Item 1.01
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Entry into a Material Definitive Agreement.
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On January 12, 2018, GWG Holdings, Inc. and
its wholly owned subsidiary GWG Life, LLC entered into a Master Exchange Agreement with The Beneficient Company Group, L.P., a
Delaware limited partnership (“Beneficient”), MHT Financial SPV, LLC, a Delaware limited liability company (“MHT
SPV”), and various related trusts (the “Seller Trusts”), as amended and restated on January 18, 2018 with effect
from January 12, 2018.
The Master Exchange Agreement contemplates an
exchange transaction (the “Exchange Transaction”) in which GWG Holdings will receive from the Seller Trusts up to 40,000,000
outstanding common units (representing limited partner interests) in Beneficient (the “MLP Units”), subject to adjustment
as provided below. The Seller Trusts will receive the following consideration: (i) up to 29.1 million shares of common stock of
GWG Holdings, (ii) up to $360 million in principal amount of L Bonds of GWG Holdings, and (iii) $150 million in cash from GWG Holdings.
Under the Master Exchange Agreement, MHT SPV has subscribed for GWG Holdings common stock and L Bonds for an aggregate cash payment
of $150 million, which subscription may be accepted by GWG Holdings solely at its option.
The exact number of shares of common stock and
L Bonds of GWG Holdings, and the exact number of outstanding common units of Beneficient that will be sold to GWG Holdings by the
Seller Trusts, at the closing of the Exchange Transaction will be determined approximately five business days prior to closing.
The Master Exchange Agreement provides, however, that the aggregate value of the consideration (consisting of the outstanding common
units of Beneficient and cash) provided to GWG Holdings and GWG Life in the Exchange Transaction will not be less than $550 million
nor more than $800 million. In addition, the Master Exchange Agreement provides that the aggregate principal amount of L Bonds
will be equal to the aggregate amount of common stock of GWG Holdings (valued at $10.00 per share).
GWG Life will make a commercial loan to Beneficient
in a principal amount of up to $400 million to facilitate Beneficient’s build-out of its suite of liquidity products. Interest
will accrue on the principal amount outstanding under the loan at the per annum rate of 5%. Principal and interest, together with
any other amounts owing under the commercial loan, will be due and payable in full on the four-year anniversary of the closing
of the Exchange Transaction in cash or, at the at the election of Beneficient, in the form of additional MLP Units, subject to
certain limitations. One-half of the interest owing under the loan will be payable monthly in cash, and the remaining one-half
will be payable at maturity.
In the event GWG Holdings secures a valuation
opinion from a nationally recognized valuation firm to the effect that the MLP Units will have, as of the closing date of the Exchange
Transaction, a fair value of less than $9.00 per MLP Unit and a second valuation opinion obtained by GWG Holdings and Beneficient
ascribes a value to the MLP Units of less than $9.00 per unit, Beneficient will provide, through arrangements with existing security
holders so as to preclude dilution, such additional number of MLP Units to GWG Holdings at the closing of the Exchange Transaction
as shall be necessary to provide an aggregate value to GWG Holdings equal to the value the MLP Units would have had at $10.00 per
MLP Unit.
The transactions contemplated by the Master
Exchange Agreement are expected to close in the first or second quarter of 2018, subject to the approval of stockholders of GWG
Holdings (in accordance with applicable NASDAQ requirements) and the satisfaction of the other customary closing conditions set
forth in the agreement, including, among others, expiration or termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, approval of GWG Holdings’ stockholders of the issuance of the GWG Holdings common stock
(as required by NASDAQ), consent from the senior lender under GWG’s senior credit facility, and amendment and supplement
of the indenture governing GWG Holdings’ outstanding L Bonds in connection with the terms of this transaction.
As described above, the Master Exchange Agreement
contemplates the execution and delivery of the following agreements prior to or at the closing, in addition to the commercial loan
agreement discussed above. Although the parties have not entered into these agreements, the Master Exchange Agreement does set
forth certain terms and conditions. These agreements are:
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A voting agreement with Messrs. Jon R. Sabes and Steven F. Sabes. Jon R. Sabes is the Chairman and Chief Executive Officer
of GWG Holdings, and Steve F. Sabes is a director of GWG Holdings. Messrs. Jon R. Sabes and Steven F. Sabes have shared voting
control over a majority of the voting power of the outstanding capital shares of GWG Holdings. The purpose of the voting agreement
is to provide Beneficient, MHT SPV and the Seller Trusts with certainty that the stockholders of GWG Holdings will approve the
proposed transaction, and the voting agreement will accordingly obligate Jon R. Sabes and Steve F. Sabes to vote their shares in
favor of the transaction and prohibit them from disposing of their shares of capital stock prior to the vote unless the Exchange
Transaction is terminated.
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Registration rights agreements relating to the MLP Units to be acquired by GWG Holdings and to the shares of common stock of
GWG Holdings and L Bonds to be issued to the Seller Trusts and MHT SPV in the Exchange Transaction.
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An orderly marketing agreement pursuant to which GWG Holdings will work with one or more nationally recognized investment banks
for the orderly marketing and resale of the shares of common stock that GWG Holdings issues to the Seller Trusts and MHT SPV at
the closing, and the Seller Trusts and MHT SPV agree to sell their common stock of GWG Holdings only as permitted thereunder.
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A shareholders’ agreement pursuant to which the Seller Trusts and MHT SPV will agree to vote all voting securities of
GWG Holdings voted on by stockholders of GWG Holdings solely in proportion with the votes cast by all other holders of voting securities
of GWG Holdings on any matter put before them until the orderly marketing agreement has been terminated, and to a one-year standstill
arrangement.
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The Master Exchange Agreement contains customary
and negotiated representations, warranties and covenants for a transaction involving the issuance and exchange of securities comprising
a significant amount of the equity capital of each issuer, including a customary non-solicitation covenant by GWG Holdings.
In the Master Exchange Agreement, Beneficient
has agreed to use its commercial best efforts to pursue and obtain a listing of its common units on a nationally recognized stock
exchange (a “listing”) on or prior to the 40-month anniversary of the closing. Beneficient is structured so that, upon
any such listing, it will be treated as a master limited partnership. In the event that either (i) Beneficient has not filed a
registration statement with the SEC in connection with a listing within 24 months after the closing or (ii) Beneficient does not
secure a listing on a national stock exchange in the United States within 40 months after the closing, then the Master Exchange
Agreement provides that GWG Holdings may elect, at its discretion, to cause Beneficient to adopt a strategy to redeem all of the
common units of Beneficient then held by GWG Holdings as of the date of that election at a redemption price equal to the greater
of $11.00 per unit or the book value per unit as of the date of redemption.
GWG Holdings, on the one hand, and any of Beneficient,
MHT SPV or the Seller Trusts, on the other hand, may terminate the Master Exchange Agreement prior to the closing in certain circumstances,
including, among other things, (i) if the closing of the transaction has not occurred by April 30, 2018, (ii) if the stockholders
of GWG Holdings fail to approve the transaction, (iii) by mutual written consent, and (iv) in connection with another party’s
breach in a material respect of its representations, warranties, or agreements contained in the Master Exchange Agreement that
is either not curable or, if curable, has not been cured after at least 30 days prior written notice. In addition, the Seller Trusts
may terminate the Master Exchange Agreement, prior to the closing, at any time so long as they pay GWG Holdings a $4 million termination
fee concurrently with or prior to such termination.
The transactions contemplated by the Master
Exchange Agreement have been effected in reliance upon available exemptions under applicable federal and state securities laws.