Item
1.01. Entry into a Material Definitive Agreement.
As
part of the previously announced strategy of 1347 Property Insurance Holdings, Inc. (the “Company”), on March 31,
2020, the Company entered into a Shared Services Agreement and a joint venture agreement with affiliates of Fundamental Global
Investors, LLC (“FGI”), the beneficial owner of approximately 45% of the Company’s outstanding common stock.
D. Kyle Cerminara, Chairman of the Company’s Board, serves as Chief Executive Officer, Co-Founder and Partner of FGI,
and Lewis M. Johnson, Co-Chairman of the Company’s Board, serves as President, Co-Founder and Partner of FGI.
Shared
Services Agreement
On
March 31, 2020, the Company entered into a Shared Services Agreement (the “Shared Services Agreement”) with Fundamental
Global Management, LLC (“FGM”) pursuant to which FGM will provide the Company with certain services related to the
day-to-day management of the Company, including assisting with regulatory compliance, evaluating the Company’s financial
and operational performance, providing a management team to supplement the executive officers of the Company, and such
other services consistent with those customarily performed by executive officers and employees of a public company (collectively,
the “Services”). In exchange for the Services, the Company will pay FGM a fee of $456,250 per quarter (the “Shared
Services Fee”), commencing in the second quarter of 2020, plus reimbursement of expenses incurred by FGM in connection
with the performance of the Services, subject to certain limitations approved by the Company’s Board of Directors or Compensation
Committee from time to time.
The
Shared Services Agreement has an initial term of three years, and thereafter renews automatically for successive one-year terms
unless terminated in accordance with its terms. The Shared Services Agreement may be terminated by FGM or by the Company, by a
vote of the Company’s independent directors, at the end of the initial or automatic renewal term upon 120 days’ notice,
subject to payment by the Company of certain costs incurred by FGM to wind down the provision of Services and, in the case of
a termination by the Company without cause, payment of a termination fee equal to the Shared Services Fee paid for the two quarters
preceding termination.
The
foregoing description of the Shared Services Agreement does not purport to be complete and is qualified in its entirety by reference
to the complete Shared Services Agreement, a copy of which is filed as Exhibit 10.1 to this Current Report on Form 8-K and is
incorporated herein by reference.
Joint
Venture Agreement
On
March 31, 2020, the Company entered into the Limited Liability Company Agreement (the “LLC Agreement”) of Fundamental
Global Asset Management, LLC (“FGAM”), a newly-formed joint venture owned 50% by each of the Company and FGI Funds
Management, LLC, an affiliate of FGI (“FGIFM” and together with the Company, each a “Member” and collectively,
the “Members”). The purpose of FGAM is to sponsor, capitalize and provide strategic advice to investment managers
(“Underlying Managers”) in connection with the launch and/or growth of their asset management business and the investment
products they sponsor (each, a “Sponsored Fund”).
FGAM
is governed by a Board of Managers consisting of four managers, two of which will be appointed by each Member. It is the current
intent of the Company to appoint two of its independent directors to the Board of Managers of FGAM. Certain major actions, including
any decision to sponsor a new investment manager, will require the prior consent of both Members.
The
LLC Agreement provides that each Member will contribute its proportionate interest of the amount of capital determined by the
Board of Managers to be required to operate FGAM (“Operating Capital”). Unless otherwise agreed, the Company will
contribute the capital required to be contributed to a Sponsored Fund (“Seed Capital”), as well as any amounts required
to be contributed to an Underlying Manager for working capital purposes (“Working Capital”). Proceeds attributable
to a contribution, directly or indirectly through an Underlying Manager, to a Sponsored Fund will be distributed
to the Members in proportion to their capital contributions in respect of Seed Capital. All other proceeds received by FGAM attributable
to a Sponsored Fund, including proceeds from revenue shares or ownership interests in Underlying Managers, will be distributed
as follows: (i) first, to the Members until they have received cumulative distributions up to an amount of the Operating Capital
funded by them; (ii) second, to the Members until they have received cumulative distributions up to an amount of Working Capital
previously funded by them, plus a return of 5% per annum; and (iii) third, to the Members in proportion to their percentage interests.
In
addition, neither FGIFM nor any of affiliates may participate in a Sponsored Fund Transaction other than through FGAM unless
FGIFM has first presented the opportunity to FGAM and either the Board of Managers or the Company has rejected such opportunity.
Notwithstanding the foregoing, if such opportunity requires in excess of $5 million, FGIFM may offer amounts in excess of $5 million
to a third party, subject to certain conditions.
The
foregoing description of the LLC Agreement does not purport to be complete and is qualified in its entirety by reference to the
complete LLC Agreement, a copy of which is filed as Exhibit 10.2 to this Current Report on Form 8-K and is incorporated herein
by reference.