with the Offering
14. Indemnification of the Company .
14.1 Subject to the conditions set forth below, the Managing Broker-Dealer agrees to indemnify and hold harmless: (i) the Company, (ii) its directors, officers, employees and agents, and (iii) each person, if any, who controls the Company and its own directors, officers, owners, employees, agents, and each of their respective attorneys and accountants (all of the foregoing persons described in clauses (i) through (iii) being collectively referred to as the “ Company Parties ”), against any and all loss, liability, claim, damage and expense whatsoever arising out of or based upon:
(a) Any unauthorized verbal or written representations in connection with the Offering made by the Managing Broker-Dealer (other than by the Company or its employees or agents), or its employees or agents (including any Soliciting Dealers) in violation of the Securities Act or any other applicable federal or state securities laws and regulations;
(b) The material breach by the Managing Broker-Dealer of any term, condition, representation, warranty, or covenant of this Agreement, other than those breaches committed in reliance on any violation by the Company hereof; or
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(c) Any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement and comprising a Managing Broker-Dealer Disclosure Statement, or any omission or alleged omission from the Registration Statement of a material fact required to be stated therein or necessary to make the statements therein not misleading, which omission or alleged omission related to a Managing Broker-Dealer Disclosure Statement.
14.2 If any action (including any third-party action) is brought against a Company Party in respect of which indemnity may be sought hereunder, the Company shall promptly notify the Managing Broker-Dealer in writing of the institution of such action.
14.3 Upon proper notice from an indemnified Company Party, the Managing Broker-Dealer will be entitled to participate therein and, to the extent that it may wish, to assume the defense thereof, with counsel who shall be reasonably satisfactory to the indemnified party. After notice from the Managing Broker-Dealer of its election to assume the defense thereof, the Managing Broker-Dealer will not be liable to the Company Party under Section 14.1 for any legal or other expenses subsequently incurred by such Company Party in connection with the defense thereof; provided, however, that if the defendants in any such action include both a Company Party and the Managing Broker-Dealer, and the Company Party shall have reasonably concluded that there may be legal defenses available to it or other indemnified parties which are different from or additional to those available to the Managing Broker-Dealer, then the Company Party or Parties shalt have the right to select one separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on their behalf, in which event the fees and expenses of such separate counsel shall be borne by the Managing Broker-Dealer, in no event shall the Managing Broker-Dealer be liable for fees and expenses of more than one counsel for each Company Party separate from the Managing Broker-Dealer’s own legal counsel. The Managing Broker-Dealer shall not be liable to any Company Party on account of any settlement of any claim or action effected without the consent of such Company Party.
14.4 The Managing Broker-Dealer agrees to promptly notify the Company of the commencement of any litigation or proceedings against the Managing Broker-Dealer or any of the Managing Broker-Dealer’s officers, directors, partners, affiliates, or agents in connection with the offer or sale of Preferred or in connection with the Registration Statement.
14.5 The indemnity provided to the Company Parties shall not apply to any such person or entity to the extent that any loss arises out of or is based upon any untrue statement or alleged untrue statement of material fact made by the Company or any of its agents (or a Company Party).
14.6 The Managing Broker-Dealer agrees to require that each Soliciting Dealer enter into an agreement (i) providing indemnity to the Company consistent with the indemnity provided by the Managing Broker-Dealer pursuant to the provisions of this Section 14, and (ii) containing an express third-party beneficiary clause permitting the Company to rely on and enforce such indemnity.
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15. Contribution . In order to provide for just and equitable contribution in circumstances in which the indemnification provided pursuant to Sections 13 and 14 is for any reason held to be unavailable from the Company, the Managing Broker-Dealer or a Soliciting Dealer, as the case may be, the Company, the Managing Broker-Dealer and the Soliciting Dealer, shall contribute to the aggregate losses, liabilities, claims, damages and expenses (including any amount paid in settlement of any action, suit, or proceeding or any claims asserted) in such amount as a court of competent jurisdiction may determine (or in the case of settlement, in such amounts as may be agreed upon by the parties) in such proportion to reflect the relative fault of the Company, the Managing Broker-Dealer or such Soliciting Dealer, in connection with the events described in Sections 13 and 14, as the case may be, which resulted in such losses, liabilities, claims damages or expenses, as well as any other equitable considerations. The relative fault of the parties shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Managing Broker-Dealer or a Soliciting Dealer, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such omission or statement. Any persons entitled to indemnification hereunder shall be entitled to receive, from a party obligated to indemnify under Section 13 or 14, contribution hereunder.
16. Representations and Agreements to Survive Sale and Payment . Except as the context otherwise requires, all representations, warranties and agreements contained in this Agreement shall be deemed to be representations, warranties and agreements at and as of the Offering Termination Date, and such representations, warranties and agreements by the Managing Broker-Dealer or the Company, including the indemnification and contribution covenants contained herein, shall remain operative and in full force and effect regardless of any investigation made by the Managing Broker-Dealer or the Company and/or any controlling person, and shall survive the sale of and payment for Preferred.
17. Costs of Offering . Except for the compensation payable to the Managing Broker-Dealer described in Section 7, the expense reimbursements described in Section 8, and the Company’s own expenses generally described in Section 10, the Managing Broker-Dealer will pay all of its own costs and expenses, including but not limited to all expenses necessary for the Managing Broker-Dealer to remain in compliance with any applicable federal, state or FINRA laws, rules or regulations in order to participate in the Offering as a broker-dealer, and the fees and costs of the Managing Broker-Dealer’s legal counsel. The Company agrees to pay all other expenses incident to the performance of its respective obligations hereunder, including all expenses incident to filings with federal and state regulatory authorities and to the exemption of Preferred under federal and applicable state securities laws, including fees and disbursements of the Company’s counsel, all costs of reproduction and distribution of the Prospectus and any amendment or supplement thereto, and all costs of attorneys’ fees and other expenses.
18. Termination . This Agreement is terminable by any party only “for cause” before the end of the 13th month following effectiveness of the Registration Statement, and without cause thereafter. Cause shall be defined as: (a) the failure of the Managing Broker-Dealer to provide the services set forth in this Agreement, or any breach by the Managing Broker-Dealer of any of its representations or warranties set forth in this Agreement; or (b) the receipt by the Managing Broker-Dealer or the Company of a regulatory notice from FINRA or the SEC that makes either party incapable of fulfilling their respective duties hereunder without harming the reputation of the other party. Nevertheless, for clarity, the Company will always have the right to terminate the Offering.
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Any termination under this Section shall not affect the indemnification agreements set forth in Sections 13 and 14, or the contribution obligations under Section 15. In the event that the Company terminates the Managing Broker-Dealer pursuant to paragraph (a) or (b) above, the Company shall reimburse the Managing Broker-Dealer for any expenses that are otherwise reimbursable hereunder and pay all commissions to which the Managing Broker-Dealer is or becomes entitled under this Agreement at such time as the commissions become payable until the date of such termination.
19. Confidentiality . The Managing Broker-Dealer agrees that all non-public information pertaining to the Company, including but not limited to the Soliciting Dealers, compensation, wholesalers. business plans, employee lists, financial statements of the Company and its subsidiaries and affiliates (collectively, the “ Confidential Information ”) will be held by the Managing Broker-Dealer in confidence and solely for use of the Managing Broker-Dealer’s personnel, clients and advisors of clients, in the course of performing the obligations of the Manager Broker-Dealer hereunder, and will not be provided to any other persons or entities without the prior written approval of the Company. Any parties receiving Confidential Information from the Managing Broker-Dealer, including any Soliciting Dealers, must expressly agree in writing to be bound by the restrictions set forth in this Section (with an express third-party beneficiary clause permitting the Company to rely on and enforce the same); provided, however, that Confidential Information shall not include information that (i) is or becomes publicly available other than as a result of acts by the Managing Broker-Dealer in breach of this Agreement, (ii) is in the Managing Broker-Dealer’s possession prior to disclosure by the Company or is independently derived by the Managing Broker-Dealer without the aid, application or use of the Confidential Information, (iii) is disclosed to the Managing Broker-Dealer by a third party on a non-confidential basis that the Managing Broker- Dealer did not know was subject to, or bound by, confidentiality obligations with respect to, or (iv) the Managing Broker-Dealer determines is required to be disclosed by Governmental Rules.
20. Governing Law . This Agreement shall be governed by, subject to and construed in accordance with, the internal laws of the State of Delaware without regard to its conflicts-of-law provisions.
21. Severability . If any portion of this Agreement shall be held invalid or inoperative, then so far as is reasonable and possible (a) the remainder of this Agreement shall be considered valid and operative and (b) effect shall be given to the intent manifested by the portion held invalid or inoperative.
22. Counterparts . This Agreement may be executed in counterparts, each of which shall be deemed to be an original, and which together shall constitute one and the same instrument.
23. Modifications or Amendment . This Agreement may not be modified or amended except by written agreement executed by the parties hereto.
24. Notices . All communications hereunder, except as herein otherwise specifically provided, shall be in writing and, if sent to the Managing Broker-Dealer, shall be mailed or delivered to Emerson Equity LLC, 155 Bovet Rd, San Mateo, CA 94402; and if sent to the Company shall be mailed or delivered to 220 South Sixth Street, Suite 1200, Minneapolis, MN SS402. The notice shall be deemed to be received on the date of its actual receipt by the party entitled thereto or, if mailed, on the third day after mailing by both first class U.S. mail and certified U.S. mail with return receipt requested.
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25. Parties . This Agreement shall be binding upon and inure solely to the benefit of the parties hereto, and their respective successors, legal representatives, heirs and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under, in respect of, or by virtue of, this Agreement or any provision herein contained: provided, however, that the provisions of Sections 13, 14 and 15 are also intended for the benefit of the Selling Parties and Company Parties, as applicable, although the provisions of any such Section may be amended without the consent of any such Persons. Neither party may assign any of its hereunder, or delegate any of its duties hereunder, without the prior and express written consent of the other party.
26. Delay . Neither the failure nor any delay on the part of any party to this Agreement to exercise any right, remedy, power, or privilege under this Agreement shall operate as a waiver thereof, nor shall a waiver of any right, remedy, power, or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power, or privilege with respect to any subsequent occurrence.
27. Attorney’s Fees . Except as set forth in Sections 13 and 14 hereof, if any legal action or other proceeding is brought for the enforcement of this Agreement or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement each party shall be responsible for paying its own attorneys’ fees.
28. Entire Agreement . This Agreement contains the entire understanding between the parties hereto and supersedes any prior understandings or written or oral agreements between them respecting the subject matter hereof.
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[Signature Page to Managing Broker-Dealer Agreement]
If the foregoing correctly sets forth the understanding between the Company and the Managing Broker-Dealer, please so indicate in the space provided below for that purpose, and return one of the signed.
Very truly yours,
GWG HOLDINGS, INC.
a Delaware corporation
By: | /s/ Jon Sabes | |
Jon Sabes | ||
Chief Executive Officer |
AGREED AND ACCEPTED:
EMERSON EQUITY LLC
a California limited liability company
By: | /s/ Brent Barton | |
Brent Barton | ||
Executive Vice President-MBD Services |
Exhibit 3.4
CERTIFICATE OF DESIGNATION
of
REDEEMABLE PREFERRED STOCK
GWG HOLDINGS, INC.
(Pursuant to Section 151(g) of the
Delaware General Corporation Law)
GWG HOLDINGS, INC., a Delaware corporation (the “ Company ”), hereby certifies as of October 23, 2015 (the “ Filing Date ”), that the following resolution was duly adopted by the Board of Directors of the Company (the “ Board ”), effective as of October 23, 2015, pursuant to Section 151(g) of the Delaware General Corporation Law (the “ DGCL ”):
RESOLVED, that pursuant to the authority vested in the Board of Directors of the Company by the Company’s Certificate of Incorporation, and in accordance with the Delaware General Corporation Law, Section 151, the Board of Directors hereby states the authorized number and terms of a new class of preferred stock of the Company, to be entitled “Redeemable Preferred Stock,” and fixes the relative powers, privileges, preferences and rights, and the qualifications, limitations and restrictions, thereof as follows:
1. Designation and Amount . The shares of such series shall be designated as “Redeemable Preferred Stock,” and the number of shares constituting the Redeemable Preferred Stock shall be 5,000,000. Such number of shares may be increased or decreased by resolution of the Board adopted and filed pursuant to the DGCL, Section 151(g), or any successor provision; provided, however, that no decrease shall reduce the number of authorized shares of Redeemable Preferred Stock to a number less than the number of such shares then outstanding plus the number of shares reserved for issuance upon the exercise of then-outstanding options, warrants, convertible or exchangeable securities or other rights for the purchase of shares of Redeemable Preferred Stock, if any.
2. Stated Value .
(a) Each share of Redeemable Preferred Stock shall have a stated value equal to $1,000 (the “ Stated Value ”). If at any time after the Filing Date, the Company shall effect a stock dividend payable in shares of Redeemable Preferred Stock, a subdivision of the outstanding Redeemable Preferred Stock into a greater number of shares of Redeemable Preferred Stock, or a combination of the outstanding shares of Redeemable Preferred Stock, by reclassification or otherwise, into a lesser number of shares of Redeemable Preferred Stock, then, in any such case, the Stated Value in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate.
(b) Upon any adjustment of the Stated Value of the Redeemable Preferred Stock, then and in each such case the Company shall give written notice thereof to the registered holders of the Redeemable Preferred Stock, which notice shall state the Stated Value resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
3. Ranking . The Redeemable Preferred Stock shall rank, as to the payment of dividends and the distribution of assets of the Company upon its liquidation, dissolution or winding up: (a) senior to the common stock; (b) pari passu with the Company’s Series A Convertible Preferred Stock; and (c) senior to or pari passu with all other classes and series of the Company’s preferred stock.
4. Dividends in Cash or in Kind .
(a) Holders of Redeemable Preferred Stock shall be entitled to receive for each share of Redeemable Preferred Stock, and the Company shall pay, subject to the provisions of the DGCL and legally available funds therefor, preferential cumulative dividends at the per annum rate of 7.0% on the Stated Value, payable in arrears in monthly installments on the first day of each month (or the next following business day thereafter in the event such date is not a business day), when and as declared by the Board of Directors (the “ Preferred Dividends ”), (i) in cash out of legally available funds, or (ii) at the Company’s option, in duly authorized, validly issued, fully paid and non-assessable shares of Redeemable Preferred Stock. Preferred Dividends on shares of Redeemable Preferred Stock shall also be payable upon any Redemption Date, as defined below, and upon the final distribution date relating to a Liquidation Event, as defined below. Preferred Dividends shall cease to accrue on shares of Redeemable Preferred Stock on the day immediately prior to any Redemption Date, as defined in Section 9(a) below, and on the final distribution date relating to a Liquidation Event. Dividends shall be payable to the holders of record of the Redeemable Preferred Stock on the record date selected by the Company with respect to such applicable payment date, in accordance with the DGCL. In the case of payment by the Company of dividends in the form of shares of Redeemable Preferred Stock, such stock shall be valued at the Stated Value.
(b) Preferred Dividends shall be calculated on the basis of actual days elapsed during a 365-day year, and shall begin to accrue on outstanding shares of Redeemable Preferred Stock from the date of each share’s original issuance until paid, whether or not declared. Preferred Dividends shall accrue whether or not there shall be (at the time such Preferred Dividend becomes payable or at any other time) profits, surplus or other funds of the Company legally available for the payment of dividends. Dividends on the Redeemable Preferred Stock shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under applicable law or any outstanding indebtedness or borrowings of the Company or any of its subsidiaries, or any other contractual provision binding on the Company or any of its subsidiaries.
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(c) No dividend shall be declared on any other series or class or classes of capital stock as to which the Redeemable Preferred Stock ranks senior or pari passu as to dividends or liquidation, including without limitation shares of common stock, in respect of any period, nor shall any series or class of capital stock that ranks junior or pari passu to the Redeemable Preferred Stock be redeemed, purchased or otherwise acquired for any consideration (or any money to be paid into any sinking fund or otherwise set apart for the purchase of any such junior stock), unless there shall have been or contemporaneously are declared and paid on all shares of the Redeemable Preferred Stock at the time outstanding all (whether or not earned or declared) accrued and unpaid Preferred Dividends through the most recent payment date; provided, however, that this restriction shall not apply to the repurchase by the Company of (i) shares of common stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, or (ii) shares of Series A Convertible Preferred Stock pursuant to the terms of the Certificate of Designation of Series A Convertible Preferred Stock, or terms superior to those contained within such Certificate of Designation of Series A Convertible Preferred Stock.
(d) At or prior to such time as Preferred Dividends are due and payable, a holder of Redeemable Preferred Stock may elect to convert all or any portion of such holder’s accrued but unpaid Preferred Dividends into Redeemable Preferred Stock, with each share having a value equal to the Stated Value, subject to the adjustments contemplated in Section 2 above. In order to exercise such option, a holder of Redeemable Preferred Stock must deliver written notice to the Company before such Preferred Dividends are paid; provided, however, that once a written notice has been so delivered by a holder, such holder may not change such election during the remainder of the calendar year in which such election shall have been made.
5. Liquidation Preference .
(a) In the event of (i) the sale, conveyance, exchange or other disposition of all or substantially all of the assets of the Company, (ii) any acquisition of the Company by means of a consolidation, stock exchange, stock sale, merger or other form of corporate reorganization with any other entity in which the Company’s stockholders prior to any such transaction own less than a majority of the voting securities of the surviving entity (a “ Change-in-Control Transaction ”), or (iii) the winding up or dissolution of the Company, whether voluntary or involuntary (each such event described in clause (i), (ii) or (iii), a “ Liquidation Event ”), the Board shall determine in good faith the amount legally available for distribution to stockholders after taking into account the distribution of assets among, or payment thereof over to, creditors of the Company in the manner required by the DGCL (the “ Net Assets Available for Distribution ”). Subject to the provisions of Section 5(d) below, the holders of the Redeemable Preferred Stock then outstanding shall be entitled to be paid out of the Net Assets Available for Distribution, and before any payment or distribution shall be made to the holders of any class of capital stock ranking junior to the Redeemable Preferred Stock, and on a pari passu basis with holders of Series A Convertible Preferred Stock and any other class or series of capital stock then ranking pari passu with the Redeemable Preferred Stock (if the Liquidation Events triggers a payment obligation on such classes), an amount for each share of Redeemable Preferred Stock equal to all accrued and unpaid Preferred Dividends thereon plus the Stated Value, as adjusted (the “ Liquidation Amount ”). Notwithstanding the foregoing, a transaction shall not constitute a Liquidation Event if its sole purpose is (y) to change the state of the Company’s incorporation or (z) to create a holding company with substantially similar series and classes of capital shares having substantially the same terms as those that existed immediately prior to the transaction and owned in the same proportions by the persons or entities who held the Company’s securities immediately prior to such transaction, provided that such transaction shall have been approved by the Board. The holders of a majority of the shares of Redeemable Preferred Stock, voting as a single class, may vote to determine that any transaction constituting a Liquidation Event shall not be a Liquidation Event for purpose of this Section 5(a).
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(b) If the Net Assets Available for Distribution to holders of shares of the Redeemable Preferred Stock upon a Liquidation Event shall be insufficient to pay the Liquidation Amount to the holders of shares of the Redeemable Preferred Stock, then such Net Assets Available for Distribution shall be distributed among the holders of shares of the Redeemable Preferred Stock ratably in proportion to the respective amounts to which they otherwise would be entitled.
(c) In the event that any distribution contemplated in this Section shall be payable in securities or property other than cash, then the value of such distribution shall be the fair market value of such distribution as determined in good faith by the Board.
(d) In connection with the occurrence of a Liquidation Event consisting of a Change-in-Control Transaction, the holders of at least a majority of the then-outstanding shares of Redeemable Preferred Stock may vote to receive, in lieu of cash in an amount per share equal the Liquidation Amount, securities of the successor or purchasing corporation having the same or substantially identical rights, preferences and privileges as the Redeemable Preferred Stock held immediately prior to such Change-in-Control Transaction.
6. Voting . Except as otherwise set forth herein or as required by law, holders of the Redeemable Preferred Stock shall not be entitled to vote on any matter on account of their Redeemable Preferred Stock. Unless the DGCL requires otherwise, in the event the DGCL requires the vote of the holders of Redeemable Preferred Stock, voting as a separate class, to authorize an action of the Company, the affirmative vote of holders of a majority of the shares of Redeemable Preferred Stock then outstanding shall constitute the approval of such action by the class.
7. Certain Notices . The Company will provide the holders of Redeemable Preferred Stock with prior written notice of any meeting of the stockholders of the Company, and written notice of any action taken by the stockholders of the Company without a meeting. The Company will also provide the holders of Redeemable Preferred Stock with at least 20 days of written notice prior to the consummation of any transaction described in Section 5(a), clauses (i) or (ii), constituting a Liquidation Event.
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8. Protective Provisions . In addition to any other vote or consent required herein or by law, the affirmative vote or written consent of holders of at least a majority of the then-outstanding shares of Redeemable Preferred Stock, voting together as a single class, given in writing or by vote at a meeting, shall be required for the Company to :
(a) amend, modify, add, repeal or waive any provision of this Certificate of Designation or otherwise take any action that modifies any powers, rights, preferences, privileges or restrictions of the Redeemable Preferred Stock (other than an amendment solely for the purpose of increasing the number of shares of Redeemable Preferred Stock designated for issuance hereunder);
(b) authorize, create or issue shares of any class of stock having rights, preferences or privileges upon a liquidation of the Company that are superior to the Redeemable Preferred Stock; or
(c) amend the Certificate of Incorporation of the Company in a manner that adversely and materially affects the rights of the Redeemable Preferred Stock.
9. Redemption and Repurchase .
(a) Redemption at the Option of a Holder .
(i) Once each calendar quarter after the first anniversary of the date on which one or more shares of Redeemable Preferred Stock shall have been issued, the holder of such share(s) may deliver written notice to the Company requesting that the Company redeem up to 25% of such shares of Redeemable Preferred Stock originally purchased from the Company (the “ Holder Redemption Notice ”).
(ii) Upon receipt of a Holder Redemption Notice, the Company may redeem the applicable Redeemable Preferred Stock for the Redemption Price, as defined in Section 9(b)(i), subject, however, to the applicable redemption fee specified below:
(A) if the Holder Redemption Notice is given on or after the first anniversary, but prior to the second anniversary, of the issuance of such Redeemable Preferred Stock, then an 8% redemption fee shall apply;
(B) if the Holder Redemption Notice is given on or after the second anniversary of the issuance of such Redeemable Preferred Stock but prior to the third anniversary of the issuance of such Redeemable Preferred Stock, then a 5% redemption fee shall apply; and
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(C) if the Holder Redemption Notice is given on or after the third anniversary of the issuance of such Redeemable Preferred Stock, then no redemption fee shall apply.
(iii) After the Company’s receipt of the Holder Redemption Notice, the Company shall provide written notice to such requesting holder specifying whether all or a portion of the Redeemable Preferred Stock sought to be redeemed pursuant to the Holder Redemption Notice will be repurchased by the Company (the “ Company Redemption Response ”). If all or any portion of such Redeemable Preferred Stock is to be repurchased by the Company, the Company’s written notice shall specify the date on which such repurchase and redemption shall occur, which date shall be no more than 60 days after the giving of the Holder Redemption Notice (such date, the “ Redemption Date ”), and shall include the stock power, if required, described in paragraph (iv) below. On the Redemption Date and in accordance with this Section 9(a), the Company will, to the extent that it has sufficient funds to consummate a redemption, as determined by the Company in its discretion, and to the extent that it may then lawfully do so under the DGCL on the Redemption Date and such payment is further permitted under its Certificate of Incorporation, Certificate of Designation of Series A Convertible Preferred Stock and any then-existing borrowing agreements to which it or its subsidiaries are bound, in connection with the delivery by such holder of the applicable items described in paragraph (iv) below, redeem the shares specified in the Company Redemption Response by paying in cash, via wire transfer of immediately available funds to an account designated in writing by the holder of such shares, an amount per share equal to the applicable Redemption Price.
(iv) On or before a Redemption Date, a holder of shares of Redeemable Preferred Stock to be redeemed shall surrender to the Company the certificate(s), if any, representing the shares, duly endorsed, in the manner and at the place designated in the Company Redemption Response. In the event such shares are uncertificated, such holder shall deliver to the Company a stock power, duly executed and in the form provided by the Company together with the Company Redemption Response. In the event that less than all of the shares of Redeemable Preferred Stock represented by a certificate are redeemed, the Company shall cause to be issued and delivered to the holder a new certificate representing the unredeemed shares of Redeemable Preferred Stock.
(v) From and after the Redemption Date designated in the Company Redemption Response, (A) the shares identified in the Company Redemption Response shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue as of the Redemption Date, and (C) all rights of a holder of shares of Redeemable Preferred Stock to be redeemed shall cease and terminate, excepting only the right to receive the Redemption Price therefor; provided, however, that the shares to be redeemed shall remain issued and outstanding, and all rights of a holder of shares of Redeemable Preferred Stock to be redeemed shall continue, in the event that a holder shall have delivered the required items under paragraph (iv) above as of the Redemption Date but the Company shall not have discharged its obligation to pay the Redemption Price.
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(vi) If the Company (A) is unable by virtue of applicable law or provisions in its Certificate of Incorporation or Certificate of Designation of Series A Convertible Preferred Stock, to redeem shares of Redeemable Preferred Stock in connection with a Holder Redemption Notice, or (B) cannot redeem shares of Redeemable Preferred Stock in connection with a Holder Redemption Notice without constituting a default under any of the borrowing agreements to which the Company or any of its subsidiaries are a party or otherwise bound, then such redemption obligation shall be discharged promptly after the Company shall have become able to discharge such redemption obligation under applicable law and without causing or constituting a default under any of such borrowing agreements, with all such deferred redemption obligations being satisfied on a prorated basis and regardless of the order in which Holder Redemption Notices shall have been received by the Company. If and so long as the redemption obligation with respect to shares of Redeemable Preferred Stock shall not be fully discharged, the Company shall not declare or make any dividend or other distribution on any junior class or series of capital stock or, directly or indirectly, redeem, purchase or otherwise acquire for any consideration any shares of a junior class or series of capital stock or discharge any optional redemption, sinking-fund or other similar obligation in respect of any such junior class or series of capital stock; provided, however, that this restriction shall not apply to the repurchase by the Company of (i) shares of common stock from employees, officers, directors, consultants or other persons performing services for the Company or any of its subsidiaries pursuant to agreements under which the Company has the right or option to repurchase such shares upon the occurrence of certain events or otherwise, or (ii) shares of Series A Convertible Preferred Stock pursuant to the terms of the Certificate of Designation of Series A Convertible Preferred Stock, or terms superior to those contained within such Certificate of Designation of Series A Convertible Preferred Stock.
(b) Redemption at the Option of Company .
(i) After the first anniversary of the date of original issuance of any shares of Redeemable Preferred Stock, the Company shall have the right (but not the obligation) to redeem such shares at a price per share equal to 100% of the Stated Value, plus an amount equal to all Preferred Dividends (whether or not declared) accrued and unpaid thereon up to but not including the redemption date (the “ Redemption Price ”). In the event the Company exercises this redemption right, the Company shall deliver written notice to each holder of Redeemable Preferred Stock that all or part of the Redeemable Preferred Stock will be redeemed (the “ Company Redemption Notice ”) on a date that is no earlier than 20 and no later than 60 days after the date of the Company Redemption Notice (such date, the “ Company Redemption Date ”). On the Company Redemption Date and in accordance with this Section 9(b), the Company will, at its option, to the extent it may then lawfully do so under the DGCL (and for so long as (i) a redemption is permitted under the Company’s Certificate of Incorporation, as amended, and Certificate of Designation of Series A Convertible Preferred Stock, and (ii) such redemption does not constitute a default under any of the borrowing agreements to which the Company or any of its subsidiaries are a party or otherwise bound), redeem the shares specified in the Company Redemption Notice by paying in cash, via wire transfer of immediately available funds to an account designated in writing by the holder, an amount per share equal to the Redemption Price. If the Company elects to redeem less than all of the Redeemable Preferred Stock, it shall do so ratably among all holders of Redeemable Preferred Stock to the extent their shares shall have been issued and outstanding for at least one year as of the date of the Company Redemption Notice.
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(ii) On or before the Company Redemption Date, each holder of shares of Redeemable Preferred Stock whose shares are being redeemed under this Section 9(b) shall surrender the certificate(s) representing such shares to the Company, if any, duly endorsed, in the manner and at the place designated in the Company Redemption Notice. In the event such shares of Redeemable Preferred Stock are uncertificated, such holder shall deliver to the Company a stock power, duly executed and in the form to be provided by the Company together with the Company Redemption Notice.
(iii) From and after the Company Redemption Date, (A) the shares identified in the Company Redemption Notice shall be cancelled on the books and records of the Company, (B) the right to receive Preferred Dividends thereon shall cease to accrue as of the Company Redemption Date, and (C) all rights of a holder of shares of Redeemable Preferred Stock to be redeemed shall cease and terminate, excepting only the right to receive the Redemption Price therefor; provided, however, that the shares to be redeemed shall remain issued and outstanding, and all rights of a holder of shares of Redeemable Preferred Stock to be redeemed shall continue, in the event that a holder shall have delivered the required items under paragraph (ii) above as of the Company Redemption Date but the Company shall not have discharged its obligation to pay the Redemption Price.
(c) Repurchase in the Event of Death, Disability or Bankruptcy .
(i) Subject to the terms of this Section 9(c), within 45 days of the death, Total Permanent Disability or Bankruptcy, as each such term is defined below, of a holder or Beneficial Holder, as defined below, of Redeemable Preferred Stock (a “ Holder Repurchase Event ”), the estate of such holder or Beneficial Holder (in the event of death) or such holder or Beneficial Holder or his or her legal representative (in the event of Total Permanent Disability or Bankruptcy) may request the Company to repurchase, in whole but not in part, without penalty, the Redeemable Preferred Stock held by such holder (including Redeemable Preferred Stock of the holder held in his or her individual retirement accounts) or Beneficial Holder by delivering to the Company a written request for repurchase (the “ Repurchase Request ”). Any such Repurchase Request shall set forth the particular Holder Repurchase Event giving rise to the right of the holder or Beneficial Holder to have his or her Redeemable Preferred Stock repurchased by the Company. If Redeemable Preferred Stock is held jointly by natural persons who are legally married, then a Repurchase Request may be made by the surviving holder (or Beneficial Holder) upon the occurrence of a Holder Repurchase Event arising by virtue of a death, or may be made by the disabled or bankrupt holder or Beneficial Holder (or his or her legal representative) upon the occurrence of a Holder Repurchase Event arising by virtue of a Total Permanent Disability or Bankruptcy. In the event Redeemable Preferred Stock is held together by two or more natural persons that are not legally married (regardless of whether held as joint tenants, co-tenants or otherwise), neither of these persons shall have the right to request that the Company repurchase such Redeemable Preferred Stock unless a Holder Repurchase Event shall have occurred for all such co-holders. Other than a Beneficial Holder, a holder that is not an individual natural person does not have the right to request repurchase under this Section 9(c).
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(ii) Upon receipt of a Repurchase Request, the Company shall designate a date for the repurchase of Redeemable Preferred Stock (the “ Repurchase Date ”), which date shall not be later than the 60th day after the Company shall have received facts or certifications establishing, to the reasonable satisfaction of the Company, the occurrence of the Holder Repurchase Event. On the Repurchase Date, the Company shall, to the extent that it may then lawfully do so under the DGCL on the Repurchase Date and such payment is further permitted under its Certificate of Incorporation, Certificate of Designation of Series A Convertible Preferred Stock and any then-existing borrowing agreements to which it or its subsidiaries are bound, pay the holder or Beneficial Holder, or the estate of the holder or Beneficial Holder, a redemption price equal to the aggregate Stated Value of such Redeemable Preferred Stock to be repurchased, plus accrued but unpaid Preferred Dividends thereon through but not including the Repurchase Date.
(iii) For purposes of this Section 9(c), the capitalized terms Bankruptcy, Beneficial Holder, and Total Permanent Disability shall have the meanings set forth below:
(A) “ Bankruptcy ” means, with respect to a holder of Redeemable Preferred Stock who is a natural person, the (1) commencement of a voluntary bankruptcy case by that holder; (2) consent to the entry of an order for relief against such holder in an involuntary bankruptcy case; or (3) consent to the appointment of a custodian of it or for all or substantially all of its property.
(B) “ Beneficial Holder ” means an individual natural person that holds a beneficial interest in Redeemable Preferred Stock through a custodian or nominee, including a broker-dealer.
(C) “ Total Permanent Disability ” means, with respect to a holder of Redeemable Preferred Stock who is a natural person, a determination by a physician approved by the Company that such holder, who was gainfully employed and working on a full-time basis as of the date on which such Redeemable Preferred Stock was purchased, has been unable to work on a full-time basis for at least 24 consecutive months. In this regard, working “on a full-time basis” shall mean working at least 40 hours per week.
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10. Conversion .
(a) Conversions at Option of Holder . Holders of Redeemable Preferred Stock have the option to convert their Redeemable Preferred Stock, plus accrued but unpaid Preferred Dividends thereon, at any time and from time to time, into that number of shares of common stock determined by dividing the Stated Value of such shares of Redeemable Preferred Stock (plus accrued but unpaid Preferred Dividends thereon, if being converted) by the Conversion Price, as defined below; provided, however, that the maximum amount of Redeemable Preferred Stock, together with accrued but unpaid Preferred Dividends thereon, that any holder may convert shall not exceed 15% of the Stated Value of Redeemable Preferred Stock originally purchased by such holder from the Company and still held by such holder (excluding, for this purpose, shares of Redeemable Preferred Stock issued to the holder in satisfaction of Preferred Dividends); and provided, further, that upon the giving of a Company Redemption Notice, the right to convert shares of Redeemable Preferred Stock subject to redemption shall be suspended through the Company Redemption Date. Holders of Redeemable Preferred Stock shall effect conversions by delivering to the Company a conversion notice in the form provided by the Company (a “ Notice of Conversion ”). Each Notice of Conversion shall specify the number of shares of Redeemable Preferred Stock to be converted (and whether any accrued but unpaid dividends thereon are being converted), and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Notice of Conversion is delivered to the Company (such date, the “ Conversion Date ”). If no Conversion Date is specified in a Notice of Conversion, then the Conversion Date shall be the date that such Notice of Conversion is deemed given hereunder.
(b) Conversion Price . The conversion price for the Redeemable Preferred Stock shall be the volume-weighted average price of the Company’s common stock for the 20 trading days immediately prior to the date of conversion of such Redeemable Preferred Stock (the “ Conversion Price ”), subject, however, to a minimum Conversion Price of $15, as the same may be equitably adjusted upon stock dividends, subdivisions or combinations, by reclassification or otherwise.
(c) Mechanics of Conversion .
(i) Not later than five business days after each Conversion Date (the “ Share Delivery Date ”), the Company shall deliver, or cause to be delivered, to the converting holder of Redeemable Preferred Stock a certificate representing the Conversion Shares or shall deliver any Conversion Shares electronically through the Depository Trust Company or another established clearing corporation performing similar functions. “ Conversion Shares ” means, collectively, the shares of common stock issued and issuable upon conversion of the shares of Redeemable Preferred Stock in accordance with the terms hereof.
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(ii) Failure to Deliver Certificates . If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable holder of Redeemable Preferred Stock by the Share Delivery Date, such holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion Notice, in which event such holder shall promptly return to the Company the common stock certificates, if any, issued to such holder pursuant to the rescinded Conversion Notice.
(iii) Reservation of Shares Issuable Upon Conversion . The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of common stock for the sole purpose of issuance upon conversion of the Redeemable Preferred Stock, as herein provided, free from preemptive rights or any other actual contingent purchase rights, that number of shares of the common stock as shall be issuable upon the conversion of all then-outstanding shares of Redeemable Preferred Stock eligible for conversion hereunder. The Company covenants that all shares of common stock that shall be so issuable shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable.
(iv) Fractional Shares . No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Redeemable Preferred Stock. As to any fraction of a share which the holder of Redeemable Preferred Stock would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
(v) Transfer Taxes and Expenses . The issuance of certificates for shares of the common stock on conversion of the Redeemable Preferred Stock shall be made without charge to any holder of Redeemable Preferred Stock for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the holders of such shares of Redeemable Preferred Stock and the Company shall not be required to issue or deliver such certificates unless or until the holder requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all transfer agent fees required for processing of any Notice of Conversion.
11. No Sinking Fund . The Company shall not be required to establish any sinking or retirement fund with respect to the shares of Redeemable Preferred Stock.
12. Fractional Shares . Redeemable Preferred Stock may be issued in fractional shares.
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13. Loss, Theft or Destruction . Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of shares of Redeemable Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of any certificate representing such Redeemable Preferred Stock, the Company cause to be made, issued and delivered, in lieu of such lost, stolen, destroyed or mutilated shares of Redeemable Preferred Stock, new shares of Redeemable Preferred Stock of like tenor.
14. Who Deemed Absolute Owner . The Company may deem the holder in whose name the Redeemable Preferred Stock shall be registered upon the books and records of the Company to be, and may treat it as, the absolute owner of the Redeemable Preferred Stock for the purpose of making payment of Preferred Dividends, for the payment of the Redemption Price, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All such payments shall be valid and effectual to satisfy and discharge the liability of the Company in respect of the Redeemable Preferred Stock to the extent of the sum or sums so paid.
15. Notices . Unless otherwise provided herein, all notices or other communications or deliveries to be provided shall be given in writing and delivered (a) in person (b) by overnight courier, or (c) mailed by first-class mail (registered or certified, return-receipt requested), facsimile or email, to the other’s address:
Notice shall be treated as given when personally received or, if sent as provided above, the effective date of the notice shall, as applicable, be the date of delivery if delivered in person, the date of the written receipt received upon delivery if delivered via overnight courier, three days after date the notice is sent if mailed by first-class mail (registered or return-receipt requested), the date on which transmitted by confirmed facsimile, or the day after the date on which transmitted via an email address of record (without receipt of any failure notice).
15. Reacquired Shares . If any Redeemable Preferred Stock is exchanged, redeemed, purchased or otherwise acquired by the Company in any manner, such shares shall be returned to the number of authorized but unissued shares of Redeemable Preferred Stock.
16. Severability . If any provision of this Certificate of Designation, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, then (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision, and (ii) the remainder of this Certificate of Designation and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction.
* * * * * * *
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IN WITNESS WHEREOF, GWG Holdings, Inc. has caused this Certificate of Designation to be signed by the undersigned on this ___ day of ____________, 2015.
GWG HOLDINGS, INC.
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Jon R. Sabes | |
Chief Executive Officer |
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Exhibit 4.1
GWG HOLDINGS, INC.
Redeemable Preferred Stock
SUBSCRIPTION AGREEMENT
Please complete this form to purchase Redeemable Preferred Stock. Any sections of this form that are incomplete may be returned to your broker-dealer and may delay your purchase of Redeemable Preferred Stock.
Once completed, send this Subscription Agreement along with your certified or personal check payable to GWG Holdings, Inc. or wire your deposit to the account listed below, and forward any other documents requested in this agreement to your broker-dealer or to GWG Holdings, Inc. at:
GWG Holdings, Inc.
220 South Sixth Street, Suite 1200
Minneapolis, Minnesota 55402
Wire Instructions:
GWG Holdings, Inc. -- Redeemable Preferred Stock
Account: 500027347
Routing: 091310521
Bank Name: Bell State Bank & Trust
GWG HOLDINGS, INC.
REDEEMABLE PREFERRED STOCK SUBSCRIPTION AGREEMENT
1. INVESTMENT |
NOTE : Minimum investment amount is $10,000. Any amount in excess of such minimum investment amount must be in increments of $1,000.
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Number of shares: | Brokerage Account Number, if applicable | ||||
Purchase price per share: | $ | ||||
Aggregate purchase price: | $ | ||||
Payment Instructions : See front cover for payment instructions. |
2. FORM OF OWNERSHIP | (Please choose one option within the “Non-Custodial Ownership” or within the “Custodial Ownership” column) |
NON-CUSTODIAL OWNERSHIP | CUSTODIAL OWNERSHIP | ||
☐ | Individual | THIRD-PARTY ADMINISTERED CUSTODIAL PLAN | |
☐ | Joint Tenant – joint accounts will be registered as joint tenants with right of survivorship unless otherwise indicated. | ☐ | IRA |
☐ | ROTH IRA | ||
☐ | Tenants in Common | ☐ | SEP (Simple Employee Pension) |
☐ | Corporation or Partnership – Authorized signature required. Include corporate resolution or partnership agreement, as applicable. | ☐ | Other (Specify): _____________ ______________ ________________________________ |
Name of Custodian: ______________________________ Mailing Address: ________________________________ |
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☐ | Uniform Gift/Transfer to Minors – (UGMA/UTMA) | City, State, ZIP: _________________________________ | |
☐ | Pension or Other Retirement Plan – Include plan documents. |
CUSTODIAN INFORMATION (To be completed by custodian) |
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☐ | Trust – Include title and applicable trust agreement |
Custodian Tax ID #: ______________________________ Custodian Acct #: _______________________________ |
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☐ | Other (describe): ______________ |
Custodian Phone #: ______________________________
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GWG HOLDINGS, INC.
REDEEMABLE PREFERRED STOCK SUBSCRIPTION AGREEMENT
3. INVESTOR INFORMATION | (Print name(s) in which shares are to be registered) |
A. Investor or Trustee | ||||||
First Name: | Middle Name: | |||||
Last Name: | Tax ID or SS #: | |||||
Street Address: | ||||||
City: | State: | ZIP: | ||||
Date of Birth: | ||||||
If Non-U.S. Citizen, specify country of citizenship: | ||||||
Primary Phone #: | Email Address: | |||||
B. Co-Investor or Co-Trustee | ||||||
First Name: | Middle Name: | |||||
Last Name: | Tax ID or SS #: | |||||
Street Address: | ||||||
City: | State: | ZIP: | ||||
Date of Birth: | ||||||
If Non-U.S. Citizen, specify country of citizenship: | ||||||
Primary Phone #: | Email Address: | |||||
C. Residential Street Address (This section must be completed if mailing address in Section 2A is a P.O. Box) | |||||
Street Address: | |||||
City: | State: | ZIP: | |||
D. Trust/Corporation/Partnership/Other (Trustee’s information must be provided in Sections 3A and 3B) | ||
Date of Trust: | ||
Entity Name/Title of Trust: | ||
Tax ID#: | ||
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GWG HOLDINGS, INC.
REDEEMABLE PREFERRED STOCK SUBSCRIPTION AGREEMENT
4. DISTRIBUTIONS | (Select only one. If nothing is marked, will default to “Credit Dividend to Custodian Clearing Firm/Platform of Record” or “Mail Check to Address of Record,” as applicable) |
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GWG HOLDINGS, INC.
REDEEMABLE PREFERRED STOCK SUBSCRIPTION AGREEMENT
5. ELECTRONIC DELIVERY ELECTION |
☐ | Check the box if you do NOT consent to electronic delivery of documents, including the prospectus, any prospectus supplements, annual and quarterly reports, and other stockholder communications and reports. An e-mail address is required in Section 3 above. Please carefully read the following representations before consenting to receive documents electronically. If you do not check this box, you hereby represent the following: |
(a) | I acknowledge that access to both e-mail and Internet is required in order to access documents electronically. I may receive by e-mail notification the availability of documents in electronic format. The notification e-mail will contain an Internet address or hyperlink where the referenced document can be found. By entering this address into by Internet web browser, I can view, download and print the document from my computer. I acknowledge that there may be costs associated with electronic access, such as usage charges from my Internet provider and telephone provider, and that these costs are my responsibility. |
(b) | I acknowledge that documents distributed electronically may be provided in Adobe’s Portable Document Format (.pdf). The Adobe Reader software is required to view these documents. The Adobe Reader software is available free of charge from Adobe’s Internet website at www.adobe.com . The Adobe Reader software must be correctly installed on my computer before I will be able to view documents in .pdf format. Electronic delivery also involves risks related to system or network outages that could impair my timely receipt of or access to stockholder communications. |
(c) | I acknowledge that I may receive at no cost from GWG Holdings, Inc. a paper copy of documents delivered electronically by calling by financial adviser or by calling GWG Holdings, Inc. |
(d) | I understand that if an e-mail notification to me is returned to GWG Holdings as “undeliverable,” a letter will be mailed to me with instructions on how to update my e-mail address to begin receiving communications by means of electronic delivery. I further understand that if GWG Holdings, Inc. is unable to obtain a valid e-mail address for me, GWG Holdings, Inc. will resume sending me a paper copy of its filings by U.S. mail to my address of record. |
(e) | I understand that my consent to receive documents and communications electronically may be updated or cancelled at any time by calling my financial adviser or by calling GWG Holdings, Inc. |
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GWG HOLDINGS, INC.
REDEEMABLE PREFERRED STOCK SUBSCRIPTION AGREEMENT
6. BROKER-DEALER/FINANCIAL ADVISER INFORMATION |
NOTE : The financial adviser must sign below to complete the order. The financial adviser hereby represents and warrants that he or she is duly licensed and may lawfully sell shares of GWG Holdings, Inc.’s Redeemable Preferred Stock. All fields below must be completed. | ||||||||
Broker-Dealer: | ||||||||
Financial Adviser Name/RIA: | ||||||||
Mailing Address: | ||||||||
City: | State: | ZIP: | ||||||
Business Phone #: | Fax #: | |||||||
E-mail Address: | ||||||||
Broker-Dealer CRD #: | ||||||||
Financial Adviser CRD #: | ||||||||
☐ | RIA Submission . Check this box to indicate whether submission is made through the RIA is its capacity as the RIA and not in its capacity as a registered representative of a broker-dealer, if applicable, whose agreement with the subscriber includes a fixed or “wrap” fee feature for advisory and related brokerage services. I understand that be checking the above box, I will not receiving a selling commission. | |||||||
The undersigned further represents and certifies that in connection with this subscription for shares, he or she has complied with and has followed all applicable policies and procedures under his or her firm’s existing Anti-Money Laundering Program and Customer Identification Program. | ||||||||
Financial Adviser and/or RIA Signature: | Date: | |||||||
Branch Manager Signature: | Date: | |||||||
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GWG HOLDINGS, INC.
REDEEMABLE PREFERRED STOCK SUBSCRIPTION AGREEMENT
7. SUBSCRIBER ACKNOWLEDGEMENTS AND SIGNATURES
[IRS FORM W-9 AND ACCOMPANYING INSTRUCTIONS FOLLOW]
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Exhibit 5.1
MASLON LLP
3300 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Tel: (612) 672-8200
October 23, 2015
GWG Holdings, Inc.
220 South Sixth Street, Suite 1200
Minneapolis, Minnesota 55402
Re: Registration Statement on Form S-1; Redeemable Preferred Stock
Ladies and Gentlemen:
We have acted as counsel to GWG Holdings, Inc., a Delaware corporation (the “Company”), in connection with the filing with the Securities and Exchange Commission (the “Commission”) of a registration statement on Form S-1 (Registration Number 333-206626) (as amended, the “Registration Statement”) under the Securities Act of 1933 (the “Securities Act”), relating to the offer and sale of preferred equity securities of the Company.
You have provided us with a draft of the Registration Statement in the form in which it will be filed, which includes the prospectus (the “Prospectus”). The Prospectus provides that it will be supplemented in the future by one or more supplements to the Prospectus (each, a “Prospectus Supplement”). The Prospectus, as supplemented by various Prospectus Supplements, will provide for the registration by the Company of the offer and sale of up to 100,000 shares of Redeemable Preferred Stock of the Company (the “Preferred Shares”). The Preferred Shares are convertible, subject to certain procedures and limitations, into shares of the Company’s common stock (the “Common Shares”).
As counsel to the Company, we have examined such matters of fact and questions of law as we have considered appropriate for purposes of this letter. With your consent, we have relied upon the foregoing and upon certificates and other assurances of officers of the Company and others as to factual matters without having independently verified such factual matters. We have also examined (a) a certified copy of the Certificate of Incorporation of the Company, as amended, (b) the Company’s corporate bylaws, (c) resolutions adopted by the Board of Directors of the Company relating to, among other matters, the offer, sale, issuance and registration of the Preferred Shares (including the Certificate of Designations of the Preferred Shares) and the issuance of the Common Shares (collectively, the “Resolutions”), certified as of the date hereof by an officer of the Company. All of the foregoing documents described in clauses (a), (b) and (c) of the prior sentence, together with the Registration Statement, are collectively referred to as the “Documents.”
We are opining herein as to the effect on the subject transaction only of the General Corporation Law of the State of Delaware and we express no opinion with respect to the applicability thereto, or the effect thereon, of the laws of any other jurisdiction or, in the case of Delaware, any other laws, or as to any matters of municipal law or the laws of any local agencies within any state.
Subject to the foregoing and the other matters set forth herein, it is our opinion that as of the date hereof:
1. | The Company is a corporation duly incorporated and existing under the laws of the State of Delaware and is in good standing therein. |
2. | The issuance of the Preferred Shares has been duly authorized and, when and if issued and delivered against payment therefor in accordance with the Registration Statement and the Resolutions, such Preferred Shares will be validly issued and the Preferred Shares will be fully paid and non-assessable. |
3. | The issuance of the Common Shares has been duly authorized and, when and if issued and delivered upon conversion of Preferred Shares in accordance with the Registration Statement and the Resolutions, the Common Shares will be validly issued, fully paid and non-assessable. |
In expressing the opinion herein, we have assumed the following: (i) each individual executing any of the Documents, whether on behalf of such individual or another person, is legally competent to do so; (ii) each individual executing any of the Documents on behalf of a party (other than the Company) is duly authorized to do so; (iii) each of the parties (other than the Company) executing any of the Documents has duly and validly executed and delivered each of the Documents to which such party is a signatory, and such party’s obligations set forth therein are legal, valid and binding and are enforceable in accordance with all stated terms; (iv) all Documents submitted to us as originals are authentic and the form and content of all Documents submitted to us as unexecuted drafts do not differ in any respect relevant to this opinion from the form and content of such Documents as executed and delivered. We have further assumed that all Documents submitted to us as certified or photostatic copies conform to the original documents; that all signatures on all such Documents are genuine; that all public records reviewed or relied upon by us or on our behalf are true and complete; that all representations, warranties, statements and information contained in the Documents are true and complete; that there has been no oral or written modification of or amendment to any of the Documents; and that there has been no waiver of any provision of any of the Documents, by action or omission of the parties or otherwise.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the use of our name in the Prospectus forming a part of the Registration Statement under the caption “Legal Matters.” In giving this consent, we do not admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act and the rules and regulations thereunder.
The opinions expressed herein are limited to the matters specifically set forth herein and no other opinion shall be inferred beyond the matters expressly stated. We assume no obligation to supplement this opinion if any applicable law changes after the date hereof or if we become aware of any fact that might change the opinion expressed herein after the date hereof.
Very truly yours,
/s/ MASLON LLP
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of:
GWG Holdings, Inc. and Subsidiaries
We consent to the use in this Registration Statement on Amendment No. 1 on Form S-1 of our report dated March 13, 2015, relating to the consolidated financial statements of GWG Holdings, Inc. and its subsidiaries as of and for the years ended December 31, 2014 and December 31, 2013, which are incorporated by reference in such Registration Statement, and the reference to our firm under the heading “Experts” in the prospectus.
/s/ BAKER TILLY VIRCHOW KRAUSE, LLP
Minneapolis, Minnesota
October 23, 2015