See feature article below: Kingsway Financial Services Inc. (NYSE: KFS)
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Report For: Kingsway Financial Services Inc. (NYSE: KFS)
KFS shares are up marginally at $4.96 per share. The holding company, functioning as a merchant bank with a focus on long-term value-creation, has recorded its officers and directors purchasing shares in 20 different transactions through March of this year. The have been no insider sales recorded during the same time period.
TORONTO, May 19, 2016 /PRNewswire/ – (TSX: KFS, NYSE: KFS) Kingsway Financial Services Inc. (“Kingsway” or the “Company”) today announced that its indirect wholly owned subsidiary, CMC Acquisition, LLC, (“Buyer”), entered into a purchase agreement with CRIC TRT Acquisition LLC, (“Seller”) and the parent of Seller, pursuant to which, among other things, the Buyer agreed to purchase 81% of the issued and outstanding capital stock of CMC Industries, Inc., a Texas corporation (“CMC”) from Seller. The closing of the transactions contemplated by the purchase agreement (the “Closing”) is subject to the satisfaction of customary closing conditions, and is currently anticipated to occur no later than June 17, 2016.
“As we discussed in our recent shareholder letter (http://bit.ly/kfs2015), credit tenant triple net leases have been an area of focus for us. This transaction represents an opportunity for us to deploy capital while utilizing our deferred tax asset in a way that builds long-term economic value with attractive risk/reward characteristics,” stated Larry G. Swets, Jr., President and Chief Executive Officer. “This transaction is a good example of how we would like to deploy our capital and deferred tax asset into real estate assets.”
Details of Transaction
At the Closing, (i) Buyer will acquire 81% of the issued and outstanding capital stock of CMC for a purchase price of $1,500,000 (which is currently being held in escrow), (ii) Buyer and Seller will enter into a new Stockholders’ Agreement (the “Stockholders’ Agreement”) governing the rights and obligations of the stockholders’ of CMC and (iii) a subsidiary of CMC and an affiliate of Seller will enter into a Management Services Agreement whereby Seller’s affiliate will provide certain services to CMC and its subsidiaries in exchange for service fees.
If the Purchase Agreement is terminated by Seller because either (i) Buyer has breached any representation, warranty or covenant contained in the Purchase Agreement which individually, or in the aggregate, could reasonably be expected to have a material adverse effect on the ability of Buyer to consummate the transactions contemplated by the Purchase Agreement, or (ii) the Closing has not occurred on or before June 17, 2016 for reasons other than Seller’s breach of a representation, warranty or covenant contained in the Purchase Agreement, then Buyer will be obligated to pay liquidated damages in the amount of $150,000 to Seller (which payment will be Seller’s sole and exclusive remedy with respect to such termination).
CMC owns, through an indirect wholly owned subsidiary (the “Property Owner”), a parcel of real property consisting of approximately 192 acres located in the State of Texas (the “Real Property”). The Real Property is leased to a third party pursuant to a long-term triple net lease. The Real Property is also subject to a mortgage in the principal amount of approximately $180,000,000 (the “Mortgage”). The Mortgage is non-recourse indebtedness with respect to CMC and its subsidiaries (including the Property Owner), and the Mortgage is not, nor will it be, guaranteed by Kingsway or its affiliates. All lease income generated by the Real Property is applied to make principal and interest payments on the Mortgage.
The Stockholders’ Agreement to be entered into at Closing will contain terms that are generally customary for a Stockholders’ Agreement between stockholders holding majority and minority positions similar to those held by Buyer and Seller.
Pursuant to the terms of the Management Services Agreement to be entered into at Closing, an affiliate of Seller (the “Service Provider”) will provide certain services to CMC and its subsidiaries in exchange for service fees. Such services (collectively, the “Services”) will include (i) causing an affiliate of the Service Provider to guaranty certain obligations of the Property Owner (pursuant to an Indemnity and Guaranty Agreement (the “Indemnity and Guaranty Agreement”) between such affiliate and the holder of the Mortgage (the “Mortgagor”)), (ii) providing certain individuals to serve as members of the board of directors and/or certain executive officers of CMC and/or its subsidiaries and (iii) providing asset management services with respect to the Real Property. In exchange for the Services, the Property Owner will pay certain fees to the Service Provider. The payment of such service fees will be triggered by (i) a sale of the Real Property, (ii) a restructuring of the lease to which the Real Property is subject or (iii) a refinancing or restructuring of the Mortgage. The amount of the service fees will range from 40%-80% of the net proceeds generated by the event triggering the payment of the service fees (depending on the nature and timing of the triggering event).
About the Company
Kingsway is a holding company functioning as a merchant bank with a focus on long-term value-creation. The Company owns or controls stakes in several insurance industry assets and utilizes its subsidiaries, 1347 Advisors LLC and 1347 Capital LLC, to pursue opportunities acting as an advisor, an investor and a financier. The common shares of Kingsway are listed on the Toronto Stock Exchange and the New York Stock Exchange under the trading symbol “KFS.”
Source – Company Press Release
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