GWG Holdings, Inc. (NASDAQ:GWGH) Files An 8-K Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review
Item 8.01

On April 15, 2019, the Board of Directors of GWG Holdings, Inc. (the Company), based on the recommendation of management and the Audit Committee after discussion with the Company\’s accounting consultants and independent registered public accounting firm, determined that the Company will restate its previously issued unaudited quarterly financial statements for the three and nine months ended September 30, 2018 and therefore such unaudited quarterly financial statements should not be relied upon. Similarly, related press releases, earnings releases, and investor communications describing the Companys financial statements for these periods should no longer be relied upon.

Impact on Previously Reported Periods

Thefollowing tables highlight the impact to the Companys previously reported Balance Sheet, Statement of Operations and debt coverage ratio for the Third Quarter and Nine Months Ended September 30, 2019. There is no impact to the Companys originally reported net loss attributable to common stockholders or stockholders equity. Likewise, there is no impact to the Companys originally reported portfolio of life insurance policies.

Impacts of restatement The effects of the restatement on the line items within the Companys condensed consolidated balance sheet as of September 30, 2018 are as follows:

Departure of Directors and Executive Officer

The information set forth in Item 8.01 of this Current Report on Form 8-K is incorporated herein by reference. As discussed in Item 8.01, the Purchase Agreement (as defined below) contemplates that in connection with the closing of the Proposed Transactions (as defined below) and subject to the occurrence thereof, (i) the Companys bylaws will be amended to increase the maximum number of directors of the Company from nine to 13, (ii) each current member of the Board of Directors of the Company will resign as a director of the Company, (iii) up to 13 individuals designated by Beneficient will be appointed as directors of the Company, (iv) Jon R. Sabes will resign from any current officer position he holds with the Company or any of its subsidiaries, other than his position as Chief Executive Officer of the Companys technology focused wholly-owned subsidiaries, Life Epigenetics, Inc. (Life Epigenetics) and youSurance General Agency, LLC (youSurance), (v) Murray Holland, a trust advisor of the Seller Trusts, will be appointed as interim Chief Executive Officer of the Company and (vi) Steven F. Sabes will resign from any current officer position he holds with the Company or any of its subsidiaries, except as Chief Operating Officer of Life Epigenetics.

The resignations of Messrs. Jon and Steven Sabes will include 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 Proposed Transactions and (ii) all equity awards of the Company currently held by either of them.

Proposed Transactions

On April 15, 2019, Jon R. Sabes, the Companys Chief Executive Officer and a director, and Steven F. Sabes, the Companys Executive Vice President and a director, entered into a Purchase and Contribution Agreement (the Purchase Agreement) with, among others, Beneficient. to the Purchase Agreement, Messrs. Jon and Steven Sabes have agreed to sell and transfer all of the shares of the Companys common stock held directly and indirectly by them and their immediate family members (approximately 12% of the Companys outstanding common stock in the aggregate). Specifically, Messrs. Jon and Steven Sabes have agreed to (i) sell in aggregate 2,500,000 shares of Company common stock to a subsidiary of Beneficient for $25,000,000 in cash and (ii) contribute the remaining 1,452,155 shares of Company common stock to a limited liability company (SPV) owned by certain of Beneficients founders, including Brad K. Heppner (Beneficients Chief Executive Officer and Chairman) and Thomas O. Hicks (one of Beneficients current directors), in exchange for certain equity interests in the SPV.

Also to the Purchase Agreement, Jon R. Sabes has agreed to resign as an officer and director of the Company and is expected to be appointed Chief Executive Officer of the Companys technology focused wholly-owned subsidiaries, Life Epigenetics and youSurance. Steven F. Sabes has also agreed to resign as an officer and director of the Company to the Purchase Agreement and is expected to be appointed the Chief Operating Officer of Life Epigenetics. The resignations of Messrs. Jon and Steven Sabes will include 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 Proposed Transactions and (ii) all equity awards of the Company currently held by either of them. The consummation of the transactions contemplated by the Purchase Agreement are referred to herein as the Proposed Transactions.

In addition, the Purchase Agreement contemplates that the Company will enter into performance share unit agreements to be granted under the Companys 2013 Stock Incentive Plan with certain employees of the Company to which such employees will receive a bonus under certain terms and conditions, including, among others, that the Proposed Transactions be consummated and 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 performance share unit agreement) from the closing of the Purchase Agreement through the date that is 120 days following the closing of the Purchase Agreement. The form of performance share unit agreement is being filed as Exhibit 10.1 to this report.

The Purchase Agreement contemplates that after completion of the Proposed Transactions, the parties will seek to enter into an agreement to which the Company will have the right to appoint a majority of the board of directors of the general partner of Beneficient, resulting in the Company and Beneficient being under common control. The Company and Beneficient will also seek to enter into a joint venture agreement to which the Company will offer and distribute (through a FINRA registered managing broker-dealer) Beneficients and its subsidiaries liquidity products and services. The Company and Beneficient intend to reduce capital allocated to life insurance assets while they cooperate to build a larger diversified portfolio of alternative assets investment product portfolios. The parties have also agreed to seek to cause the appointment of Mr. Holland as interim Chief Executive Officer of the Company.

The Company is not a party to the Purchase Agreement. However, as described below, the Proposed Transactions are subject to certain conditions that are dependent upon the Company taking, or refraining from taking, certain actions and, as described below, the Board of Directors of the Company, acting through a special committee, has approved the Proposed Transactions and the actions required to be taken by the Company with respect to such Proposed Transactions.

Formation of Special Committee of Board of Directors

The Company formed a special committee comprised of all of its independent directors to act on behalf of the Company in connection with the Proposed Transactions. The special committee has the full power and authority of the Board of Directors to take any and all actions on behalf of the Board of Directors as it deems necessary to evaluate and negotiate the Proposed Transactions.

The special committee retained McGuireWoods LLP as its legal counsel and Houlihan Lokey Capital, Inc. as its financial advisor, to assist in its review and evaluation of the Proposed Transactions. The Company separately retained Mayer Brown LLP and Maslon LLP as its legal counsel in connection with the Proposed Transactions.

The special committee has evaluated the Proposed Transactions and, in consultation with its outside legal and financial advisors, has unanimously concluded that it is in the best interest of the Company to consent to the consummation of the Proposed Transactions.

Conditions Precedent to the Proposed Transactions

The Proposed Transactions are subject to various conditions, including conditions that are dependent on the Company taking certain affirmative actions. These affirmative actions include:

(d) Exhibits

GWG Holdings, Inc. Exhibit
EX-10.1 2 f8k041519bex10-1_gwgholdings.htm FORM OF PERFORMANCE SHARE UNIT AGREEMENT UNDER THE 2013 STOCK INCENTIVE PLAN Exhibit 10.1   GWG Holdings,…
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About GWG Holdings, Inc. (NASDAQ:GWGH)

GWG Holdings, Inc. is a specialty finance company. The Company is a financial purchaser of life insurance assets in the secondary market. The Company creates opportunities for consumers owning life insurance to obtain value for their policies as compared to the traditional options offered by insurance companies. The Company also creates opportunities for investors to participate in alternative asset classes, such as life insurance, not correlated to traditional financial markets. The Company conducts its life insurance related business through its subsidiary, GWG Life, LLC. It generally purchases life insurance assets directly from policy owners having purchased their life insurance in the primary market. Its operational platform offers various options to customers based on the market value of their life insurance, including selling the entire policy benefit for cash, or selling a portion of the policy benefit and retaining a portion of the benefit with no future premium obligation.