UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________________
SCHEDULE 14A
________________________________________
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant S
|
Filed by a Party other than the Registrant £
|
Check the appropriate box:
£
|
|
Preliminary Proxy Statement
|
£
|
|
Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)
|
S
|
|
Definitive Proxy Statement
|
£
|
|
Definitive Additional Materials
|
£
|
|
Soliciting Material Pursuant to §240.14a-12
|
GWG HOLDINGS, INC.
(Name of Registrant as Specified In Its Charter)
____________________________________________________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
S
|
|
No fee required.
|
£
|
|
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
|
|
|
(1)
|
|
Title of each class of securities to which transaction applies:
|
|
|
|
|
|
|
|
(2)
|
|
Aggregate number of securities to which transaction applies:
|
|
|
|
|
|
|
|
(3)
|
|
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
|
|
|
|
|
|
|
|
(4)
|
|
Proposed maximum aggregate value of transaction:
|
|
|
|
|
|
|
|
(5)
|
|
Total fee paid:
|
|
|
|
|
|
£
|
|
Fee paid previously with preliminary materials.
|
£
|
|
Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.
|
|
|
(1)
|
|
Amount Previously Paid:
|
|
|
|
|
|
|
|
(2)
|
|
Form, Schedule or Registration Statement No.:
|
|
|
|
|
|
|
|
(3)
|
|
Filing Party:
|
|
|
|
|
|
|
|
(4)
|
|
Date Filed:
|
|
|
|
|
|
GWG HOLDINGS, INC.
220 South Sixth Street, Suite 1200
Minneapolis, MN 55402
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD THURSDAY, DECEMBER 12, 2019
TO THE STOCKHOLDERS OF GWG HOLDINGS, INC.:
Please take notice that the annual meeting of stockholders (the “Annual Meeting”) of GWG Holdings, Inc. (the “Company”) will be held, pursuant to due call by the Board of Directors, on Thursday, December 12, 2019, at 9:00 a.m., at 220 South Sixth Street, Suite 1200, Minneapolis, Minnesota 55402, or at any adjournment or adjournments thereof, for the purpose of considering and taking appropriate action with respect to the following:
1. The election of three Class I directors nominated by the Board of Directors to serve for a three-year term expiring in 2022;
2. An advisory vote to approve the compensation of our executive officers as disclosed in this proxy statement (“say-on-pay”);
3. An advisory vote on the frequency of future advisory votes on executive compensation;
4. The ratification of the appointment of Whitley Penn LLP as our independent registered public accounting firm for fiscal 2019; and
5. The transaction of any other business as may properly come before the Annual Meeting or any adjournments thereof.
Pursuant to due action of the Board of Directors, stockholders of record on November 12, 2019 will be entitled to vote at the Annual Meeting or any adjournments thereof.
The proxy statement for the Annual Meeting and the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018, each of which is included with this Notice, are also available to you on the Internet. We encourage you to review all of the important information contained in the proxy materials before voting.
To view the proxy statement and Annual Report on Form 10-K on the Internet, visit www.gwgh.com.
|
|
By Order of the Board of Directors
|
|
|
/s/ Murray T. Holland
|
|
|
Murray T. Holland
|
|
|
Chief Executive Officer
|
November 22, 2019
GWG HOLDINGS, INC.
220 South Sixth Street, Suite 1200
Minneapolis, MN 55402
________________________________________
PROXY STATEMENT
________________________________________
Annual Meeting of Stockholders to be Held
December 12, 2019
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors (periodically referred to in this Proxy Statement as the “Board”) of GWG Holdings, Inc. (periodically referred to herein as “GWG,” the “Company,” “we,” “our,” and “us”) to be used at the annual meeting of stockholders (the “Annual Meeting”) to be held on Thursday, December 12, 2019, at 9:00 a.m., at 220 South Sixth Street, Suite 1200, Minneapolis, Minnesota 55402, for the purpose of considering and taking appropriate action with respect to the following:
1. The election of three Class I directors nominated by the Board of Directors to serve for a three-year term expiring in 2022;
2. An advisory vote to approve the compensation of our executive officers as disclosed in this proxy statement (“say-on-pay”);
3. An advisory vote on the frequency of future advisory votes on executive compensation;
4. The ratification of the appointment of Whitley Penn LLP as our independent registered public accounting firm for fiscal 2019; and
5. The transaction of any other business as may properly come before the Annual Meeting or any adjournments thereof.
The approximate date on which this Proxy Statement and the accompanying proxy were first sent or provided to stockholders was November 22, 2019.
PROXIES AND VOTING
Registered holders of our common stock may vote in one of four ways: by completing and returning the enclosed proxy card via regular mail, scan or email or by voting via the Internet. The Internet procedure is designed to authenticate the stockholder’s identity and to allow stockholders to vote their shares and confirm that their instructions have been properly recorded.
The Board of Directors has set the close of business on November 12, 2019 as the “Record Date” for the Annual Meeting. Only holders of our common stock as of the Record Date, or their duly appointed proxies, are entitled to notice of and will be entitled to vote at the Annual Meeting or any adjournments thereof. On the Record Date, there were 33,033,793 shares of our common stock outstanding. Each share of common stock entitles the holder thereof to one vote upon each matter to be presented at the Annual Meeting. A quorum, consisting of a majority of the voting power of stock entitled to vote at the Annual Meeting, must be present in person or represented by proxy before action may be taken at the Annual Meeting.
Each proxy returned to us will be voted in accordance with the instructions indicated thereon. If no direction is given by a stockholder, the shares will be voted as recommended by the Board of Directors. If any nominee for the Board of Directors should withdraw or otherwise become unavailable for reasons not presently known, the proxies that would have otherwise been voted for such nominee will be voted for such substitute nominee as may be selected
PROPOSAL 4
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Our Board of Directors and management are committed to the quality, integrity and transparency of GWG’s financial reports. In accordance with the duties set forth in its written charter, the Audit Committee of our Board of Directors has appointed Whitley Penn LLP as our independent registered public accounting firm for the 2019 fiscal year. A representative of Whitley Penn LLP is not expected to attend this year’s Annual Meeting. To the extent that a representative of Whitley Penn LLP does attend this year’s Annual Meeting, he or she will be available to respond to appropriate questions from stockholders, and will have the opportunity to make a statement if he or she desires to do so.
Our independent registered public accounting firm for the 2018 and 2017 fiscal years was Baker Tilly Virchow Krause, LLP (“Baker Tilly”). On August 5, 2019, we received notice from Baker Tilly that it declined to stand for re-appointment as our certifying accountant for fiscal year 2019.
Neither of Baker Tilly’s audit reports for the years ended December 31, 2018 or 2017 contained an adverse opinion or a disclaimer of opinion, nor was any such report qualified or modified. In addition, during the years ended December 31, 2018 and 2017 and through August 5, 2019, there were (i) no disagreements between the Company and Baker Tilly on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which, if not resolved to Baker Tilly’s satisfaction, would have caused Baker Tilly to make reference to the subject matter of the disagreement in connection with its report for such years, and (ii) no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K for such years and subsequent interim periods through August 5, 2019, except for the material weaknesses in internal control over financial reporting that existed as of December 31, 2018 and March 31, 2019 relating to the Company’s (i) failure to timely file the 2018 Form 10-K due to the lack of effective information and communication controls with external parties that prevented the Company from timely executing certain controls within its financial closing and reporting processes, and (ii) internal controls over the application of generally accepted accounting principles to material complex non-routine transactions, in each case, as described in Part II, Item 9A (Controls and Procedures) of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The Company’s audit committee discussed such material weaknesses with Baker Tilly, and the Company has authorized Baker Tilly to respond fully to the inquiries of the Company’s successor accounting firm concerning such material weaknesses.
We do not expect that a representative of Baker Tilley will attend this year’s Annual Meeting. To the extent that a representative of Baker Tilley attends the Annual Meeting, he or she will be available to respond to appropriate questions from stockholders, and will have the opportunity to make a statement if he or she desires to do so.
On August 6, 2019, our Audit Committee engaged Whitley Penn LLP as our new independent registered public accounting firm for the year ending December 31, 2019. During the years ended December 31, 2018 and 2017, and the subsequent interim period through August 6, 2019, neither the Company nor anyone on its behalf has consulted Whitley Penn LLP with respect to either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements or the effectiveness of internal control over financial reporting, where either a written report or oral advice was provided to the Company that Whitley Penn LLP concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and related instructions) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
10
Fees Billed to Company by Its Independent Registered Public Accounting Firm
The following table presents fees for professional audit services and 401(k) audit services, tax services and other services rendered by Baker Tilly during years 2017 and 2018:
|
|
2018
|
|
2017
|
Audit Fees(1)
|
|
$
|
577,317
|
|
$
|
345,526
|
Audit-Related Fees(2)
|
|
$
|
16,423
|
|
$
|
—
|
Tax Fees(3)
|
|
$
|
105,560
|
|
$
|
87,075
|
All Other Fees(4)
|
|
$
|
11,913
|
|
$
|
89,980
|
Total Fees
|
|
$
|
711,213
|
|
$
|
522,581
|
The Audit Committee of our Board of Directors reviewed the services provided by Baker Tilly during the 2018 fiscal year and the fees billed for such services. After consideration, the Audit Committee determined that the receipt of these fees by Baker Tilly was compatible with the provision of independent audit services. The Audit Committee discussed these services and fees with Baker Tilly and our management to determine that they are permitted under the rules and regulations concerning auditor independence promulgated by the SEC to implement the Sarbanes-Oxley Act of 2002, as well as the American Institute of Certified Public Accountants.
Pre-Approval Policy
The written charter of the Audit Committee provides that all audit and non-audit accounting services permitted to be performed by our independent registered public accounting firm under applicable rules and regulations must be pre-approved by the Audit Committee or by designated members of the Audit Committee, other than with respect to de minimis exceptions permitted under the Sarbanes-Oxley Act of 2002. All services performed by our independent registered public accounting firm during the years ended December 31, 2018 and 2017 were pre-approved in accordance with the written charter.
Prior to or as soon as practicable following the beginning of each year, a description of the audit, audit-related, tax, and other services expected to be performed by the independent registered public accounting firm in the following year will be presented to the Audit Committee for approval. Following such approval, any requests for audit, audit-related, tax, and other services not presented and pre-approved must be submitted to the Audit Committee for specific pre-approval and cannot commence until such approval has been granted. However, we have delegated the authority to grant specific pre-approval between meetings, as necessary, to the Chair of the Audit Committee. The Chair then updates the Audit Committee at the next regularly scheduled meeting of any services that were granted specific pre-approval.
Vote Required
The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the appointment of Whitley Penn LLP as our independent registered public accounting firm for fiscal 2019. If the stockholders do not ratify the appointment of Whitley Penn LLP, the Audit Committee may reconsider its selection, but is not required to do so. Notwithstanding the proposed ratification of the appointment of Whitley Penn LLP by our stockholders, the Audit Committee, in its discretion, may direct the appointment of new independent auditors at any time during the year without notice to, or the consent of, the stockholders, if the Audit Committee determines that such a change would be in the best interests of our Company and our stockholders.
The Board of Directors recommends that you vote FOR the ratification of Whitley Penn LLP
as the Company’s independent registered public accounting firm for fiscal 2019.
11
EXECUTIVE OFFICERS AND DIRECTORS OF OUR COMPANY
Name and Title
|
|
Age
|
|
Principal Occupation, Business Experience for the
Past Five Years and Directorships of Public Companies
|
Murray T. Holland Chief Executive Officer
|
|
66
|
|
Murray T. Holland has served as our President and Chief Executive Officer since April 26, 2019. In 2001, Mr. Holland became an original investor and consultant for MHT Partners, a boutique investment banking firm based in Dallas, Texas with a number of offices in the United States. From 2013 until recently, he was Managing Director of MHT Partners. Mr. Holland resigned from this position in connection with the transaction contemplated by the Purchase and Contribution Agreement dated April 15, 2019 among Jon R. Sabes, Steven F. Sabes and The Beneficient Company Group, L.P. (”Beneficient”), among others. Prior to MHT, he was CEO and principal shareholder of Convergent Media Systems (Atlanta), a $100 million custom network outsourcing firm with approximately 300 employees, CEO and principal shareholder of Convergent Group Corporation (Denver), a $200 million geographic information systems software and integration firm with approximately 450 employees, and CEO and principal shareholder of BTI Americas (Chicago), a $2.7 billion business travel agency with approximately 4,400 employees. EDS was his principal business partner in these ventures. Prior to that, Mr. Holland was a partner at the law firm of Akin, Gump, Strauss, Hauer & Feld (Dallas) in corporate finance and securities, a Senior Vice President of Credit Suisse First Boston (New York and Dallas) in Mergers and Acquisitions and a Managing Director of Kidder, Peabody & Co. (New York) in Mergers and Acquisitions. He graduated from Washington and Lee University with a B.S. in 1975, University of Virginia Graduate School of Business Administration with an M.B.A. in 1978, and Washington and Lee University School of Law with a J.D. in 1980. Mr. Holland is the author of “A Nation in the Red” (McGraw Hill- 2014), a book about the U.S. national debt and its implications.
|
Brad K. Heppner
Director, Chairman of the Board
|
|
53
|
|
See ‘‘Election of Directors (Proposal One)” — above.
|
Timothy L. Evans
Chief Financial Officer and Treasurer
|
|
40
|
|
Timothy L. Evans joined the Company as Chief Integration Officer on May 6, 2019 and was appointed as Chief Financial Officer and Treasurer on August 15, 2019. Prior to joining GWG Holdings, Inc., Mr. Evans was Chief of Staff for The Beneficient Company Group, L.P. (“Beneficient”), where he had also served as Vice President and Deputy General Counsel since February 2018. Prior to joining Beneficient, Mr. Evans was an attorney for the United States Securities and Exchange Commission for six years, where he served as a trial attorney and a counsel to the Director of Enforcement. Mr. Evans was an associate in the Dallas office of Thompson & Knight LLP for four years before joining the Securities and Exchange Commission. He received his Juris Doctorate, summa cum laude, from the University of Arkansas School of Law in 2008. Prior to practicing as an attorney, Mr. Evans was an accountant for three years with SMG, a public facility management company. He previously held an Arkansas CPA license but is not currently licensed by the Arkansas State Board of Public Accountancy. He graduated from the University of Illinois at Urbana-Champaign with a Bachelor of Arts – Economics in 2001.
|
Peter T. Cangany, Jr.
Director
|
|
62
|
|
See ‘‘Election of Directors (Proposal One)” — above.
|
Michelle Caruso-Cabrera Director
|
|
50
|
|
See ‘‘Election of Directors (Proposal One)” — above.
|
David F. Chavenson
Director
|
|
67
|
|
See ‘‘Election of Directors (Proposal One)” — above.
|
12
Name and Title
|
|
Age
|
|
Principal Occupation, Business Experience for the
Past Five Years and Directorships of Public Companies
|
Thomas O. Hicks
Director
|
|
73
|
|
See ‘‘Election of Directors (Proposal One)” — above.
|
Dennis P. Lockhart
Director
|
|
72
|
|
See ‘‘Election of Directors (Proposal One)” — above.
|
Kathleen Mason
Director
|
|
70
|
|
See ‘‘Election of Directors (Proposal One)” — above.
|
Bruce W. Schnitzer
Director
|
|
74
|
|
See ‘‘Election of Directors (Proposal One)” — above.
|
|
|
|
|
|
Roger T. Staubach
Director
|
|
77
|
|
See ‘‘Election of Directors (Proposal One)” — above.
|
|
|
|
|
|
David H. de Weese
Director
|
|
77
|
|
See ‘‘Election of Directors (Proposal One)” — above.
|
13
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and non-cash compensation for the 2017 and 2018 years awarded to or earned by: (i) each individual who served as the principal executive officer of GWG Holdings during 2018; and (ii) the two most highly compensated executive officers of GWG Holdings who were serving as executive officers at the end of 2018 and who received more than $100,000 in the form of salary and bonus during such year. These individuals are referred to as our “named executives.”
Name and Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Stock
Awards(1)
|
|
Option
Awards(1)
|
|
Total
|
Jon R. Sabes
|
|
2018
|
|
$
|
491,546
|
|
$
|
1,015,603
|
|
$
|
—
|
|
$
|
—
|
|
$
|
1,507,149
|
Former Chief Executive
|
|
2017
|
|
$
|
491,546
|
|
$
|
212,881
|
|
$
|
—
|
|
$
|
—
|
|
$
|
704,427
|
Officer(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William B. Acheson
|
|
2018
|
|
$
|
320,000
|
|
$
|
693,353
|
|
$
|
757,702
|
|
$
|
—
|
|
$
|
1,771,055
|
Chief Financial Officer
|
|
2017
|
|
$
|
292,599
|
|
$
|
177,901
|
|
$
|
—
|
|
$
|
381,313
|
|
$
|
851,813
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven F. Sabes
|
|
2018
|
|
$
|
208,246
|
|
$
|
54,343
|
|
$
|
—
|
|
$
|
—
|
|
$
|
262,589
|
Former Chief Operating
|
|
2017
|
|
$
|
216,255
|
|
$
|
98,275
|
|
$
|
—
|
|
$
|
11,050
|
|
$
|
325,580
|
Officer – Life Epigenetics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inc. and Secretary(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In general, in connection with its decisions about executive compensation, the Compensation Committee intends to consider the results of the most recent stockholder advisory vote on executive compensation as well as the advisory vote on the frequency of future advisory votes on executive compensation in determining how frequently to hold its Say-on-Pay vote in the future.
Employment Agreements and Change-in-Control Provisions
As of December 31, 2018, our named executives held the following positions: Mr. Jon R. Sabes, Chief Executive Officer and Chairman of the Board of Directors; Mr. William B. Acheson, Chief Financial Officer; and Mr. Steven F. Sabes, Chief Operating Officer — Life Epigenetics Inc., previously Executive Vice President of Originations and Servicing, President, and Chief Operating Officer.
In June 2011, we entered into employment agreements with each of Messrs. Jon R. Sabes and Steven F. Sabes. Each of these agreements had an initial one year term and was automatically renewed for additional one year periods unless terminated prior to such renewal. On June 28, 2017, we entered into an employment agreement with Mr. Acheson to replace his prior employment agreement dated May 30, 2014, which amendment increased his annual base salary from $225,000 to $320,000. Mr. Acheson’s current agreement has an initial three year term and is automatically renewed for additional one year periods unless either party gives notice of non-renewal at least 60 days prior to the expiration
14
of the then current term. All of these employment agreements establish key employment terms (including reporting responsibilities, base salary, discretionary and bonus opportunity and other benefits), provide for severance benefits in certain situations (including change in control), and contain non-competition, non-solicitation and confidentiality covenants.
Under their respective employment agreements as of December 31, 2018, Mr. Jon R. Sabes received an annual base salary of $480,000 and Mr. Steven F. Sabes received an annual base salary of $200,000. Mr. William Acheson received an annual base salary of $225,000 until entering into his new employment agreement on June 28, 2017, at which time his annual base salary was increased to $320,000. The employment agreements contain customary provisions prohibiting the executives from soliciting our employees for a period of 12 to 18 months after any termination of employment, and from competing with our Company for either two years (if the executive is terminated for good cause or if he resigns without good reason) or one year (if we terminate the executive’s employment without good cause or if he resigns with good reason, which includes a change in control). If an executive’s employment is terminated by us without “good cause” or if the executive voluntarily resigns with “good reason”, then the executive will be entitled to (i) severance pay for a period of 12 months and (ii) reimbursement for health insurance premiums for his family if he elects continued coverage under COBRA.
The employment agreements for Messrs. Jon R. Sabes and Steve F. Sabes also provided that we will reimburse them for any legal costs they incur in enforcing their rights under the employment agreement and, to the fullest extent permitted by applicable law, indemnify them for claims, costs and expenses arising in connection with their employment, regardless of the outcome of any such legal contest, as well as interest at the prime rate on any payments under the employment agreements that are determined to be past due, unless prohibited by law.
On November 28, 2018, the Company entered into restricted stock unit agreement with Bill Acheson pursuant to which Mr. Acheson received a grant of 73,348 restricted stock units. The grant was intended to be effective as of August 10, 2018. Each restricted stock unit entitled Mr. Acheson to receive one share of the Company’s common stock upon vesting, subject to remaining continuously employed by the Company or one of its subsidiaries through the applicable vesting date. The number of restricted stock units was increased by 14,336 as a result of dividend equivalent rights associated with the shares underlying the grant. One half of the restricted stock units vested on the grant date, with the remainder scheduled to vest in equal quarterly installments on each three month anniversary of the intended effective date of the grant. The vesting of all remaining unvested restricted stock units accelerated upon the closing of the Purchase and Contribution Transaction.
On April 26, 2019, and in connection with the closing of the Purchase and Contribution Transaction, (i) Jon R. Sabes resigned as the Company’s Chief Executive Officer and from all officer positions he held with the Company or any of its subsidiaries prior to the closing, other than his position as Chief Executive Officer of the Company’s technology focused wholly owned subsidiaries, Life Epigenetics Inc. (“Life Epigenetics”) and youSurance General Agency, LLC (“youSurance”), and (ii) Steven F. Sabes resigned as the Company’s Executive Vice President of Originations and Servicing and from all officer positions he held with the Company or any of its subsidiaries prior to the closing, except as Chief Operating Officer of Life Epigenetics. The resignations of Messrs. Jon and Steven Sabes included a full waiver and forfeit of (i) any severance that may be payable by the Company or any of its subsidiaries in connection with such resignations or the Purchase and Contribution Transaction and (ii) all equity awards of the Company currently held by either of them.
As contemplated by the Purchase and Contribution Agreement, the Company entered into performance share unit agreements (each a “PSU Agreement”) with certain employees of the Company pursuant to which such employees will receive a bonus under certain terms and conditions, including, among others, that such employees remain employed by the Company or one of its subsidiaries (or, if no longer employed, such employment was terminated by the Company other than for cause, as such term is defined in the PSU Agreement) for a period of 120 days following the closing of the Purchase and Contribution Transaction. The Company’s PSU Agreement with William B. Acheson, the Company’s Chief Financial Officer, was entered into on April 22, 2019 and provides for a target award grant of 125,000 performance share units, which equates to a retention bonus amount of $1,500,000.
On April 26, 2019, and in connection with the closing of the Purchase and Contribution Transaction, Murray T. Holland was appointed as Chief Executive Officer of the Company. On May 31, 2019, we entered into an employment agreement with Mr. Holland pursuant to which he is currently serving as our President and Chief Executive Officer. The employment agreement has an initial three year term and is automatically renewed for additional one year periods unless either party gives notice of non-renewal at least 60 days prior to the expiration of the then current term.
15
Under the employment agreement, Mr. Holland is entitled to an annual base salary of $650,000, retroactive to April 26, 2019, and is eligible to receive an annual cash bonus the target amount of which will be 150% of his base salary (prorated for the partial first year of employment). Whether the bonus is granted for a particular year, and the amount thereof, will be determined by our Compensation Committee in its discretion based upon Mr. Holland’s performance. Mr. Holland is also entitled to participate in all employee benefit plans and programs made available by the Company to the Company’s executive employees generally.
If Mr. Holland’s employment is terminated by us without “Cause” or if he voluntarily resigns with “Good Reason,” in each case as defined in the employment agreement, then (i) he will be entitled to severance pay in an amount equal to his annual base salary, payable in a lump sum within 30 days after the date of the termination, (ii) he will receive a pro-rated portion of the target amount of his annual cash bonus for the year in which termination occurs, and (iii) any performance share units (“PSUs”) or other equity incentives held by Mr. Holland will fully vest on the date of termination.
On May 31, 2019, and as contemplated by the employment agreement and discussed below, we entered into a PSU Agreement with Mr. Holland that provides for a target award grant of 129,717 PSUs (the “Target Award”), and up to a maximum of 259,434 PSUs. Each PSU represents the right to receive one share of our common stock (or, following a Change-in-Control Transaction (as defined in the PSU Agreement, the cash value thereof), upon vesting, which is generally subject to (i) the satisfaction of performance goals over a three year performance period, as determined by our Compensation Committee in its sole discretion, and (ii) Mr. Holland remaining continuously employed by the Company or one of its subsidiaries (“Continuous Service”) from the date of grant through the date that the PSUs are vested and paid in shares of common stock (or cash). Promptly following the Company’s filing with the SEC of our Annual Report on Form 10-K for the year ending December 31, 2021 (the final year of the performance period), our Compensation Committee will review and certify in writing (a) whether, and to what extent, the performance goals have been achieved, and (b) the number of PSUs that vested, if any. At such time, PSUs that are not vested will be forfeited.
The PSUs are subject to forfeiture until they vest. If Mr. Holland’s Continuous Service terminates for any reason at any time before all PSUs have vested, all unvested PSUs will be automatically forfeited upon such termination of Continuous Service. However, if Mr. Holland’s Continuous Service terminates as a result of his death or disability, or as a result of a termination by the Company without Cause or by Mr. Holland for Good Reason, Mr. Holland will retain, and will not forfeit, a pro rata portion of the Target Award based on the number of days that he remained employed during the performance period. This retained portion of the Target Award will not be subject to accelerated vesting and, instead, will vest (and be paid in shares of common stock) based on extent to which the performance goals are achieved during the entire performance period.
If a “Sale Transaction,” as defined in the Company’s 2013 Stock Incentive Plan, occurs during the performance period, Mr. Holland remains in Continuous Service up until the date of such Sale Transaction, and the acquiring entity or successor to the Company does not assume the obligations of the Company under the PSU Agreement or replace the grant with a substantially equivalent incentive award, then all outstanding PSUs shall vest at Target Award levels on the date of such Sale Transaction.
If a Change-in-Control Transaction occurs during the performance period, then all outstanding PSUs will automatically vest at Target Award levels on the 120th day following the closing of the Change-in-Control Transaction (the “Retention Date”), contingent upon Mr. Holland remaining in Continuous Service through the Retention Date. However, if Mr. Holland’s Continuous Service terminates following the occurrence of a Change-in-Control Transaction and prior to the Retention Date for any reason other than as a result of a termination by the Company for Cause, then all outstanding PSUs will automatically vest at Target Award levels upon such termination. PSUs vesting upon a Change-in-Control will be paid in cash (not shares of common stock). The amount of cash to be paid to Mr. Holland in respect of each vested PSU will be equal to the greater of (y) $12.00 or (z) the Fair Market Value (as defined in the Plan) of a share of common stock as of the trading date immediately prior to the closing date of the Change-in-Control Transaction. The PSU Agreement includes a provision allowing the Company to reduce the payment to which Mr. Holland would be entitled upon a Change-in-Control Transaction to the extent needed for him to avoid paying an excise tax under Internal Revenue Code Section 280G, unless Mr. Holland would be better off, on an after-tax basis, receiving the full amount of such payments and paying the excise taxes due.
16
On August 15, 2019, Timothy L. Evans was appointed as our Chief Financial Officer and Treasurer, replacing William B. Acheson. Mr. Acheson remains employed by the Company on an interim basis as an Executive Vice President, to assist in the transition of his prior duties and responsibilities to Mr. Evans. Mr. Evans is employed pursuant to an unwritten employment arrangement under which he receives a base salary of $400,000 per year. We are in the process of finalizing a written employment agreement with Mr. Evans.
On November 19, 2019, we entered into a Transition and Separation Agreement (the “Transition Agreement”) with William B. Acheson that governs Mr. Acheson’s continued employment with the Company on an at-will basis as Executive Vice President and Advisor to the Chief Executive Officer. Mr. Acheson previously served as Chief Financial Officer of the Company from May 30, 2014 until August 15, 2019. Under the Transition Agreement, which replaces his prior employment agreement dated June 28, 2017, Mr. Acheson is entitled to an annual base salary of $320,000. If Mr. Acheson remains employed with the Company through December 31, 2019, he will be entitled to receive his target incentive cash bonus for the second half of 2019 in the amount of $160,000. Mr. Acheson is also entitled to participate in all employee benefit plans and programs made available by the Company to the Company’s executive employees generally. Upon termination of Mr. Acheson’s employment with the Company for any reason, he will be entitled to severance pay in an amount equal to his annual base salary, and he will receive a pro-rated portion of the target amount of his annual cash bonus for the year in which termination occurs. Such amounts are payable in a lump sum within 30 days after the date of the termination. In addition, the Company will pay the full cost of health, dental and vision insurance coverage for 12 months following termination or, if earlier, until he is eligible to obtain replacement coverage.
The Transition Agreement also acknowledges that outstanding and currently-vested stock options held by Mr. Acheson will not terminate as a result of the termination of Mr. Acheson’s employment and, instead, will remain outstanding and exercisable through the full original term thereof. The post-termination exercise period of such options was previously extended in conjunction with the Purchase and Contribution Transaction.
2013 Stock Incentive Plan
We maintain the GWG Holdings, Inc. 2013 Stock Incentive Plan, under which 6,000,000 shares of our common stock have previously been approved for issuance. The 2013 Stock Incentive Plan permits the grant of both incentive and non-statutory stock options. Through December 31, 2018, we had issued stock options, SARs and Restricted Stock Units (hereinafter, “options”) for 2,662,097 shares of common stock to employees, officers, directors, and consultants under the plan. As of December 31, 2018, (i) 1,766,612 shares are reserved for issuance under outstanding options, of which 869,231 options have vested and the remaining outstanding are scheduled to vest over three years, (ii) 181,569 shares have been issued upon the exercise of options granted under the 2013 Stock Incentive Plan, and (iii) 3,337,903 shares remain available for issuance of future incentive grants. The Board of Directors adopted the 2013 Stock Incentive Plan to provide a means by which our employees, directors, officers and consultants may be granted an opportunity to purchase our common stock, to assist in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions and to provide incentives for such persons to exert maximum efforts for our success.
17
Outstanding Equity Awards at Year End
As of December 31, 2018, our named executives had the following outstanding options to purchase common stock:
|
|
OPTION AWARDS
|
|
STOCK AWARDS
|
Name
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
Option
Exercise
Price
($)
|
|
Option
Expiration
Date
|
|
Number of
shares or
units of
stock that
have not
vested
(#)
|
|
Market
value of
shares or
units of
stock that
have not
vested
($)(1)
|
Jon R. Sabes(2)
|
|
5,000
|
|
—
|
|
$
|
8.20
|
|
4/7/2019
|
|
|
|
|
|
|
|
5,000
|
|
—
|
|
$
|
8.71
|
|
9/2/2019
|
|
|
|
|
|
|
|
5,000
|
|
—
|
|
$
|
9.01
|
|
11/24/2019
|
|
|
|
|
|
|
|
5,000
|
|
—
|
|
$
|
10.18
|
|
6/12/2020
|
|
|
|
|
|
|
|
5,000
|
|
—
|
|
$
|
8.55
|
|
8/18/2020
|
|
|
|
|
|
|
|
5,000
|
|
—
|
|
$
|
6.60
|
|
12/29/2020
|
|
|
|
|
|
|
|
3,333
|
|
1,667
|
|
$
|
6.35
|
|
4/29/2021
|
|
|
|
|
|
|
|
3,333
|
|
1,667
|
|
$
|
6.41
|
|
5/13/2021
|
|
|
|
|
|
|
|
232,917
|
|
81,250
|
|
$
|
9.47
|
|
11/10/2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William B. Acheson
|
|
1,667
|
|
—
|
|
$
|
6.00
|
|
12/29/2025
|
|
|
|
|
|
|
|
1,667
|
|
—
|
|
$
|
6.35
|
|
4/29/2026
|
|
|
|
|
|
|
|
1,667
|
|
—
|
|
$
|
6.41
|
|
5/13/2026
|
|
|
|
|
|
|
|
6,250
|
|
—
|
|
$
|
10.38
|
|
4/18/2027
|
|
|
|
|
|
|
|
145,000
|
|
—
|
|
$
|
10.20
|
|
6/29/2027
|
|
|
|
|
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
38,259
|
|
$
|
337,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven F. Sabes(2)
|
|
1,667
|
|
—
|
|
$
|
6.60
|
|
12/29/2020
|
|
|
|
|
|
|
|
—
|
|
1,667
|
|
$
|
6.35
|
|
4/29/2021
|
|
|
|
|
|
|
|
—
|
|
1,667
|
|
$
|
6.41
|
|
5/13/2021
|
|
|
|
|
|
|
|
1,666
|
|
1,667
|
|
$
|
9.64
|
|
9/19/2021
|
|
|
|
|
|
|
|
—
|
|
3,333
|
|
$
|
10.38
|
|
4/18/2022
|
|
|
|
|
|
18
Director Compensation
The following table sets forth the cash and non-cash compensation awarded to or earned by each individual who served as a member of our Board of Directors during the year ended December 31, 2018.
Director’s Name
|
|
Fees Earned or
Paid in Cash
2018
|
|
Option
Awards(1)
|
|
Total
|
Jon R. Sabes
|
|
$
|
—
|
|
$
|
—
|
(2)
|
|
$
|
—
|
Steven F. Sabes
|
|
$
|
—
|
|
$
|
—
|
(2)
|
|
$
|
—
|
David H. Abramson
|
|
$
|
50,400
|
|
$
|
—
|
|
|
$
|
50,400
|
Thomas J. Donohue, Jr.
|
|
$
|
24,100
|
|
$
|
51,700
|
|
|
$
|
75,800
|
Shawn R. Gensch
|
|
$
|
33,600
|
|
$
|
—
|
|
|
$
|
33,600
|
Charles H. Maguire(3)
|
|
$
|
19,200
|
|
$
|
—
|
|
|
$
|
19,200
|
Jeffrey L. McGregor
|
|
$
|
40,800
|
|
$
|
—
|
|
|
$
|
40,800
|
Mark E. Schwarzmann
|
|
$
|
33,600
|
|
$
|
45,300
|
|
|
$
|
78,900
|
During 2018, each independent board member received base compensation of $6,000 per quarter. In addition, the chairman of the audit committee received an additional $4,800 per quarter. The chairmen of the Compensation Committee and the Corporate Governance Committee each received an additional $2,400 per quarter. Also, each non-chair member of committees received an additional $1,200 per quarter.
On April 15, 2019, the Board approved changes to director compensation. In consideration for services provided and to be provided to the Company in their capacity as non-employee directors of the Company during the remainder of 2019, or until their earlier resignation in conjunction with the closing of the Purchase and Contribution Transaction, each individual serving as non-employee director of the Company prior to the closing of the Purchase and Contribution Transaction was entitled to receive cash compensation in the amount of $125,000. Such compensation was payable in three installments of $41,666, $41,666 and $41,667, respectively, on the last business day of June, September and December 2019, provided, however, that the entire unpaid portion of such compensation was accelerated and paid upon the closing of the Purchase and Contribution Transaction in accordance with the April 2019 changes to director compensation.
The Compensation Committee through consultation with its compensation advisors, approved a plan of compensation to be paid to the Company’s non-employee directors for the period following the closing of the Purchase and Contribution Agreement. Under this plan, all non-employee directors receive annualized cash compensation of $100,000 paid in quarterly installments in arrears. The Chair and members of the Board’s committees receive the additional annualized cash compensation set forth below:
Committee
|
|
Position
|
|
Additional
Fees
|
Audit Committee
|
|
Chair
|
|
$
|
15,000
|
|
|
Member (other than Chair)
|
|
$
|
10,000
|
Compensation Committee
|
|
Chair
|
|
$
|
12,000
|
|
|
Member (other than Chair)
|
|
$
|
5,375
|
Corporate Governance Committee
|
|
Chair
|
|
$
|
10,000
|
|
|
Member (other than Chair)
|
|
$
|
5,000
|
Special Committee
|
|
Member
|
|
$
|
25,000
|
19
Further, each member of the Special Committee receives $1,000 for attending each in-person Special Committee meeting or $500 for participating telephonically. The Special Committee is a committee of the Board comprised solely of directors independent of Beneficient that was formed primarily for the purpose of considering and, if deemed appropriate, approving company transactions with or involving Beneficient.
On June 18, 2019, the Company entered into restriction stock unit agreements with each non-employee director of the Company pursuant to which each received a grant of 8,169 restricted stock units. Each restricted stock unit entitles the holder thereof to receive one share of the Company’s common stock upon vesting on the one year anniversary of the grant date, subject to remaining a member of the Board and/or employed by or engaged as a consultant to the Company or one of its subsidiaries through such date, and subject to accelerated vesting in certain circumstances. Holders of restricted stock units are also entitled to dividend equivalent rights with respect to the shares underlying the grants.
The Company has entered into Indemnification Agreements (the “Indemnification Agreements”) with each of its current directors and executive officers (collectively, the “Indemnitees”). The Indemnification Agreements clarify and supplement indemnification provisions already contained in the Company’s bylaws and generally provide that the Company shall indemnify the Indemnitees to the fullest extent permitted by applicable law, subject to certain exceptions, against expenses, judgments, fines and other amounts actually and reasonably incurred in connection with their service as a director or officer and also provide for rights to advancement of expenses and contribution.
The description of the form of Indemnification Agreement and the restricted stock unit agreements set forth above are not complete and is qualified in its entirety by reference to the full text of the form of Indemnification Agreement and the form of restricted stock unit agreement which are filed as Exhibit 10.21 and Exhibit 10.28, respectively, to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
20
INFORMATION REGARDING THE BOARD OF DIRECTORS
AND CORPORATE GOVERNANCE
Director Independence
When considering whether directors have the experience, qualifications, attributes and skills to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of our business and structure, our Board of Directors focuses primarily on the information discussed in each of the directors’ individual biographies set forth above.
Our Board of Directors periodically reviews relationships that directors have with our Company to determine whether our directors are “independent directors” as such term is defined in Rule 5605(a)(2) of the NASDAQ Marketplace Rules. Our Board of Directors has determined that the following directors are independent directors: Peter T. Cangany, Jr., Michelle Caruso-Cabrera, David F. Chavenson, Dennis P. Lockhart, Kathleen Mason and Roger T. Staubach.
Because the Seller Trusts currently own a majority of our outstanding Common Stock, we are a “controlled company” as that term is set forth in Rule 5615(c) of the NASDAQ Marketplace Rules. Under the NASDAQ rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company is a “controlled company” and may elect not to comply with certain NASDAQ corporate governance requirements, including the requirements that:
• a majority of our board of directors consist of independent directors;
• our nominating and corporate governance committee be composed entirely of independent directors; and
• our compensation committee be composed entirely of independent directors.
We are currently relying on the controlled company exemption for certain of the above requirements, including those related to the composition of our compensation and nominating and corporate governance committees.
Board Leadership Structure and Risk Oversight
Brad K. Heppner serves as Chairman of our Board of Directors. Our Board of Directors has elected to separate the Chief Executive Officer and Chairman of the Board positions based on our belief that this leadership structure best allows the Board of Directors to maintain oversight of our management and to carry out its roles and responsibilities of behalf of the stockholders.
Management and our outside counsel discuss risks, both during Board meetings and in direct discussions with members of our Board of Directors. These discussions identify Company risks that are prioritized and assigned to the appropriate Board committee, as discussed below, or the full Board for oversight. Our risk management program as a whole is reviewed periodically as needed or as requested by the Board or a Board committee.
Board Committees and Board Meetings
Our Board of Directors has an Audit Committee and a Compensation Committee. Our Board of Directors has also had a Nomination and Corporate Governance Committee; however, the activities conducted by such committee are currently being conducted by the full Board of Directors. Each of the foregoing Committees has a written charter, a copy of each of which is available at our website at www.gwgh.com. Our Board committees comply with the listing requirements of The NASDAQ Marketplace Rules taking into account our reliance on certain exceptions for “controlled companies” as described under the caption “Director Independence” above.
The Board of Directors held eleven meetings during fiscal 2018 and took action by written consent in lieu of a meeting on 24 occasions. During fiscal 2018, the Audit Committee held five meetings, the Compensation Committee held four meetings and took action by written consent in lieu of a meeting on one occasion, and the Corporate Governance and Nominating Committee held three meetings. Each member of the Board of Directors attended at least 75% of the Board meetings and meetings of committees to which they belong. Although we have no formal policy regarding directors’ attendance at our annual stockholder meetings, we encourage such attendance by members of the Board of Directors. Two of our directors serving on the Board of Directors at the time of our most recent annual stockholders’ meeting were in attendance at that meeting.
21
Audit Committee
The Audit Committee consists of three members: Peter T. Cangany, Jr. (Chair), Michelle Caruso-Cabrera and David F. Chavenson. All of the members are financially literate and are independent directors under the NASDAQ Marketplace Rules, and SEC audit committee structure and membership requirements. Further, the Board has determined that Mr. Cangany is an “audit committee financial expert” as defined by applicable regulations of the SEC and is “independent” under the NASDAQ Marketplace Rules.
The Audit Committee’s job is one of oversight as set forth in its charter. It is not the duty of the Audit Committee to prepare our consolidated financial statements, to plan or conduct audits or investigations, or to determine that our financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Our management is responsible for preparing our consolidated financial statements and for establishing and maintaining effective internal control over financial reporting. The independent registered public accountants are responsible for the audit of our consolidated financial statements and the review of the effectiveness of our internal control over financial reporting.
The Audit Committee is responsible primarily for assisting the Board in fulfilling its oversight and monitoring responsibility of reviewing the financial information that will be provided to stockholders and others, appointing the independent registered public accounting firm, reviewing the services performed by our independent registered public accounting firm, reviewing our accounting policies and the internal controls established by management and the Board, reviewing significant financial transactions, the integrity of the financial statements and our enterprise risk management framework. The Audit Committee also reviews the Anonymous Complaint Program including reviewing if any such complaints were received and the disposition of those complaints.
In fulfilling its oversight over our independent registered public accounting firm, the Audit Committee carefully reviews the engagement of the independent registered public accounting firm, which includes among other things: the scope of the audit; fees; the assigned partner(s) and other personnel and their industry experience; auditor independence; peer and Public Company Accounting Oversight Board (PCAOB) reviews; any significant legal proceedings; previous experience with the firm’s performance; and any non-audit services performed. The Audit Committee has engaged Whitley Penn LLP as our independent registered public accounting firm for the year ending December 31, 2019.
We maintain an auditor independence policy that, among other things, prohibits our independent registered public accounting firm from performing non-financial consulting services, such as information technology consulting and internal audit services. This policy mandates that the Audit Committee approve in advance any non-audit services to be performed by the independent registered public accounting firm and the related costs associated therewith. Therefore, we may not enter into engagements with our independent registered public accounting firm for non-audit services without the express pre-approval of the Audit Committee.
Report of the Audit Committee
The Audit Committee has reviewed and discussed the audit and the audited financial statements for the year ended December 31, 2018 with Company management and representatives of Baker Tilly Virchow Krause, LLP, including a discussion related to the accounting principles used that are unique to this industry.
The Audit Committee has received and reviewed the written disclosures and written communication from Baker Tilly Virchow Krause, LLP required by applicable requirements of the PCAOB regarding Baker Tilly Virchow Krause, LLP’s communications with the Audit Committee concerning independence, and has discussed with Baker Tilly Virchow Krause, LLP its independence.
The Audit Committee has discussed with representatives of Baker Tilly Virchow Krause, LLP the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC.
The Audit Committee regularly met independently with Company management and with representatives of Baker Tilly Virchow Krause, LLP, and also in executive session with only Committee members present.
Based on the reviews and discussions referred to above, the Audit Committee recommended to the Board that the financial statements referred to above be included in our Annual Report on Form 10-K for the year ended December 31, 2018.
22
This report has been furnished by the Audit Committee of the Board of Directors.
|
|
The Audit Committee:
|
|
|
Peter T. Cangany, Jr.
|
|
|
Michelle Caruso-Cabrera
|
|
|
David Chavenson
|
Compensation Committee
Our Compensation Committee consists of three members: Thomas O. Hicks (Chair), Michelle Caruso-Cabrera and Dennis P. Lockhart. Our Compensation Committee is charged with oversight responsibility for the adequacy and effectiveness of our executive compensation and benefit plans and is primarily responsible for all matters relating to compensation of our executive officers and the directors, the adoption of all employee compensation and employee benefit plans and the administration of such plans including granting stock incentives or other benefits, and the review and approval of disclosures regarding executive compensation included in our SEC reports. A Stock Option Sub-Committee comprised of the two independent directors serving on our Compensation Committee (Ms. Caruso-Cabrera and Mr. Lockhart) is responsible for the administration of our 2013 Stock Incentive Plan. Our Compensation Committee has the authority to obtain advice and assistance from external legal, accounting or other advisors, and has the authority to retain, terminate and approve the fees payable to any external compensation consultant to assist in the evaluation of director and senior executive compensation. However, any services to be rendered by our independent registered public accounting firm shall be pre-approved by the Audit Committee if required under our policy regarding pre-approval of such services.
Corporate Governance and Nominating Committee
The activities conducted by our Corporate Governance and Nominating Committee, as described in this proxy statement, are currently being conducted by the full Board of Directors. The primary role of our Corporate Governance and Nominating Committee is to consider and make recommendations to the full Board of Directors concerning the appropriate size, function and needs of the Board of Directors, including establishing criteria for Board membership and considering, recruiting and recommending candidates (including those recommended by stockholders) to fill new Board positions. The Corporate Governance and Nominating Committee also considers and advises the full Board of Directors on matters of corporate governance and monitors and recommends the functions of, and membership on, the various committees of the Board of Directors.
Our Corporate Governance and Nominating Committee (or a subcommittee thereof) recruits and considers director candidates and presents all qualified candidates to the full Board of Directors for consideration. Qualified candidates will be considered without regard to race, color, religion, sex, ancestry, national origin, disability, marital or veteran status, or any other legally protected status.
In identifying and evaluating potential candidates to be nominees for directors, our Corporate Governance and Nominating Committee has the flexibility to consider such factors as it deems appropriate under relevant circumstances. These factors may include education, general business and industry experience, ability to act on behalf of stockholders and build long-term stockholder value, potential concerns regarding independence or conflicts of interest and other factors relevant in evaluating Board nominees. Although our Corporate Governance and Nominating Committee does not have a policy with regard to the consideration of diversity in identifying director candidates, the overall Board of Directors’ diversity of industry background and experience is generally among the factors considered. Our Corporate Governance and Nominating Committee believes that a Board of Directors comprised of directors with diverse skills and experiences relevant to our industry will result in efficient and competent oversight of our various core competencies.
Our Corporate Governance and Nominating Committee will consider recommendations by stockholders of candidates for election to the Board of Directors. Any stockholder who wishes that the Corporate Governance and Nominating Committee consider a candidate must follow the procedures set forth in our bylaws. Under our bylaws, if a stockholder plans to nominate a person as a director at a meeting, the stockholder is required to place a proposed director’s name in nomination by written request delivered to or mailed and received at our principal executive offices not less than 90 nor more than 120 calendar days prior to the first anniversary of the date on which we first mailed proxy materials for the preceding year’s annual meeting. However, in the event that the date of the annual meeting is more than 30 days
23
before or more than 60 days after such anniversary date, notice by the stockholder must be so delivered not less than 90 nor more than 120 calendar days prior to the date of such annual meeting, or if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the tenth day following the day on which public announcement is made.
Ability of Stockholders to Communicate with our Board of Directors
Our Board of Directors has established several means for stockholders and others to communicate with our Board of Directors. If a stockholder has a concern regarding our financial statements, accounting practices or internal controls, the concern should be submitted in writing to the Chair of our Audit Committee in care of our Secretary at the address of our principal executive offices. If the concern relates to our governance practices, business ethics or corporate conduct, the concern should be submitted in writing to the Chairman of the Board of Directors in care of our Secretary at the address of our principal executive offices. If a stockholder wishes to provide input with respect to our executive compensation policies and programs, input should be submitted in writing to the Chair of our Compensation Committee in care of our Secretary at the address of our principal executive offices. If a stockholder is unsure as to which category the concern relates, the stockholder may communicate it to any one of the independent directors in care of our Secretary at the address of our principal executive offices. All stockholder communications sent in care of our Company Secretary will be forwarded promptly to the applicable director(s).
24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As of the close of business on the Record Date, 33,033,793 shares of common stock, $0.001 par value, were issued and outstanding.
The following table sets forth certain information regarding beneficial ownership of our common stock as of the Record Date for (i) each person known by us to be the beneficial owner of more than 5% of our common stock, (ii) each of our current directors and executive officers, (iii) all named executive officers and directors as a group, and (iv) each other named executive officer identified in the Summary Compensation Table. Unless otherwise indicated, the address of each of the following persons is 220 South Sixth Street, Suite 1200, Minneapolis, MN 55402, and each such person has sole voting and investment power with respect to the shares of common stock set forth opposite such person’s name.
Except as otherwise indicated in the table or its footnotes, the persons in the table below have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable.
Name
|
|
Shares
Beneficially
Owned
|
|
Percentage of
Shares
Beneficially
Owned
|
Executive Officers:
|
|
|
|
|
|
Murray T. Holland(1)
|
|
25,913,516
|
|
78.4
|
%
|
Timothy L. Evans
|
|
—
|
|
—
|
|
|
|
|
|
|
|
Non-Employee Directors:
|
|
|
|
|
|
Brad K. Heppner(2)
|
|
2,500,000
|
|
7.6
|
%
|
Peter T. Cangany, Jr.
|
|
—
|
|
—
|
|
Michelle Caruso-Cabrera
|
|
—
|
|
—
|
|
David F. Chavenson
|
|
—
|
|
—
|
|
Thomas O. Hicks(3)
|
|
1,452,155
|
|
4.4
|
%
|
Dennis P. Lockhart
|
|
—
|
|
—
|
|
Kathleen J. Mason
|
|
—
|
|
—
|
|
Bruce W. Schnitzer
|
|
—
|
|
—
|
|
Roger T. Staubach
|
|
—
|
|
—
|
|
David H. de Weese
|
|
—
|
|
—
|
|
All current directors and officers as a group
|
|
29,865,671
|
|
90.4
|
%
|
|
|
|
|
|
|
Other Named Executive Officers:
|
|
|
|
|
|
William B. Acheson(4)
|
|
289,397
|
|
*
|
|
Jon R. Sabes(5)
|
|
—
|
|
—
|
|
Steven F. Sabes(6)
|
|
—
|
|
—
|
|
|
|
|
|
|
|
Other 5% Beneficial Owners:
|
|
|
|
|
|
Seller Trusts(7)
|
|
25,913,516
|
|
78.4
|
%
|
Beneficient Company Holdings, L.P.(8)
|
|
2,500,000
|
|
7.6
|
%
|
AltiVerse Capital Markets, L.L.C.(9)
|
|
1,452,155
|
|
4.4
|
%
|
25
In connection with the Exchange Transaction, the Company and the Seller Trusts entered into a Stockholders Agreement, which provides (among other standstill provisions) that until the Seller Trusts own, in the aggregate, voting securities representing less than 10% of the total voting power of all voting securities of the Company, all voting securities of the Company voted by the Seller Trusts will be voted solely in proportion with the votes cast by all other holders of voting securities of the Company on the matter. In connection with the Purchase and Contribution Transaction, the Stockholders Agreement was terminated and the Seller Trusts are now entitled to full voting rights with respect to the shares of Common Stock they own and are entitled to cast a majority of the votes on all matters requiring stockholder votes.
26
CERTAIN TRANSACTIONS
Conflict-of-Interest and Related-Party Transaction Policy
We have a Conflict-of-Interest and Related-Party Transaction Policy, pursuant to which our Board of Directors (or an authorized committee thereof) is responsible for reviewing policies and procedures with respect to related party transactions required to be disclosed pursuant to Item 404 of the SEC’s Regulation S-K (including transactions between the Company and its officers and directors, or affiliates of such officers or directors), and approving the terms and conditions of such related party transactions. Our Conflict-of-Interest and Related-Party Transaction Policy sets forth the processes and procedure to be taken in such review and approval, which includes obtaining approval by a majority of the disinterested members of the Board (or an authorized committee thereof) and otherwise in accordance with state law governing conflicts of interest, or if the transaction involves compensation payable to an executive, the Compensation Committee. The related party transactions in which we engaged during year 2018 and the interim 2019 year-to-date period, which are described below, were approved in accordance with Conflict-of-Interest and Related-Party Transaction Policy.
Transactions with Related Persons
Related party transactions that we entered into during year 2018 and the interim 2019 year-to-date period are described below:
Purchase and Contribution Transaction
On April 15, 2019, Jon R. Sabes, the Company’s former Chief Executive Officer and a director, and Steven F. Sabes, the Company’s former Executive Vice President and a director, entered into the Purchase and Contribution Agreement with, among others, Beneficient. The Company was not a party to the Purchase and Contribution Agreement. However, the closing of the transactions contemplated by the Purchase and Contribution Agreement (the “Purchase and Contribution Transaction”) were subject to certain conditions that were dependent upon the Company taking, or refraining from taking, certain actions. The closing of the Purchase and Contribution Transaction occurred on April 26, 2019. See “Item 1 — Business — The Beneficient Transactions — The Expanded Strategic Relationship” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 for a description of the Purchase and Contribution Agreement and the Purchase and Contribution Transaction.
Among other actions taken in connection with the with the closing of the Purchase and Contribution Transaction, on April 26, 2019, Beneficient Capital Company, L.L.C., a Delaware limited liability company (“BCC”), and AltiVerse Capital Markets, L.L.C., a Delaware limited liability company (“AltiVerse”), executed and delivered a Consent and Joinder (the “Consent and Joinder”) to the Amended and Restated Pledge and Security Agreement dated October 23, 2017 by and among the Company, GWG Life, LLC, Messrs. Jon and Steven Sabes and the Bank of Utah (the “Security Agreement”). Pursuant to the Consent and Joinder, Messrs. Jon and Steven Sabes assigned their rights and delegated their obligations under the Security Agreement to BCC and AltiVerse, and BCC and AltiVerse became substitute grantors under the Security Agreement such that the shares of the Company’s common stock acquired by BCC and AltiVerse pursuant to the Purchase Agreement (as defined below) will continue to be pledged as collateral security for the Company’s obligations owing in respect of the L Bonds issued under the Amended and Restated Indenture governing our L Bonds. The description of the Consent and Joinder set forth above is not complete and is qualified in its entirety by reference to the full text of the Consent and Joinder, which was incorporated by reference as Exhibit 10.19 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
In connection with the Exchange Transaction, the Company and the Seller Trusts entered into a Stockholders Agreement that provided (among other standstill provisions) that until the Seller Trusts own, in the aggregate, voting securities representing less than 10% of the total voting power of all voting securities of the Company, all voting securities of the Company voted by the Seller Trusts will be voted solely in proportion with the votes cast by all other holders of voting securities of the Company on the matter. On April 26, 2019, and in connection with the closing of the Purchase and Contribution Transaction, the Stockholders Agreement was amended and terminated, and the Seller Trusts are now entitled to full voting rights with respect to the shares of Common Stock they own and are entitled to cast a majority of the votes on all matters requiring stockholder votes.
27
Promissory Note with Certain LiquidTrusts
On May 31, 2019, GWG Life, LLC (“GWG Life”), our wholly-owned subsidiary, entered into a Promissory Note (the “Promissory Note”) made by Jeffrey S. Hinkle and Dr. John A. Stahl, not in their individual capacity but solely as trustees of The LT-1 LiquidTrust, The LT-2 LiquidTrust, The LT-5 LiquidTrust, The LT-7 LiquidTrust, The LT-8 LiquidTrust and The LT-9 LiquidTrust (collectively, the “Borrowers”), in the principal amount of $65,000,000 and payable to the order of GWG Life. Pursuant to the terms of the Promissory Note, GWG Life will fund a term loan to the Borrowers in an aggregate principal amount of $65,000,000 (the “Loan”), which Loan is to be funded in two installments as described below.
The Borrowers are common law trusts established as part of alternative asset financings extended by a subsidiary of BEN LP, of which the Company owns approximately 90% of the issued and outstanding common units. Although each Borrower is allocated a portion of the Loan equal to approximately 16.7% of the aggregate outstanding principal of the Loan, the Loan constitutes the joint and several obligations of the Borrowers.
Proceeds of the Loan are to be used primarily to further Beneficient’s diversification into alternative assets and ancillary businesses by positioning Beneficient’s balance sheet, working capital and liquidity profile to satisfy audit and anticipated state of Texas banking regulatory requirements.
An initial advance in the principal amount of $50,000,000 was funded on June 3, 2019 and, subject to satisfaction of certain customary conditions, it is anticipated that the second advance, in the principal amount of $15,000,000, will be funded no later than December 31, 2019. The Loan bears interest at 7.0% per annum, with interest payable at maturity, and matures on June 30, 2023. Subject to the Intercreditor Agreements (as described below), the Loan can be prepaid at the Borrowers’ election without premium or penalty.
The Loan is unsecured and is subject to certain covenants (including a restriction on the incurrence of any indebtedness senior to the Loan other than existing senior loan obligations to each of HCLP Nominees, L.L.C. (“HCLP”) and Beneficient Holdings, Inc. (“BHI”, and together with HCLP, the “Senior Lenders”), as lenders) and events of default. The Senior Lenders are directly or indirectly associated with Brad K. Heppner, who is Chairman of the Company’s Board of Directors.
A special committee of the Board of Directors of the Company (the “Special Committee”) composed solely of independent and disinterested directors of the Company, together with the assistance of its third-party legal advisors, reviewed, negotiated and approved the terms of the Loan. The foregoing description of the Promissory Note is qualified in its entirety by reference to the full and complete terms of the Promissory Note, which was incorporated by reference as Exhibit 10.24 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
Intercreditor Agreements
In connection with the Promissory Note, the Company also entered into two intercreditor and subordination agreements: (1) an Intercreditor Agreement between the GWG Life and HCLP and (2) an Intercreditor Agreement between the GWG Life and BHI (the “Intercreditor Agreements”). Under the Intercreditor Agreements, GWG Life agrees to subordinate the Loan to the secured obligations of Beneficient and its affiliates outstanding to the Senior Lenders (the “Senior Loan Obligations”), agrees to not take any liens to secure the Loan (and to subordinate such liens, if any, to the liens of the Senior Lenders), and agrees not to take enforcement actions under the Promissory Note until such Senior Loan Obligations are paid in full. The Intercreditor Agreements establish various other inter-lender and subordination terms, including, without limitation, with respect to permitted actions by each party, permitted payments, waivers, voting arrangements in bankruptcy, application of certain proceeds and limitations on amendments of the respective loan obligations of the parties. The Senior Lenders have agreed not to extend the maturity of their respective loan obligations beyond June 30, 2023 or increase the outstanding principal of the loans made by the Senior Lenders without the written consent of GWG Life. GWG Life has agreed not to transfer the Promissory Note except with the written consent of the Senior Lenders (such consent not to be unreasonably withheld) or to the Company or direct or indirect wholly owned subsidiaries thereof. The Special Committee of the Board of Directors, together with the assistance of its third-party legal advisors, reviewed, negotiated and approved the terms of the Intercreditor Agreements. The foregoing description of the Intercreditor Agreements are qualified in their entirety by reference to the full and complete terms of the Intercreditor Agreements, which were incorporated by reference as Exhibit 10.25 and Exhibit 10.26, respectively, to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
28
Purchase of Additional Common Units of Beneficient
On June 12, 2019, the Company acquired 1,000,000 BEN LP common units from unaffiliated holders of alternative assets that had sold the alternative assets to MHT Financial, LLC for contribution to various Exchange Trusts established by MHT Financial as part of the BEN LP liquidity products. The holders acquired the BEN LP common units from MHT Financial in satisfaction for a portion of the purchase price owed by MHT Financial for the alternative assets that MHT Financial contributed to the Exchange Trusts. Murray T. Holland, our Chief Executive Officer, was until recently a Managing Director of MHT Financial and continues to own a 30% interest in MHT Financial. Mr. Holland also serves as a trust advisor to the Exchange Trusts that hold the alternative assets. The purchase price for the BEN LP common units acquired by the Company was $10,000,000.
29
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers and directors, and persons who own more than ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership of such securities with the Securities and Exchange Commission and NASDAQ. Based solely on review of Forms 3 and 4 and amendments thereto filed during the fiscal year ended December 31, 2018 and Forms 5 and amendments thereto filed such fiscal year or any written representations furnished to us by the reporting person that no Forms 5 were required, we believe all required forms have been filed on a timely basis by our officers, directors and greater than ten percent beneficial owners, except that Form 4s were filed delinquently on September 5, 2018 reporting option exercises and forfeitures due to tax withholding by William Acheson on August 16, 2018, by Steve Sabes and David Abramson on August 21, 2018 and by Jon Sabes on August 22, 2018.
PROPOSALS OF STOCKHOLDERS
Proposals by stockholders (other than director nominations) that are submitted for inclusion in our proxy statement for our 2020 annual stockholders’ meeting must follow the procedures set forth in Rule 14a-8 under the Securities Exchange Act of 1934 and our Bylaws. To be timely under Rule 14a-8, a stockholder proposal must be received by our Secretary at 220 South Sixth Street, Suite 1200, Minneapolis, Minnesota 55402, by July 25, 2020. However, if the date of our 2020 annual stockholders’ meeting is changed by more than 30 days from the date of the Annual Meeting), then the deadline for submitting a stockholder proposal will be a reasonable time before we begin to print and send our proxy materials for our 2020 annual stockholders’ meeting, which deadline will be disclosed prior to such in one of our SEC filings.
Under our Bylaws, if a stockholder does not submit a proposal for inclusion in our proxy statement but does wish to propose an item of business to be considered at our annual stockholders’ meeting (including director nominations), that stockholder must deliver notice of the proposal or proposed director’s name at our principal executive offices not less than 90 nor more than 120 calendar days prior to the first anniversary of the date on which we first mailed proxy materials for the preceding year’s annual meeting. For our 2020 annual stockholders’ meeting, notices must be received not prior to July 25, 2020 and not later than August 24, 2020.
If the date of our 2020 annual stockholders’ meeting is advanced more than 30 calendar days prior to or delayed by more than 60 calendar days after the anniversary of the Annual Meeting, timely notice of stockholder proposals and stockholder nominations for directors may be delivered to or mailed and received at our principal executive offices not less than 90 nor more than 120 calendar days prior to the date of such annual meeting, or if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, not later than the close of business on the 10th calendar day following the day on which we first make a public announcement of the date of such meeting.
Notices of stockholder proposals and stockholder nominations for directors must comply with the informational and other requirements set forth in our Bylaws as well as applicable statutes and regulations. Due to the complexity of the respective rights of the stockholders and our Company in this area, any stockholder desiring to propose actions or nominate directors is advised to consult with his or her legal counsel with respect to such rights. We suggest that any such proposal be submitted by certified mail return receipt requested.
30
DISCRETIONARY PROXY VOTING AUTHORITY/
UNTIMELY STOCKHOLDER PROPOSALS
Rule 14a-4(c) promulgated under the Securities and Exchange Act of 1934 governs our use of its discretionary proxy voting authority with respect to a stockholder proposal that the stockholder has not sought to include in our proxy statement. The Rule provides that if a proponent of a proposal fails to notify us of the proposal at least 45 days before the date of mailing of the prior year’s proxy statement, then the management proxies will be allowed to use their discretionary voting authority when the proposal is raised at the meeting, without any discussion of the matter in the proxy statement.
With respect to our 2020 annual stockholders’ meeting, if we are not provided notice of a stockholder proposal, which the stockholder has not previously sought to include in our proxy statement, by October 8, 2020, the management proxies will be allowed to use their discretionary authority as outlined above. However, if the date of our 2020 annual stockholders’ meeting is changed by more than 30 days from the date of the Annual Meeting, then the deadline for submitting a stockholder proposal will be a reasonable time before we begin to print and send our proxy materials for our 2020 annual stockholders’ meeting.
SOLICITATION
We will bear the cost of preparing, assembling and mailing the Proxy, Proxy Statement, Annual Report and other material that may be sent to the stockholders in connection with this solicitation. Brokerage houses and other custodians, nominees and fiduciaries may be requested to forward soliciting material to the beneficial owners of stock, in which case they may be reimbursed by us for their expenses in doing so. Proxies may be solicited personally, by email or by special letter.
The Board of Directors does not intend to present to the meeting any other matter not referred to above and does not presently know of any matters that may be presented to the meeting by others. However, if other matters come before the meeting, it is the intent of the persons named in the enclosed proxy to vote the proxy in accordance with their best judgment.
HOUSEHOLDING OF MATERIALS
Some banks, brokers and other nominee record holders may be participating in the practice of “householding” proxy statements and annual reports. This means that only one copy of our Proxy Statement and other annual meeting materials may have been sent to multiple stockholders in each household unless otherwise instructed by such stockholders. We will deliver promptly a separate copy of the Proxy Statement to any common stockholder upon written or oral request to our Corporate Secretary, at GWG Holdings, Inc., 220 South Sixth Street, Suite 1200, Minneapolis, Minnesota 55402, telephone: (612) 746-1944. Any stockholder wishing to receive separate copies of our proxy statement or annual report to stockholders in the future, or any stockholder who is receiving multiple copies and would like to receive only one copy per household, should contact the stockholder’s bank, broker, or other nominee record holder, or the stockholder may contact us at the above address and phone number.
GWG Holdings, Inc.
Attention: Company Secretary
220 South Sixth Street, Suite 1200
Minneapolis, MN 55402
|
|
By Order of the Board of Directors
|
|
|
/s/ Murray T. Holland
|
|
|
Murray T. Holland
|
|
|
Chief Executive Officer
|
31