KFS Kingsway Financial Services Inc New

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

On July 29, 2022, Professional Warranty Services LLC (“PWS Parent”), a subsidiary of Kingsway Financial Services Inc. (the “Company”) entered into an Equity Purchase Agreement (the “Agreement”) with Professional Warranty Service Corporation (“PWSC”), a majority-owned, indirect subsidiary of the Company, Tyler Gordy, the current president of PWSC (“Gordy”) and PCF Insurance Services of the West, LLC (“Buyer”), pursuant to which PWS Parent and Gordy sold PWSC to Buyer. 

 

The purchase price paid by Buyer to PWS Parent and Gordy consisted of $51.2 million in base purchase price, subject to customary adjustments for net working capital and transaction expenses.  In addition, Gordy elected to roll over a portion of his ownership in PWSC for equity interests in an affiliate of Buyer.  To the extent the EBITDA of PWSC (as defined in the Agreement) for the one-year period following the sale transaction exceeds 103% of the EBITDA at the closing of the sale transaction (the “Closing EBITDA), PWS Parent and Gordy will also be entitled to receive an earn out payment in an amount equal to 5 times the EBITDA in excess of 103% of Closing EBITDA.

 

The Agreement contains customary representations and warranties of PWS Parent, PWSC and Buyer, including, among others, with respect to corporate organization, capitalization, financial statements, title to assets, intellectual property, material agreements and compliance with laws. The representations and warranties of each party set forth in the Agreement were made solely for the benefit of the other parties to the Agreement, and investors are not third-party beneficiaries of the Agreement. In addition, such representations and warranties (a) are subject to materiality and other qualifications contained in the Agreement, which may differ from what may be viewed as material by investors; (b) were made only as of the date of the Agreement or such other date as is specified in the Agreement; and (c) may have been included in the Agreement for the purpose of allocating risk between the parties rather than establishing matters as facts.

 

The Agreement also provides for customary indemnification, including with respect to breaches of representations, warranties and covenants.  Buyer has obtained a representation and warranty insurance policy which will be Buyer’s sole recourse for losses related to breaches of representations and warranties by PWS Parent or PWSC in excess of the Indemnity Cap (as defined in the Agreement), subject to customary exceptions.