ITEM 1.01 Entry Into a Material Definitive
Agreement.
On October 1, 2021, Ravix Acquisition, LLC (the “Kingsway
Buyer”), a newly formed subsidiary of Kingsway Financial Services Inc. (the “Company” or “Kingsway”),
together with the Company’s existing subsidiary, Kingsway America, Inc., entered into a Stock Purchase Agreement (the
“Agreement”) with Ravix Financial, Inc. (“Ravix”), the shareholders of Ravix (the “Sellers”),
and Dan Saccani, as the Seller Representative, pursuant to which the Kingsway Buyer acquired all of the outstanding equity interests
of Ravix (the “Ravix Stock”). The acquisition was effective as of 12:01 a.m. on October 1, 2021.
Pursuant to the terms of the Agreement, as consideration for the Ravix
Stock, the Kingsway Buyer paid to the Sellers aggregate cash consideration of approximately $11,000,000, less certain escrowed amounts
for purposes of indemnification claims and working capital adjustments as described below (the “Closing Consideration”). The
Kingsway Buyer will also pay additional contingent consideration, only to the extent earned, in an aggregate amount of up to $4,500,000
(the “Earnout Payments”), which is subject to certain conditions, including the successful achievement of gross profit for
Ravix during the three-year period commencing on the first full calendar month following the date of the Agreement. The Sellers may
become entitled to a portion of the Earnout Payments based on the successful achievement of a minimum level of gross profit during the
first and second years following the date of the Agreement, but in no event shall the Earnout Payments exceed $4,500,000 in the aggregate.
The Agreement contains customary representations and warranties and
covenants from the Sellers, including but not limited to representations and warranties about the Sellers, Ravix and its business, assets,
financial statements, operations, material contracts, liabilities, real property and intellectual property. The Sellers will also be subject
to customary indemnification obligations related to breaches or misrepresentations under the Agreement, failure to perform covenants contained
in the Agreement and losses related to certain designated pre-closing liabilities and pre-closing taxes. A portion of the Closing Consideration
equal to $2,300,000 was deposited into an escrow account to satisfy indemnification claims and any post-closing working capital adjustments.
The Kingsway Buyer also made customary representations and warranties
and covenants, including but not limited to representations and warranties about the Buyer’s authority to enter into the transaction
and ability to pay the Closing Consideration and the Earnout Payments. The Kingsway Buyer will also be subject to customary indemnification
obligations related to breaches or misrepresentations under the Agreement and failure to perform covenants contained in the Agreement.
Additionally, Kingsway America, Inc. agreed to guarantee the performance of any and all obligations of the Kingsway Buyer to pay the Closing
Consideration and any Earnout Payments.
The Closing Consideration was financed with a combination of debt
financing provided by Avidbank, and cash on hand. The Kingsway Buyer borrowed a total of $6
million, in the form of a term loan, and established a $1 million revolver (together, the
“Loan”) that was undrawn at close. The Loan has a variable interest rate, with the initial annual interest rate
equal to 3.75%. The Loan requires monthly principal and interest payments and the term loan matures on October 1,
2027.
The description above is a summary and does not purport to be complete
and is subject to, qualified in its entirety by, the terms of the Agreement which is filed as Exhibit 10.1 to this report and is incorporated
herein by reference.