Item 1.01 Entry into a Material Definitive Agreement
On September 28, 2018, Axos Clearing, LLC (“Parent”) and Axos Clarity MergeCo., Inc. (“Merger Sub”), each a subsidiary of Axos Financial, Inc. (the “Registrant” or “Axos”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) to acquire COR Securities Holdings Inc. (“COR Securities Holdings”), a leading full-service correspondent clearing firm for independent broker-dealers. Pursuant to the Merger Agreement, on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into COR Securities Holdings (the “Merger”), with COR Securities Holdings surviving the Merger (the “Surviving Company”) as a wholly-owned subsidiary of Axos and Parent. In addition, Axos entered into a Guaranty of Payment and Performance of Agreement and Plan of Merger (the “Guaranty”) in favor of the stockholders of COR Securities Holdings, pursuant to which Axos will guaranty the obligations of Parent and Merger Sub under the Merger Agreement. The Merger Agreement was approved by the Board of Directors of each of Axos and COR Securities Holdings, and contains customary representations, warranties and covenants by COR Securities Holdings, as well as indemnification by COR Securities Holdings’ principal stockholders, subject to the limitations contained in the Merger Agreement.
The total consideration to be paid by Axos, subject to certain adjustments and conditions in the Merger Agreement, will be an amount in cash (the “Closing Consideration”) equal to (i) $80,000,000, (ii) plus the amount by which Adjusted Excess Regulatory Net Capital of COR Securities Holdings (as defined in the Merger Agreement) exceeds (or minus the amount by which Adjusted Excess Regulatory Net Capital is less than) $12,525,948, (iii) minus the amount of Net Debt of COR Securities Holdings (as defined in the Merger Agreement), and (iv) minus the amount of Transaction Expenses (as defined in the Merger Agreement). In addition, an aggregate of $7,500,000 of the Closing Consideration will be deducted from the amount paid at closing, and the Surviving Company will issue subordinated notes to the principal stockholders of COR Securities Holdings in an equal principal amount, with a maturity of 15 months, to serve as the sole source of payment of indemnification obligations of the principal stockholders of COR Securities Holdings under the Merger Agreement.
The completion of the Merger is subject to customary closing conditions, including (1) approval of COR Securities Holdings’ stockholders, (2) approval by the Financial Industry Regulatory Authority without the imposition of any “Burdensome Condition” (as defined in the Merger Agreement), and (3) if required, approval of the Board of Governors of the Federal Reserve System without the imposition of any “Burdensome Condition”. Under the Merger Agreement, the Merger may not occur prior to January 2, 2019 without the prior written consent of Parent and COR Securities Holdings.
The foregoing description of the Merger Agreement and Guaranty does not purport to be complete and is qualified in its entirety by reference to the full text of such agreements, copies of which are attached hereto as Exhibits 2.1 and 10.1 and are incorporated herein by reference. In addition, the representations, warranties and covenants of each party set forth in the Merger Agreement and Guaranty have been made only for purposes of, and were and are solely for the benefit of the parties to, the Merger Agreement and Guaranty, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement and Guaranty instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Accordingly, the representations and warranties may not describe the actual state of affairs at the date they were made or at any other time, and investors in the Registrant should not rely on them as statements of fact.