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Item
1.01
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Entry
into a Material Definitive Agreement.
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On
August 31, 2018, Ladenburg Thalmann Annuity Insurance Services LLC (“LTAIS”), a wholly-owned subsidiary of
Ladenburg Thalmann Financial Services Inc. (the “Registrant”), entered into an asset purchase agreement (the
“Purchase Agreement”) with Kestler Financial Group, Inc. (“Kestler Financial”) and Jason A. Kestler, the
sole shareholder of Kestler Financial (the “Shareholder” and, together with Kestler Financial, the “Sellers”),
pursuant to which LTAIS acquired certain assets pertaining to Kestler Financial’s insurance distribution business (such
acquisition, the “Transaction”), which will be accounted for as a business acquisition. The Transaction was
completed on August 31, 2018 (the “Closing Date”).
Kestler
Financial is a leading independent distribution company based in Leesburg, Virginia. Kestler Financial’s President and Chief
Executive Officer Jason Kestler and the other members of the Kestler Financial management team will continue to operate Kestler
Financial from its present headquarters in Leesburg as part of LTAIS.
Summary
of Purchase Agreement Terms:
Transaction Consideration
. Under the
terms of the Transaction, LTAIS agreed to pay to Kestler Financial approximately $7.23 million, consisting of (i) a $1,617,205
cash payment paid upon the closing of the Transaction (less any amounts in satisfaction of liabilities to be satisfied prior to
closing and any expenses or fees incurred by the Sellers), (ii) a $165,000 cash payment to be made on the first anniversary of
the Closing Date, and (iii) a promissory note in the original principal amount of $5,450,187 (the “Note”). In addition,
LTAIS may be required to deliver, during the five years following the Closing Date, an annual payment to Kestler Financial based
on the adjusted net revenue of the business acquired by LTAIS. The initial annual payment is guaranteed to be $100,000. The maximum
aggregate amount of annual payments is $1,000,000. The Transaction consideration is also subject to a post-closing adjustment payable
in cash based on the working capital of the acquired business as of the Closing Date.
The
Note bears interest at 4% per year, compounded annually, and is payable in equal monthly installments beginning on September 15,
2018, with the final installment being due and payable on or before November 15, 2036 (the “Maturity Date”). The Note
may be prepaid in full or in part at any time without premium or penalty. The Note contains customary events of default, which
if uncured, entitle the holder to accelerate the due date of the unpaid principal amount of, and all accrued and unpaid interest
on, the Note.
Representations
and Warranties; Covenants.
The Purchase Agreement contains customary representations and warranties of the parties. The Purchase
Agreement also contains customary covenants and agreements.
Restrictive
Covenants.
The Sellers are subject to a restrictive covenant in the Purchase Agreement relating to competition as a brokerage
general agent, insurance marketing organization, or other insurance intermediary placing insurance products through insurance
producers or through employees or agents of financial institutions, broker dealers, investment advisers or other similar financial
or marketing organization (except for the benefit of LTAIS and its affiliates while the Shareholder is an employee of LTAIS or
its affiliates and certain other permitted exceptions) and to a non-solicitation covenant covering insurance producers who have
written insurance business through a Seller during the twelve months preceding the Closing Date, or who write insurance business
during the five years following the Closing Date. The restrictive covenants run until the fifth anniversary of the Closing Date.
Indemnification.
Subject to certain limitations, the Sellers have agreed to indemnify LTAIS, its affiliates, and their respective directors,
officers, employees, consultants, financial advisors, counsel, accountants and other agents for losses based upon, arising out
of, with respect to or by reason of: (i) any inaccuracy in or breach of any of the representations or warranties of any Seller
contained in the Purchase Agreement or other transaction documents, (ii) any breach or non-fulfillment of any covenant,
agreement or obligation to be performed by any Seller pursuant to the Purchase Agreement or other transaction documents, (iii)
any excluded asset or excluded liability, (iv) any third party claim or liability based upon, resulting from, arising out of,
or related to the business, operations, properties, assets or obligations of Sellers or any of their affiliates (other than the
purchased assets or the assumed liabilities) conducted, existing or arising on or prior to the Closing Date, (v) any liability
arising out of or relating to the taxes of Sellers or their affiliates, or any action with respect to the purchased assets related
to such taxes, and (vi) any third party claim or liability arising out of the employment of a certain individual related to certain
types of claims by his former employer. Subject to certain limitations, LTAIS may offset claims for indemnification against amounts
otherwise payable pursuant to the Purchase Agreement, including, but not limited to, payments due under the Note.
The
foregoing descriptions of the Purchase Agreement and the Note are qualified in their entirety by reference to the full text of
the agreements, which are attached hereto as Exhibits 2.1 and 4.1, respectively.