In connection with the Credit Agreement and the Financing, on October 19, 2023, the Guarantor, Beneficient Company Group, L.L.C. (“Ben LLC”) and Hicks Holdings entered into that certain letter agreement (the “Letter Agreement”). In connection with the Financing, Hicks Holdings agreed to assign to the Lender all of its rights, title and interest in and to the following partnership interests of the Guarantor: Preferred Series A Subclass 0 Unit Accounts with a capital account balance of $15,320,238 as of June 30, 2023, Preferred Series A Subclass 1 Unit Accounts with a capital account balance of $48,059,237 as of June 30, 2023, 48 Class S Preferred Units and 291,163 Class S Ordinary Units held by Lender (the “Pledged Guarantor Interests”). Hicks Holdings’ membership interest in Lender (collectively with the Pledged Guarantor Interests, the “Pledged Equity Interests”) and the Pledged Guarantor Interests serve as collateral for the Financing (together, the “Lender Pledge”).
Pursuant to the terms of the Letter Agreement, the parties thereto agreed that if the Borrower and/or Guarantor default under the Credit Agreement and such default results in a foreclosure on, or other forfeiture of, the Pledged Equity Interests, the Guarantor will promptly issue to Lender, Preferred Series A Subclass 0 Unit Accounts with a capital account balance of $15,320,238, Preferred Series A Subclass 1 Unit Accounts with a capital account balance of $48,059,237, 48 Class S Preferred Units and 291,163 Class S Ordinary Units (subject to a tax gross-up as provided in the Letter Agreement), or, in the discretion of Lender, equivalent securities of equal fair market value to the value of the security interests at the time of the applicable foreclosure or other loss (such newly issued equity interests referred to as the “Replacement Equity Interests”); provided, however that, if less than all Pledged Equity Interests have been foreclosed on or forfeited, the foregoing capital account balances and numbers of units comprising the Replacement Equity Interests shall be reduced on a class-by-class and subclass-by-subclass basis, as applicable, to the extent necessary to ensure that Lender and its affiliates do not receive additional value relative to the value held by Lender and its affiliates immediately prior to the foreclosure or forfeiture. Furthermore, Ben LLC shall cause a Ben LLC Unit (as defined in the Eighth Amended and Restated Limited Partnership Agreement of the Guarantor, dated June 7, 2023 (the “Partnership Agreement”)) to be issued for each Class A Unit (as defined in the Partnership Agreement) issued to the Lender pursuant to the Letter Agreement. Additionally, the Guarantor agreed to indemnify Lender and its affiliates and hold each of them harmless against any and all losses which may arise directly or indirectly in connection with, among other things, the Credit Agreement, the Term Loan, the Financing and the Lender Pledge.
The foregoing descriptions of the Credit Agreement, the Term Loan, and the Letter Agreement are only summaries, do not purport to be complete, and are qualified in their entirety by reference to the Credit Agreement and the Letter Agreement, copies of which are filed as Exhibit 10.1 and Exhibit 10.2, respectively, to this Current Report on Form 8-K and are incorporated herein by reference.
Item 2.02 Results of Operations and Financial Condition.
The Company is in the process of its quarter-end closing procedures for the three and six months ended September 30, 2023. While conducting its quarter-end closing procedures, the Company identified the following items that it preliminarily expects to record for the quarter ended September 30, 2023: (i) a significant impairment of goodwill resulting from an interim goodwill impairment analysis which, as previously disclosed in the Company’s Quarterly Report on Form 10-Q for the three months ended June 30, 2023, could be triggered by a continued significant, sustained decline in the stock price of its Class A common stock, par value $0.001 per share, and the Company’s related market capitalization; and (ii) a write down in the net asset value of the interests in the GWG Wind Down Trust held by the Company as of September 30, 2023 in the amount of approximately $50.0 million to $60.0 million.
The foregoing information represents the Company’s estimates of certain results for the three months ended September 30, 2023, which are based only on currently available information and do not present all information necessary for an understanding of the Company’s financial condition as of September 30, 2023 or its results of operations for the three months ended September 30, 2023. The Company’s actual results may differ from these estimates as a result of the completion of its quarter-end closing procedures, review adjustments and other developments that may arise between now and the time its financial results for the quarter ended September 30, 2023 are finalized. Furthermore, these preliminary estimates may not be indicative of its final reported financial results for these periods or for the remainder of its fiscal 2024 or any other future period. It is possible that the Company or its independent registered public accounting firm may identify such items as the Company continues its quarter-closing procedures and any resulting changes could be material. Accordingly, undue reliance should not be placed on this information, which is subject to risks and uncertainties, many of which are not within the Company’s control.
The preliminary financial information presented above has been prepared by and is the responsibility of management. The Company’s independent registered public accounting firm has not audited, reviewed, compiled or performed any procedures with respect to this preliminary financial information.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth above in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 3.02 Unregistered Sales of Equity Securities.
The information set forth above in Item 1.01 of this Current Report on Form 8-K with respect to the potential issuance of the Replacement Equity Interests pursuant to the terms of the Letter Agreement is incorporated herein by reference.
