PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Board
of Directors
Set
forth below is certain information regarding the members of the Company’s Board of Directors, including the year in which
each current director became a director of the Company. The Company’s Board of Directors currently consists of eight directors
which were previously divided into three classes, with each class being elected to a three-year term. At the Company’s 2019
Annual Meeting, our stockholders approved an amendment to our Certificate of Incorporation to declassify the Board of Directors
and provide for our directors to be elected annually to one-year terms on a go-forward basis, beginning with the nominees who
stood for election at the 2019 Annual Meeting. As a result, the directors who were elected at the 2019 Annual Meeting, Rita Hayes,
Lewis M. Johnson, and Dennis A. Wong, are serving a one-year term expiring at the Company’s 2020 Annual Meeting. Each of
D. Kyle Cerminara, Larry G. Swets, and Scott D. Wollney are continuing to serve as directors in the class whose term ends at the
Company’s 2020 Annual Meeting. At the 2020 Annual Meeting, Messrs. Cerminara, Swets and Wollney and Ms. Hayes and Messrs.
Johnson and Wong or their successors who are nominated by the Board of Directors to serve as directors will stand for election
to serve one-year terms. Each of Marsha G. King and E. Gray Payne or their successors are continuing to serve as directors in
the class whose term ends at the Company’s 2021 Annual Meeting. At our 2021 Annual Meeting, and at each annual meeting thereafter,
all directors will stand for election to serve one-year terms.
The
age of each director is reported as of December 31, 2019.
D.
Kyle Cerminara, age 42, was appointed to our Board of Directors on December 27, 2016, became Chairman of our Board of
Directors on May 11, 2018, and was designated as the principal executive officer of the Company on March 23, 2020. Mr. Cerminara
is the Chairman of the Board of Ballantyne Strong, Inc., a holding company with diverse business activities focused on serving
the entertainment, retail, financial, advertising and government markets. Mr. Cerminara assumed responsibilities as Chairman of
the Board of Ballantyne Strong in May 2015. Mr. Cerminara previously also served as Chief Executive Officer of Ballantyne Strong,
Inc. from November 2015 through April 2020. Since April 2012, Mr. Cerminara has also served as the Chief Executive Officer, Co-Founder
and Partner of Fundamental Global Investors, LLC, an SEC registered investment advisor that manages equity and fixed income hedge
funds and is the largest stockholder of the Company. In addition, Mr. Cerminara is Co-Chief Investment Officer of CWA Asset Management
Group, LLC (d/b/a Capital Wealth Advisors), a wealth advisor and multi-family office affiliated with Fundamental Global Investors,
LLC, which position he has held since January 2013. Mr. Cerminara is a member of the Board of Directors of a number of publicly-held
companies focused in the reinsurance, investment management and real estate, technology and communication sectors, including Ballantyne
Strong, Inc. (NYSE American: BTN), since February 2015; BK Technologies Corporation (NYSE American: BKTI), a publicly traded manufacturer
which recently reorganized into a holding company structure, since July 2015; and Itasca Capital, Ltd. (TSXV: ICL) (formerly Kobex
Capital Corp.), a publicly-traded investment firm, since June 2016. He was appointed Chairman of BK Technologies, Inc. (now BK
Technologies Corporation) in March 2017 and Chairman of Itasca Capital, Ltd. in June 2018. He also served on the Board of Directors
of Limbach Holdings, Inc. (Nasdaq: LMB), a company which provides building infrastructure services, from March 2019 to March 2020;
Iteris, Inc. (Nasdaq: ITI), a publicly-traded, applied informatics company, from August 2016 to November 2017; and Magnetek, Inc.,
a publicly-traded manufacturer, in 2015. He has served as a Trustee and President of StrongVest ETF Trust, which was an open-end
management investment company and is in the process of being dissolved, since July 2016. He previously served on the board of
directors of blueharbor bank, a community bank, from October 2013 to January 2020. Prior to these roles, Mr. Cerminara was a Portfolio
Manager at Sigma Capital Management from 2011 to 2012, a Director and Sector Head of the Financials Industry at Highside Capital
Management from 2009 to 2011, and a Portfolio Manager and Director at CR Intrinsic Investors from 2007 to 2009. Before joining
CR Intrinsic Investors, Mr. Cerminara was a Vice President, Associate Portfolio Manager and Analyst at T. Rowe Price from 2001
to 2007 and an Analyst at Legg Mason from 2000 to 2001. Mr. Cerminara received an MBA from the Darden School of Business at the
University of Virginia and a B.S. degree in Finance and Accounting from the Smith School of Business at the University of Maryland,
where he was a member of Omicron Delta Kappa, an NCAA Academic All American and Co-Captain of the men’s varsity tennis team.
He also completed a China Executive Residency at the Cheung Kong Graduate School of Business in Beijing, China. Mr. Cerminara
holds the Chartered Financial Analyst (CFA) designation. Mr. Cerminara brings to the Board the perspective of the Company’s
largest stockholder. We believe he also offers to the Board valuable insights obtained through his management and operational
experience and extensive experience in the financial industry, including investing, capital allocation, finance and financial
analysis of public companies.
Lewis
M. Johnson, age 50, was appointed to our Board of Directors on April 3, 2017, and became Co-Chairman of our Board of Directors
on May 31, 2018. Since April 2012, Mr. Johnson has served as President, Co-Founder and Partner of Fundamental Global Investors,
LLC, an SEC registered investment advisor that manages equity and fixed income funds and strategies and is the largest stockholder
of the Company. In addition, since January 2013, Mr. Johnson has served as Co-Chief Investment Officer of CWA Asset Management
Group, LLC (d/b/a Capital Wealth Advisors), a wealth advisor and multi-family office affiliated with Fundamental Global Investors,
LLC. Prior to co-founding Fundamental Global Investors, LLC and partnering with Capital Wealth Advisors, Mr. Johnson was a private
investor from 2010 to 2012. From 2008 to 2010 Mr. Johnson served as Portfolio Manager and Managing Director at Louis Dreyfus Highbridge
Energy. Previously, Mr. Johnson was a Senior Vice President, Portfolio Manager and Analyst at Pequot Capital from 2006 to 2007.
Prior to joining Pequot Capital, he was a Vice President and Analyst at T. Rowe Price from 2000 to 2006. He interned as an Analyst
at Capital Research and Management during the summer of 1999 and worked as a Vice President at AYSA from 1992 to 1998. Mr. Johnson
received an MBA from the Wharton School of Business at the University of Pennsylvania in addition to a M.A. in Political Science
and a B.A. in International Studies from Emory University, where he graduated Magna Cum Laude and was a member of Phi Beta Kappa.
Mr. Johnson is a member of the Board of Directors of a number of publicly-held companies, including Ballantyne Strong, Inc. (NYSE
American: BTN), a holding company with diverse business activities focused on serving the entertainment, retail, financial, advertising
and government markets, since May 2016; BK Technologies Corporation (NYSE American: BKTI), a publicly traded manufacturer which
recently reorganized into a holding company structure, since May 2016; and Itasca Capital, Ltd. (TSXV: ICL) (formerly Kobex Capital
Corp.), a publicly-traded investment firm, since June 2018. Mr. Johnson was also appointed Co-Chairman of BK Technologies, Inc.
(now BK Technologies Corporation) in June 2018 and Co-Chairman of Ballantyne Strong, Inc. in April 2019. We believe Mr. Johnson’s
extensive experience in the financial industry, including asset investment, capital allocation, finance and financial analysis
of public companies, qualify him to serve on our Board of Directors. Mr. Johnson also brings to the Board the perspective of the
Company’s largest stockholder.
Rita
Hayes, age 77, was appointed to our Board of Directors on January 11, 2019. Ms. Hayes has been Chair of Hayes International
Advisors, LLC since 2013, where she counsels industry and institutional leaders on a range of economic, political and regulatory
matters. She served as an expert for the International Chamber of Commerce’s World Business Summit in 2008. Ms. Hayes served
as Deputy U.S. Trade Representative and Ambassador to the World Trade Organization (WTO), a post to which she was nominated by
President Bill Clinton and unanimously confirmed by the U.S. Senate, from November 1997 through August 2001, during which time
she served as Acting U.S. Trade Representative from January through March 2001. From 2001 through December 2006, she held the
position of Deputy Director General of the World Intellectual Property Organization (WIPO) to which she was approved by the 184
Member States. At the conclusion of her appointment at WIPO, she served as Senior Advisor in Hogan & Hartson LLP’s Geneva,
Switzerland office. Confirmed by the U.S. Senate in 1996, Ms. Hayes served from 1996 to 1997 as U.S. Chief Textile Negotiator
in the Office of the U.S. Trade Representative (USTR) in Washington, D.C. From 1983 to 1992, Ms. Hayes served as Chief of Staff
for two members of the U.S. Congress. Ms. Hayes received a Bachelor of Arts from the University of Georgia, an honorary degree
as Doctor of Humane Letters from the College of Charleston and an honorary degree as Doctorate of Outstanding Public Service from
the University of South Carolina. We believe Ms. Hayes’ extensive record of public and private service uniquely qualifies
her to serve on our Board of Directors.
Marsha
G. King, age 52, was appointed to our Board of Directors on January 11, 2019. Ms. King has served as President of SkillPoint
Consulting, Inc., where she consults with executives to improve their overall business and leadership performance, since January
2007. She has also taught as an adjunct professor at Northwestern University, The George Washington University, The Pennsylvania
State University, Johns Hopkins University and Georgetown University since 1998. Prior to joining SkillPoint Consulting, Ms. King
worked at Capital One Financial Corporation from September 1998 to January 2007, where she served as director of leadership acceleration
before being promoted to Managing Vice President, Human Resources in October 2002. Prior to that, Ms. King served as an executive
coach at Development Dimensions International, Inc., a global human resource consulting firm, from August 1998 to September 1999.
Ms. King received a Bachelor of Science in Business Administration from The Ohio State University and a Master of Education in
Instructional Systems Design/Multimedia and Ph.D. in Organizational Development from The Pennsylvania State University. We believe
Ms. King’s talent development experience and educational background qualify her to serve on our Board of Directors.
E.
Gray Payne, age 72, was elected to our Board of Directors on May 31, 2018. Since December 2011, General Payne has provided
consulting services to and served on the Advisory Council of Marstel-Day, LLC, located in Fredericksburg, Virginia, which consults
in the areas of conservation, environmental compliance, and encroachment. He served as Senior Vice President of The Columbia Group
(“TCG”) from September 2010 to September 2017, where he was responsible for managing the Marine Corps Programs
Division (since September 2010) and the Navy Programs Division (since October 2013), with combined annual revenue of approximately
$30 million. TCG is a federal consulting firm working with the Department of Defense, Department of Homeland Security, NOAA and
private clients. TCG consults in the areas of logistics, acquisitions, program management, information technology, training, marine
architecture and engineering, and command and control systems. Prior to September 2010, General Payne was on active duty with
the Marine Corps for 10 years, retiring as a Major General. Prior to March 2001, he worked with a number of companies in various
capacities, including as a management consultant, Chief Financial Officer, Chief Operating Officer, and Chief Executive Officer.
General Payne currently serves on the Board of Directors of BK Technologies Corporation (NYSE American: BKTI), a publicly traded
manufacturer which recently reorganized into a holding company structure (since January 2017), and on the following non-profit
boards: VetCV (since December 2017) and National Wildlife Refuge Association (since June 2018). He previously served on the Board
of Directors of the Marine Corps Association and the Board of Directors of the Marine Corps Association Foundation. He received
a B.S. in Economics from North Carolina State University and a M.S. in Strategic Studies from U.S. Army War College. We believe
General Payne’s 40 years of service in the Marine Corps, as well as 18 years of experience in the private sector in the
areas of financial management, operational improvement and strategic planning, qualify him to serve on our Board of Directors.
Larry
G. Swets, Jr., age 45, has served as a member of our Board of Directors since November 21, 2013 and served as our Chairman
from March 5, 2017 to May 11, 2018. Mr. Swets founded Itasca Financial LLC, an advisory and investment firm, in 2005 and has served
as its managing member since inception. He is also the founder and President of Itasca Golf Managers, Inc., a management services
and advisory firm focused on the real estate and hospitality industries. Mr. Swets has served as a director and the Chief Executive
Officer of Itasca Capital Ltd. (TSXV: ICL) since June 2016. Previously, he served as the Chief Executive Officer of Kingsway Financial
Services Inc. from July 2010 to September 2018, including as its President from July 2010 to March 2017, and as Executive Vice
President of Corporate Development from January 2010 to July 2010. Prior to founding Itasca Financial LLC, Mr. Swets served as
an insurance company executive and advisor, including the role of Director of Investments and Fixed Income Portfolio Manager for
Kemper Insurance. Mr. Swets began his career in insurance as an intern in the Kemper Scholar program in 1994. Mr. Swets is a member
of the board of directors of Limbach Holdings, Inc. (Nasdaq: LMB), Insurance Income Strategies, Ltd., Alexian Brothers Foundation,
Unbounded Media Corporation, and Harbor Custom Development, Inc. Previously, he served as a member of the board of directors of
Kingsway Financial Services Inc. (NYSE: KFS) from September 2013 to December 2018, Atlas Financial Holdings, Inc. (Nasdaq: AFH)
from December 2010 to January 2018, FMG Acquisition Corp. (Nasdaq: FMGQ) from May 2007 to September 2008, United Insurance Holdings
Corp. from 2008 to March 2012 and Risk Enterprise Management Ltd. from November 2007 to May 2012. He is a member of the Young
Presidents’ Organization. Mr. Swets earned a master’s degree in Finance from DePaul University in 1999 and a bachelor’s
degree from Valparaiso University in 1997. He also holds the Chartered Financial Analyst designation. We believe Mr. Swets’
qualifications to serve on our Board of Directors include his more than eleven years of executive management and leadership experience
in the insurance industry.
Scott
D. Wollney, age 51, was appointed to our Board of Directors on March 30, 2015. Since December 2010, Mr. Wollney has served
as the President, Chief Executive Officer and Director of Atlas Financial Holdings, Inc. (Nasdaq: AFH), a specialty commercial
automobile insurance company. From July 2009 until December 2010, Mr. Wollney was President and Chief Executive Officer of Kingsway
America Inc. (KAI), a property and casualty holding company and subsidiary of Kingsway Financial Services Inc. From May 2008 to
March 2009, he was the President and Chief Executive Officer of Lincoln General Insurance Company (a subsidiary of KAI), a property
and casualty insurance company. Mr. Wollney co-founded Avalon Risk Management, Inc., an insurance broker, in 1998 and served as
its President from 2002 to 2008. Mr. Wollney has more than 26 years of experience in property and casualty insurance. During his
tenure in the industry, Mr. Wollney has held executive positions at both insurance companies as well as brokerage operations.
Mr. Wollney is an MBA graduate of Northwestern University’s Kellogg School of Management with a concentration in finance
and management strategy and holds a Bachelor of Arts degree from the University of Illinois. We believe Mr. Wollney’s qualifications
to serve on our Board of Directors include his direct operating experience with respect to numerous disciplines which are critical
to the insurance business.
Dennis
A. Wong, age 50, has served as a member of our Board of Directors since August 2015. Since 2005, Mr. Wong has served as
the owner of and a consultant with Insurance Resolution Group, a consulting firm focused on providing strategic advisory and financial
consulting to domestic and international companies with insurance or insurance related operations. From 1997 to 2005, Mr. Wong
worked in a variety of corporate roles with Kemper Insurance Companies, a leading national insurance provider, including as Chief
Financial Officer of its international operations. From 1991 to 1997, Mr. Wong worked as a public accountant with KPMG LLP, where
he specialized in accounting and operational advisory services for the insurance industry. Mr. Wong obtained a Bachelor of Arts
degree in Economics with an Accountancy Cognate from the University of Illinois. Mr. Wong is a Certified Public Accountant. We
believe Mr. Wong’s qualifications to serve on our Board of Directors include his insurance industry experience, as well
as his experience as an auditor for various insurance companies.
Board
Diversity
We
recognize the value of diversity at the Board level and believe that our Board currently comprises an appropriate mix of background,
diversity and expertise. In particular, we currently have two female directors and our directors, overall, have significant experience
in a variety of industries and sectors, including, among others, the insurance industry, the financial industry, military operations
and political and diplomatic operations. We believe that the diversity of our directors enriches our Board by encouraging fresh
perspectives and bringing new and valuable insights to the Board.
Board
Meetings
During
the year ended December 31, 2019, the Board of Directors held 9 formal meetings. In 2019, no director attended fewer than 75%
of (i) the total number of meetings held by the Board of Directors during the period for which he or she was a director; and (ii)
the total number of meetings held by all committees of the Board of Directors on which he or she served (during the period that
the director served). Independent members of our Board of Directors also meet in executive session without management present.
Director
Independence
The
Board has determined that five of its members are “independent directors” as defined under the applicable rules of
the Nasdaq and the Securities and Exchange Commission (the “SEC”). The five independent directors currently
serving on the Board are Rita Hayes, Marsha G. King, E. Gray Payne, Scott D. Wollney and Dennis A. Wong. In making its determination
of independence, the Board of Directors considered questionnaires completed by directors and any relationships and transactions
between the Company and all entities with which the directors are involved. Nasdaq’s listing rules require that the Board
of Directors be comprised of a majority of independent directors. Upon the recommendation of the Nominating and Corporate Governance
Committee, Ms. Hayes and King were appointed to the Board on January 11, 2019.
Board
Leadership Structure and Risk Oversight
D.
Kyle Cerminara serves as Chairman of the Board of Directors and Lewis M. Johnson serves as Co-Chairman of the Board of Directors.
The Company’s Chief Executive Officer position has remained vacant since December 2, 2019, when the Company’s then-serving
Chief Executive Officer, Douglas N. Raucy, resigned from the Company in connection with the sale of our three insurance subsidiaries
to FedNat Holding Company (“FedNat”) and entered into an employment agreement with FedNat. On March 23, 2020, the
Board designated Mr. Cerminara as the “principal executive officer” of the Company for purposes of the Securities
Exchange Act of 1934, as amended. This designation did not involve a change in Mr. Cerminara’s title or duties.
Our
Board of Directors has not established a policy on whether the same person should serve as both the principal executive officer
of the Company and the Chairman of the Board or, if the roles are separate, whether the Chairman should be selected from the non-employee
directors or should be an employee. Our Board believes that it should have the flexibility to periodically determine the leadership
structure that it believes is best for the Company.
The
Chairman of the Board or, if the Chairman is unable to do so, the Co-Chairman of the Board, typically presides at all meetings
of the Board. The Chairman’s and Co-Chairman’s role also includes providing feedback on the direction and performance
of the Company, setting the agenda of meetings of the Board of Directors and leading the Board of Directors in anticipating and
responding to changes in our business.
Given
the specific characteristics and circumstances of the Company, the Board believes that its current leadership structure will enhance
and facilitate the implementation of the Company’s business strategy. Mr. Cerminara has been closely involved in developing
the Company’s business strategy following the FedNat transaction and has extensive management experience, including having
served as Chairman of the Board since May 2018. The Board believes that these qualities uniquely qualify Mr. Cerminara to lead
and facilitate informed Board discussions about the Company’s strategy and operations and enable him to provide timely communications
on strategic developments and other critical matters and issues facing the Company. The Board has not appointed a lead independent
director at this time. Currently, the Board consists of eight directors, five of whom are independent. All independent directors
serve on all committees of the Board, are able to closely monitor the activities of the Company and meet in executive sessions
without management present to discuss the Company’s business strategy and operations. Given the active involvement of all
of the independent directors in the Company’s matters, the Board has determined that a lead independent director is not
necessary at this time. Additionally, because the Company’s Chairman and Co-Chairman are appointed annually by the Company’s
non-management directors, such directors are able to evaluate the leadership and performance of the Chairman and Co-Chairman each
year.
Our
Board is actively involved in oversight of risks that could affect the Company. This oversight is conducted primarily through
the three standing committees of the Board as disclosed in the descriptions of each of the committees herein and in the charters
of each of the committees, but the full Board has retained responsibility for overall supervision of risk management efforts as
they relate to the key business risks we face. Management identifies, assesses and manages the risks most critical to our operations
and routinely advises our Board regarding those matters. Areas of material risk may include operational, financial, legal and
regulatory, human capital, information technology and security, and strategic and reputational risks. In addition, in connection
with the recent COVID-19 coronavirus outbreak, the Board and management have recently focused on our efforts to mitigate financial
and human capital management risk exposures associated with the outbreak. Our Board satisfies its oversight responsibility through
full reports by each committee chair regarding the applicable committee’s considerations and actions, as well as through
regular reports directly from members of management responsible for oversight of particular risks within the Company. The Audit
Committee considers and discusses financial risk exposures. The Compensation and Management Resources Committee assesses and monitors
whether any of the Company’s compensation policies and programs have the potential to encourage excessive risk-taking. The
Nominating and Corporate Governance Committee monitors the effectiveness of the Company’s corporate governance policies
and the selection of prospective board members and their qualifications. In addition, General Payne, as the chair of the Nominating
and Corporate Governance Committee, takes an active role in corporate governance matters. The Board believes that the leadership
structure described above facilitates the Board’s oversight of risks because it allows the Board, working through its committees,
to participate actively in the oversight of management actions. The Board believes that its role in risk oversight does not affect
the Board’s leadership structure.
Like
all businesses, we also face threats to our cybersecurity, as we are reliant upon information systems and the internet to conduct
our business activities. In light of the pervasive and increasing threat from cyberattacks, the Audit Committee, with input from
management, assesses the Company’s cybersecurity and other information technology risks and threats and the measures implemented
by the Company to mitigate and prevent cyberattacks, and the Board receives periodic reports on the Company’s cybersecurity
program.
Hedging
and Pledging Policy
Under
the Company’s Insider Trading Policy, all directors, officers and employees of the Company and its subsidiaries are prohibited
from engaging in any hedging transactions involving Company securities or equity securities of any subsidiaries of the Company,
holding Company securities in a margin account or pledging Company securities as collateral.
Policy
Concerning Director Attendance at Annual Stockholders’ Meetings
There
is no formal policy as to Director attendance at annual stockholders’ meetings. Ambassador Rita Hayes, as well as Messrs.
Johnson, Swets, Wollney and Wong, attended the 2019 Annual Stockholders’ Meeting held on December 17, 2019. On June 10,
2019, the Company held a Special Meeting of Stockholders’ to approve the Purchase Agreement with FedNat and the transactions
contemplated therein, including the sale of all of the issued and outstanding equity of Maison Insurance Company, Maison Managers,
Inc. and ClaimCor, LLC, our three insurance subsidiaries, to FedNat. Messrs. Cerminara, Johnson, Payne, Swets and Wong attended
the Special Meeting.
Code
of Ethics
We
have adopted a code of ethics applicable to all officers, employees and directors of the Company, including our principal executive
officer, principal financial officer, principal accounting officer and controller. Our code of ethics has been posted on our corporate
website: www.1347pih.com under the heading “Governance Documents.”
Board
Committees and Committee Member Independence
Our
Board of Directors has an Audit Committee, a Compensation and Management Resources Committee, and a Nominating and Corporate Governance
Committee. The composition of each committee as of December 31, 2019 is outlined in the table and footnotes below. Our Board of
Directors utilizes the Nasdaq rules and independence standards in determining whether its members are independent.
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Audit Committee
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Compensation and Management Resources
Committee(1)
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Nominating and Corporate Governance Committee(2)
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Dennis A. Wong
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C
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E. Gray Payne
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X
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C
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C
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Marsha G. King
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X
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Rita Hayes
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X
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Scott D. Wollney
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X
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X
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X
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C
– Indicates committee chair.
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(1)
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–
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Ms.
King was appointed to the Compensation and Management Resources Committee effective January 11, 2019, in connection with her
appointment to the Board of Directors on the same date.
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(2)
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–
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Ms.
Hayes was appointed to the Nominating and Corporate Governance Committee effective January 11, 2019, in connection with her
appointment to the Board of Directors on the same date.
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The
following is a summary of the respective responsibilities of the Audit Committee, Compensation and Management Resources Committee
and the Nominating and Corporate Governance Committee. The Board of Directors has approved and adopted a written charter for each
of the committees listed, copies of which are posted on the Company’s website at www.1347pih.com under the heading
“Governance Documents.”
Audit
Committee. The Audit Committee was appointed by the Board of Directors to assist the Board in fulfilling its oversight
responsibilities with respect to the integrity of the Company’s financial statements, the Company’s compliance with
legal and regulatory requirements, the external auditor’s qualifications, independence, and performance, and the performance
of the Company’s internal audit function. The Audit Committee’s primary duties and responsibilities are to:
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Oversee
the accounting and financial reporting processes of the Company and the audits of the financial statements of the Company.
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Identify
and monitor the management of the principal risks that could impact the financial reporting of the Company.
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●
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Monitor
the integrity of the Company’s financial reporting process and system of internal controls regarding financial reporting
and accounting appropriateness and compliance.
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●
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Recommend
the appointment of and monitor the independence and performance of the Company’s external auditors and the appointed
actuary.
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●
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Provide
an avenue of communication among the external auditors, the appointed actuary, management, and the Board.
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●
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Review
the annual audited and quarterly financial statements with management and the external auditors.
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The
Audit Committee is also responsible for discussing policies with respect to risk assessment and risk management, including regularly
reviewing the Company’s cybersecurity and other information technology risks, controls and procedures and the Company’s
plans to mitigate cybersecurity risks and respond to data breaches.
Audit
committee members must meet the independence requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), the independence requirements of the Nasdaq listing standards and all other applicable
rules and regulations. The Board of Directors has determined that Mr. Wong is the “audit committee financial expert”
as that term is defined in SEC regulations. Each member of the Audit Committee is independent and satisfies the applicable requirements
for Audit Committee membership under the Nasdaq rules. The Audit Committee held six meetings during the year ended December 31,
2019.
Compensation
and Management Resources Committee. The primary purpose of the Compensation and Management Resources Committee, or the
Compensation Committee, is to assist the Board of Directors in discharging its responsibilities with respect to the compensation
of the executive officers of the Company and its subsidiaries and to provide recommendations to the Board in connection with directors’
compensation. The Compensation Committee’s primary duties and responsibilities are to:
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Develop
guidelines for and determine the compensation and performance of the executive officers of the Company.
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Recommend
to the Board incentive and equity-based plans and administer such plans, oversee compliance with the requirements under the
Nasdaq listing standards that stockholders of the Company approve equity incentive plans (with limited exceptions), and approve
grants of equity and equity-based awards.
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●
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Review
recommendations from the Chief Executive Officer with respect to compensation for the other executive officers, including
benefits and perquisites, incentive-compensation plans and equity-based plans for recommendation to the Board.
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Oversee
risks relating to the Company’s compensation policies, practices and procedures.
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Review
and discuss with management the proxy disclosures regarding executive compensation required to be included in the Company’s
proxy statement and periodic reports with the SEC, each in accordance with applicable rules and regulations of the SEC and
other authority.
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Evaluate
the results of the stockholder advisory vote on executive compensation when held.
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Review
director compensation levels and practices, and recommend, from time to time, changes in such compensation levels and practices
to Board with equity ownership in the Company encouraged.
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The
Compensation Committee receives input and recommendations from the Company’s executive officers. Neither the Compensation
Committee nor management engaged a compensation consultant for compensation related to the fiscal year ended December 31, 2019.
Each Compensation Committee member is independent and satisfies the applicable requirements for Compensation Committee membership
under the Nasdaq rules. The Compensation Committee held five meetings during the year ended December 31, 2019.
Nominating
and Corporate Governance Committee. The purpose of the Nominating and Corporate Governance Committee, or the Nominating
Committee, is to:
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●
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Identify,
evaluate and recommend individuals qualified to become members of the Board of Directors, consistent with criteria approved
by the Board of Directors.
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●
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Select,
or recommend that the Board select, the director nominees to stand for election at each annual or special meeting of stockholders
of the Company in which directors will be elected or to fill vacancies on the Board.
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Develop
and recommend to the Board a set of corporate governance principles applicable to the Company.
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Oversee
the annual performance evaluation of the Board and its committees and management.
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Otherwise
take a leadership role in shaping and providing oversight of the corporate governance of the Company, including recommending
directors eligible to serve on all committees of the Board.
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Each
Nominating Committee member is independent and satisfies the applicable requirements for Nominating Committee membership under
the Nasdaq rules. The Nominating Committee held two meetings during the year ended December 31, 2019.
Although
the Nominating Committee has not formulated any specific minimum qualifications that the committee believes must be met by a director-nominee
that the committee recommends to the Board, the factors it will take into account will include judgement, skill, diversity, experiences
with businesses and other organizations of comparable size and scope, the interplay of the candidate’s experience with the
experience of other directors, and the extent to which the candidate would be a desirable addition to the Board of Directors and
any committees of the Board.
The
Nominating Committee will consider recommendations for directorships submitted by stockholders. Any such director nominee recommendations
must be addressed to the Secretary of the Company, 970 Lake Carillon Dr., Suite 314, St. Petersburg, Florida 33716, and include
appropriate biographical information concerning each proposed nominee. The secretary will forward recommendations to the Nominating
Committee and those candidates will be given the same consideration as all other candidates. Each recommendation should set forth
the candidate’s name, age, business address, business telephone number, residence address, and principal occupation or employment
as well the submitting stockholder’s name, address and telephone number and number of shares held. The committee may require
the recommended candidate to furnish additional information.
The
Board also has a Reinsurance and Risk Committee, an Investment Committee and a Legal Committee.
Information
About Our Executive Officers
Below
is biographical information for our executive officers. The age of each executive officer is reported as of December 31, 2019.
Douglas N. Raucy, our former Chief Executive Officer and a former director, resigned from the Company effective December 2, 2019,
in connection with the sale of our three insurance subsidiaries to FedNat. Mr. Raucy has entered into an employment agreement
with FedNat, also effective December 2, 2019. The Company’s Chief Executive Officer position currently remains vacant. On
March 23, 2020, the Board designated D. Kyle Cerminara, the Chairman of the Board, as the principal executive officer of the Company
for purposes of the Securities Exchange Act of 1934, as amended. The designation did not involve a change in Mr. Cerminara’s
title or duties, and he continues to serve as Chairman of the Board.
John
S. Hill, CPA, age 62, has served as our Executive Vice President since December 2019, and as our Chief Financial Officer
since July 2013. He also previously served as Vice President from July 2013 to December 2019. He was also appointed Secretary
of our company in March 2015. Prior to joining our company, Mr. Hill served as an Accounting Manager at AmeriLife Group, LLC,
a company involved in the distribution of annuity, life and health insurance products, from June 2013 to July 2013 and as the
founder and owner of his consulting business, Hill Consulting Services LLC from July 2009 to June 2013. From June 2010 to September
2011, Mr. Hill served as the Chief Financial Officer of Prepared Insurance Company and prior to that, he served as the Chief Financial
Officer, Controller and Treasurer of Travelers of Florida from May 1998 to June 2009. Mr. Hill also served as the Chief Financial
Officer of Carolina Casualty Insurance Company from 1989 to 1997. Mr. Hill served on the Board of Governors of the Florida Automobile
Joint Underwriting Association from 1999 through 2003. Mr. Hill’s executive experience includes his prior roles as a national
insurance audit instructor and peer review team member in KPMG’s insurance practice. He also holds the designation of certified
public accountant (inactive) and is a member of the American Institute of CPAs. Mr. Hill obtained a bachelor’s degree from
Iowa State University with a double major in economics and accounting.
Brian
D. Bottjer, CPA, age 45, has served as our Senior Vice President since December 2019, and as our Controller since September
2014. He also served as a member of the Board of Directors and Controller of our former subsidiary, Maison Insurance Company,
from June 2015 to December 2019. From January 2011 to December 2013, Mr. Bottjer served as Principal Financial Officer of Biovest
International, Inc. (“Biovest”), a biotechnology company focused on developing a cure for various types of cancer
of the immune system. Mr. Bottjer also served as Controller of Biovest from September 2006 through May 2014. Mr. Bottjer has also
served in various managerial and regulatory reporting roles for a number of other publicly traded companies in insurance, financial
services, and retail, including Stewart Title Guaranty Company, Allstate Insurance, Raymond James Financial, and the Home Shopping
Network. Mr. Bottjer is a certified public accountant licensed in the state of Florida, and obtained his bachelor of science degree
from the State University of New York at Buffalo.
Delinquent
Section 16(a) Reports
Under
Section 16(a) of the Exchange Act, our executive officers, directors, and persons who own greater than 10% of our common stock
(the “Section 16 Reporting Persons”) of the Company must file a Form 4 reporting the acquisition or disposition of
the Company’s equity securities with the SEC no later than the end of the second business day after the day the transaction
occurred unless certain exceptions apply. Transactions not reported on Form 4 must be reported on Form 5 within 45 days after
the end of the Company’s fiscal year. Such persons must also file initial reports of ownership on Form 3 upon becoming an
executive officer, director, or greater-than-10% stockholder. Based solely on our review of the copies of such reports and representations
that no other reports were required, we believe that all Section 16 filing requirements applicable to our Section 16 Reporting
Persons were timely complied with during 2019.
ITEM
11. EXECUTIVE COMPENSATION
Our
named executive officers for the fiscal year ended December 31, 2019 include John S. Hill, our Executive Vice President, Chief
Financial Officer and Secretary; Brian D. Bottjer, our Senior Vice President and Controller; and Douglas N. Raucy, our former
President and Chief Executive Officer.
With
respect to executive compensation, the Compensation and Management Resources Committee’s (the “Compensation Committee”)
primary goal is to retain and motivate highly skilled executives aligning their pay with the Company’s performance and stockholder
returns. Our compensation consists primarily of five components: (i) base salary, (ii) an annual cash bonus, (iii) equity-based
incentive awards, (iv) retirement benefits in the form of Company paid matching and profit sharing contributions to the Company’s
401(k) retirement plan, and (v) premiums paid by the Company on the behalf of our employees for health, dental, life and other
ancillary insurance coverage.
Summary
Compensation Table for 2018-2019
The
following table summarizes the compensation for our named executive officers for the years shown.
|
Name
and Principal Position
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)(2)
|
|
|
Stock
Awards
($)(3)
|
|
|
All
Other Compensation
($)(4)
|
|
|
Total
($)
|
|
|
John S. Hill
|
|
2019
|
|
|
|
250,000
|
|
|
|
187,500
|
|
|
|
–
|
|
|
|
30,183
|
|
|
|
467,683
|
|
|
Executive Vice President & Chief
Financial Officer
|
|
2018
|
|
|
|
233,333
|
|
|
|
68,000
|
|
|
|
7,000
|
|
|
|
28,352
|
|
|
|
336,685
|
|
|
Brian D. Bottjer
|
|
2019
|
|
|
|
184,291
|
|
|
|
175,000
|
|
|
|
–
|
|
|
|
36,590
|
|
|
|
395,881
|
|
|
Senior Vice President & Controller
|
|
2018
|
|
|
|
165,500
|
|
|
|
15,000
|
|
|
|
–
|
|
|
|
30,477
|
|
|
|
210,977
|
|
|
Douglas N. Raucy(1)
|
|
2019
|
|
|
|
298,819
|
|
|
|
162,500
|
|
|
|
–
|
|
|
|
36,269
|
|
|
|
497,588
|
|
|
Former President & Chief Executive
Officer
|
|
2018
|
|
|
|
318,333
|
|
|
|
100,000
|
|
|
|
–
|
|
|
|
34,371
|
|
|
|
452,704
|
|
|
(1)
|
Mr.
Raucy resigned from all positions held with the Company and its subsidiaries effective December 2, 2019 in connection with
the sale of the Company’s three insurance subsidiaries to FedNat.
|
|
(2)
|
Cash
bonuses for 2019 represent transaction bonuses approved by the Compensation Committee on December 1, 2019 and paid to Messrs.
Hill, Bottjer and Raucy in connection with the completion of the sale of the Company’s former insurance subsidiaries
to FedNat (as further described below) as well as $25,000 paid to Mr. Bottjer in January 2019, based on performance in 2018.
For 2018, payments represent bonuses approved by the Compensation Committee on August 22, 2018 of $43,000 to Mr. Hill, $15,000
to Mr. Bottjer, and $75,000 to Mr. Raucy, based on management’s recommendation and the employees’ performance,
as well as bonuses approved by the Compensation Committee on December 22, 2018 in the amount of $25,000 to Mr. Hill and $25,000
to Mr. Raucy, based on performance in 2018.
|
|
(3)
|
On
August 22, 2018, the Compensation Committee granted 1,000 share of the Company’s common stock (referred to as “bonus
shares”) and 1,000 RSUs (equal to the number of bonus shares) to Mr. Hill. These grants were made pursuant to the 1347
Property Insurance Holdings, Inc. 2018 Equity Incentive Plan and the terms and conditions of an Executive Stock Grant Agreement
and the Executive Restricted Share Unit Agreement for Share-Matching Grants. Each RSU represents a contingent right
to receive one share of the Company’s common stock. These RSUs vest in five equal annual installments beginning with
the first anniversary of the grant date, subject to continued employment, with vesting subject to Mr. Hill maintaining ownership
of the bonus shares through the full five-year vesting period. The aggregate grant date fair value for the RSUs has been presented
in the table above in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718. For
additional information relating to this equity award, including the assumptions made in valuing and expensing this award,
please see Note 2 – Significant Accounting Policies and Note 7 – Equity Incentive Plans in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2019.
|
|
(4)
|
All
other compensation represents premiums paid by the Company for medical, dental, life and other ancillary insurance benefits
provided to each of the named executive officers listed. We also paid for one private business membership for each of Messrs.
Hill, Bottjer and Raucy for 2019, and continue to provide this benefit to Mr. Hill, to encourage entertainment of business
colleagues and customers, interactions with others within professional, business and local communities, and holding business
meetings at a convenient offsite location.
|
Compensation
and Employment Actions Taken in Connection with the Asset Sale
Resignation
of Chief Executive Officer
On
December 2, 2019, in connection with the sale of the Company’s former insurance subsidiaries to FedNat (the “Asset
Sale”), and pursuant to the employment agreement entered into with FedNat and the resignation agreement described below,
Mr. Raucy, the Company’s then-serving President and Chief Executive Officer and a named executive officer, resigned from
all positions that he held with the Company as of the closing of the Asset Sale, including his position as a director of the Company.
The
resignation agreements entered into by Mr. Raucy with the Company provided for the accelerated vesting in full of 32,000 unvested
restricted stock units held by Mr. Raucy, upon the closing of the Asset Sale, with each restricted stock unit representing one
share of the Company’s common stock. The Compensation Committee of the Board had previously approved the accelerated vesting
of the restricted stock units. Pursuant to the resignation agreement, the Company also paid a transaction bonus in the amount
of $162,500 to Mr. Raucy, promptly following the closing of the Asset Sale.
Executive
Officer Appointments and Employment Agreements
On
December 2, 2019, the Company entered into employment agreements with Mr. Hill, then serving as Vice President, Chief Financial
Officer and Secretary of the Company, and Mr. Bottjer, then serving as Controller of the Company (each, the “Employment
Agreement” and collectively, the “Employment Agreements”). Effective December 2, 2019, the Board promoted Mr.
Hill to Executive Vice President, Chief Financial Officer and Secretary of the Company, and Mr. Bottjer to Senior Vice President
and Controller of the Company, effective immediately.
The
Employment Agreements provide for an annual base salary of $250,000 to Mr. Hill and $200,000 to Mr. Bottjer. Commencing with respect
to the Company’s 2019 fiscal year, each of Messrs. Hill and Bottjer will be eligible to receive an annual bonus, payable
in cash and/or through awards based on the equity in the Company, and subject to the achievement of the performance criteria,
as determined by the Compensation Committee. Pursuant to the Employment Agreements, on December 13, 2019, the Company also paid
Messrs. Hill and Bottjer, a transaction cash bonus of $187,500 and $150,000, respectively, which bonuses had been previously approved
by the Compensation Committee and were subject to the closing of the Asset Sale. Messrs. Hill and Bottjer are also eligible to
participate in the Company’s benefit programs available generally to executive employees of the Company.
In
the event Mr. Hill or Mr. Bottjer is terminated by the Company without cause, then the Company will pay Mr. Hill or Mr. Bottjer,
as applicable, an amount equal to 12 months of his base salary in effect at the time of the termination or the original base salary
set forth in the Employment Agreement, whichever is greater, payable by the Company over a 12-month period in accordance with
the Company’s normal payroll practices. If Mr. Hill or Mr. Bottjer is terminated for cause or voluntarily resigns, he will
not be entitled to any severance under the Employment Agreement. For purposes of their respective Employment Agreements, “cause”
will exist if Mr. Hill or Mr. Bottjer (i) acts dishonestly or engages in willful misconduct, (ii) breaches his fiduciary duties,
(iii) intentionally fails to perform duties assigned to him, (iv) is convicted or enters a plea of guilty or nolo contendere with
respect to any felony crime involving dishonesty or moral turpitude, and/or (v) breaches his obligations under the Employment
Agreement.
The
Employment Agreements contain customary non-competition and non-solicitation covenants.
Cash
Bonuses
As
discussed above under “Compensation and Employment Actions Taken in Connection with the Asset Sale,” the Company paid
the following the transaction bonuses in December 2019 in connection with the completion of the Asset Sale: Mr. Hill, $187,500;
Mr. Bottjer, $150,000; and Mr. Raucy, $162,500.
On
August 22, 2018, the Compensation Committee approved cash bonuses of $43,000 to Mr. Hill, $15,000 to Mr. Bottjer and $75,000 to
Mr. Raucy, based on management’s recommendation and the employees’ performance. On December 22, 2018, the Committee
approved cash bonuses of $25,000 each to Messrs. Hill, Bottjer, and Raucy, based on performance in 2018.
Stock
Awards
On
August 22, 2018, the Compensation Committee granted 1,000 share of the Company’s common stock (referred to as “bonus
shares”) and 1,000 RSUs (equal to the number of bonus shares) to Mr. Hill. These grants were made pursuant to the 1347
Property Insurance Holdings, Inc. 2018 Equity Incentive Plan and the terms and conditions of an Executive Stock Grant Agreement
and the Executive Restricted Share Unit Agreement for Share-Matching Grants. Each RSU represents a contingent right to
receive one share of the Company’s common stock. These RSUs vest in five equal annual installments beginning with the first
anniversary of the grant date, subject to continued employment, with vesting subject to Mr. Hill maintaining ownership of the
bonus shares through the full five-year vesting period.
2018
Equity Incentive Plan
The
Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”) at the Company’s 2018
annual meeting of stockholders held on May 31, 2018. The 2018 Plan replaced the Company’s Amended and Restated 2014 Equity
Incentive Plan, which had been approved by the stockholders in 2014 (the “2014 Plan”). No new awards will be granted
under the 2014 Plan.
The
objective of the 2018 Plan is to provide incentives to attract and retain key employees, non-employee directors and consultants
and align their interests with those of the Company’s stockholders. The 2018 Plan is administered by the Compensation Committee
and has a term of ten years. All non-employee directors of the Company and employees and consultants of the Company and its subsidiaries
designated by the Compensation Committee are eligible to participate in the 2018 Plan and to receive awards, including stock options
(which may be incentive stock options or nonqualified stock options), stock appreciation rights (SARs), restricted shares, restricted
share units and other share-based awards. All of the shares authorized for grant under the 2018 Plan may be issued pursuant to
incentive stock options.
The
maximum number of shares that may be issued or transferred with respect to awards under the 2018 Plan is 300,000 shares, subject
to adjustment in certain circumstances as described below. Shares issued under the 2018 Plan may include authorized but unissued
shares, treasury shares, shares purchased in the open market, or a combination of the foregoing.
Shares
underlying awards that are settled in cash or that terminate or are forfeited, cancelled, or surrendered without the issuance
of shares generally will again be available for issuance under the 2018 Plan. However, shares used to pay the exercise price of
stock options, shares repurchased by the Company with stock option proceeds, and shares used to pay withholding taxes upon exercise,
vesting or payment of an award, will not be added back to the share reserve under the 2018 Plan. In addition, when a SAR is exercised
and settled in shares, all of the shares underlying the SAR will be counted against the share limit of the 2018 Plan, regardless
of the number of shares used to settle the SAR.
Shares
subject to awards that are granted in assumption of, or in substitution or exchange for, outstanding awards previously granted
by an entity acquired directly or indirectly by the Company will not count against the share limit above, except as may be required
by the rules and regulations of any stock exchange or trading market. The 2018 Plan provides that the aggregate grant date fair
value of all awards granted to any single non-employee director during any single calendar year (determined as of the applicable
grant date(s) under applicable financial accounting rules), taken together with any cash fees paid to the non-employee director
during the same calendar year, may not exceed $200,000.
Outstanding
Equity Awards at 2019 Fiscal Year-End
The
following table shows the number of outstanding equity awards that are held by our named executive officers as of December 31,
2019. Mr. Raucy is not included in the table below, since, upon the closing of the Asset Sale, 32,000 unvested restricted stock
units (RSUs) held by Mr. Raucy vested in full, with each RSU representing one share of the Company’s common stock. All other
equity awards granted to Mr. Raucy were forfeited upon his resignation from all positions held with the Company and its subsidiaries,
effective December 2, 2019. Mr. Bottjer did not hold any equity awards as of December 31, 2019.
|
|
|
|
|
|
Option
Awards
|
|
|
Stock
Awards
|
|
|
Name
|
|
Grant
Date
|
|
|
Number
of securities underlying unexercised options (#) exercisable
|
|
|
Number
of securities underlying unexercised options (#) unexercisable
|
|
|
Option
Exercise Price ($)
|
|
|
Option
Expiration Date
|
|
|
Number
of shares or units of stock that have not vested (#)
|
|
|
Market
value of shares or units of stock that have not vested ($)
|
|
|
John S. Hill
|
|
|
05/29/2015
|
(1)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,000
|
|
|
|
22,080
|
|
|
|
|
|
12/15/2017
|
(2)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
19,200
|
|
|
|
105,984
|
|
|
|
|
|
08/22/2018
|
(3)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
800
|
|
|
|
4,416
|
|
|
(1)
|
Consists
of 4,000 RSUs granted to Mr. Hill on May 29, 2015. Each RSU granted entitles Mr. Hill to one share of the Company’s
common stock upon the vesting date of the RSU. The RSUs vest as follows: (i) 50% upon the date that the closing price of the
Company’s common stock equals or exceeds $10.00 per share; and (ii) 50% upon the date that the closing price of the
Company’s common stock equals or exceeds $12.00 per share. Prior to the vesting of the RSUs, Mr. Hill will not be entitled
to any dividends declared on the Company’s common stock. The RSUs do not expire; however, should Mr. Hill discontinue
employment with the Company for any reason other than death or disability, all unvested RSUs will be deemed forfeited on the
date employment is discontinued.
|
|
|
|
|
(2)
|
Consists
of 32,000 RSUs granted to Mr. Hill on December 15, 2017. Each RSU granted entitles Mr. Hill to one share of the Company’s
common stock upon the vesting date of the RSU. The RSUs vest 20% per year over five years following the date granted, subject
to continued employment through such vesting date. Prior to the vesting of the RSUs, Mr. Hill will not be entitled to any
dividends declared on the Company’s common stock. The RSUs do not expire; however, should Mr. Hill discontinue employment
with the Company for any reason other than death or disability, all unvested RSUs will be deemed forfeited on the date employment
is discontinued. The Board of Directors may, in its discretion, accelerate vesting in the event of early retirement.
|
|
|
|
|
(3)
|
The
stock award issued to Mr. Hill on August 22, 2018 represents 1,000 RSUs entitling Mr. Hill to one share of the Company’s
common stock for each RSU upon the vesting date of the RSU. The RSUs vest in five equal annual installments beginning with
the first anniversary of the grant date, subject to continued employment, with vesting subject to Mr. Hill maintaining ownership
of 1,000 shares of common stock of the Company issued to Mr. Hill in connection with the RSU grant through the full five-year
vesting period.
|
The
following table sets forth information concerning the vesting of stock awards for the Company’s named executive officers
during the last completed fiscal year, other than Mr. Bottjer who does not hold any stock awards. The Company’s named executive
officers did not exercise any option awards during the last completed fiscal year.
|
Name
|
|
#
of shares acquired upon vesting of stock awards (#)
|
|
|
Value
realized upon vesting of stock awards ($)
|
|
|
John S.
Hill(1)
|
|
|
6,600
|
|
|
|
32,570
|
|
|
Douglas N. Raucy(2)
|
|
|
32,000
|
|
|
|
147,520
|
|
|
(1)
|
Consists
of the vesting of 20%, or 6,400, shares of the 32,000 RSUs granted to Mr. Hill on December 15, 2017 as well as 20%, or 200
shares, of the 1,000 RSUs granted to Mr. Hill on August 22, 2018.
|
|
|
|
|
(2)
|
Upon
the closing of the Asset Sale, 32,000 unvested RSUs held by Mr. Raucy vested in full, with each restricted stock unit representing
one share of the Company’s common stock. The RSUs were originally granted to Mr. Raucy on December 15, 2017. The Compensation
Committee of the Board previously approved the accelerated vesting of the restricted stock units subject to the closing of
the Asset Sale.
|
2019
Expiration of Options
On
March 31, 2019, the following options expired pursuant to their terms: Mr. Raucy, 65,321 options; and Mr. Hill, 10,778 options.
On April 4, 2019, the following options expired pursuant to their terms: Mr. Raucy, 5,663 options and Mr. Hill, 935 options.
2019
Forfeiture of RSUs
On
December 2, 2019, in connection with the Asset Sale, 12,500 unvested RSUs held by Mr. Raucy that were originally granted to him
on May 29, 2015 were forfeited.
Potential
Payments Upon Termination or Change in Control
Employment
Agreements
The
Employment Agreements between the Company and each of Messrs. Hill and Bottjer provide for payments by the Company in connection
with a termination of employment. In the event Mr. Hill or Mr. Bottjer is terminated by the Company without cause, then the Company
will pay Mr. Hill or Mr. Bottjer, as applicable, an amount equal to 12 months of his base salary in effect at the time of the
termination or the original base salary set forth in the Employment Agreement, whichever is greater, payable by the Company over
a 12-month period in accordance with the Company’s normal payroll practices. If Mr. Hill or Mr. Bottjer is terminated for
cause or voluntarily resigns, he will not be entitled to any severance under the Employment Agreement. For purposes of their respective
Employment Agreements, “cause” will exist if Mr. Hill or Mr. Bottjer (i) acts dishonestly or engages in willful misconduct,
(ii) breaches his fiduciary duties, (iii) intentionally fails to perform duties assigned to him, (iv) is convicted or enters a
plea of guilty or nolo contendere with respect to any felony crime involving dishonesty or moral turpitude, and/or (v) breaches
his obligations under the Employment Agreement.
Equity
Incentive Plans
Both
the 2014 Plan and 2018 Plan contain certain provisions concerning the vesting and termination of equity awards granted under the
plans upon a termination of employment or upon a change in control. The Company’s award agreements entered into under each
plan also contain provisions concerning the vesting and termination of the RSUs granted thereunder.
2018
Equity Incentive Plan
The
2018 Plan generally provides for “double-trigger” vesting of equity awards in connection with a change in control
of the Company, as described below.
To
the extent that outstanding awards granted under the 2018 Plan are assumed in connection with a change in control, then, except
as otherwise provided in the applicable award agreement or in another written agreement with the participant, all outstanding
awards will continue to vest and become exercisable (as applicable) based on continued service during the remaining vesting period,
with performance-based awards being converted to service-based awards at the “target” level. Vesting and exercisability
(as applicable) of awards that are assumed in connection with a change in control generally would be accelerated in full on a
“double-trigger” basis, if, within two years after the change in control, the participant’s employment is involuntarily
terminated without “cause”, or by the participant for “good reason”. Any stock options or stock appreciation
rights (SARs) that become vested on a “double-trigger” basis generally would remain exercisable for the full duration
of the term of the applicable award.
To
the extent outstanding awards granted under the 2018 Plan are not assumed in connection with a change in control, then such awards
generally would become vested in full on a “single-trigger” basis, effective immediately prior to the change in control,
with performance-based awards becoming vested at the “target” level. Any stock options or SARs that become vested
on a “single-trigger” basis generally would remain exercisable for the full duration of the term of the applicable
award.
The
Compensation Committee has the discretion to determine whether or not any outstanding awards granted under the 2018 Plan will
be assumed by the resulting entity in connection with a change in control, and the Compensation Committee has the authority to
make appropriate adjustments in connection with the assumption of any awards. The Compensation Committee also has the right to
cancel any outstanding awards in connection with a change in control, in exchange for a payment in cash or other property (including
shares of the resulting entity) in an amount equal to the excess of the fair market value of the shares subject to the award over
any exercise price related to the award, including the right to cancel any “underwater” stock options and SARs without
payment therefor.
For
purposes of the 2018 Plan, a “change in control” generally includes (a) the acquisition of 50% or more of the company’s
common stock; (b) a reorganization, merger, consolidation or similar transaction, or a sale of substantially all of the Company’s
assets; or (c) the complete liquidation or dissolution of the Company. The full definition of “change in control”
is set out in the 2018 Plan.
Whether
a participant’s employment has been terminated for “cause” will be determined by the Company. Unless otherwise
provided in the applicable award agreement or in an another written agreement with the participant, “cause”, as a
reason for termination of a participant’s employment generally includes (a) an intentional act of fraud, embezzlement, theft
or any other illegal or unethical act in connection with the performance of the participant’s duties to the Company or a
subsidiary that the Company determines, acting in good faith, has materially injured or is highly likely to materially injure
the Company, or any other terminable offense under the Company’s policies and practices; (b) intentional damage to the Company’s
(or a subsidiary’s) assets; (c) conviction of (or plea of nolo contendere to) any felony or other crime involving moral
turpitude; (d) improper, willful and material disclosure or use of the Company’s (or a subsidiary’s) confidential
information or other willful material breach of the participant’s duty of loyalty to the Company or a subsidiary; (e) a
willful, material violation of the Company’s policies and procedures as set out in its employee handbook or a material violation
of the Company’s code of conduct that the Company determines, acting in good faith, has materially injured or is highly
likely to materially injure the Company, monetarily or otherwise; or (f) the participant’s willful failure or refusal to
follow the lawful and good faith directions of the Company or a subsidiary.
For
purposes of the 2018 Plan, unless otherwise provided in the applicable award agreement or in an another written agreement with
the participant, “good reason” generally includes (a) the assignment to the participant of any duties that are materially
inconsistent with the participant’s duties or responsibilities as assigned by the Company or a subsidiary, or any other
action by the Company or a subsidiary that results in a material diminution in of the participant’s duties or responsibilities,
unless remedied by the Company promptly after receipt of notice from the participant; or (b) any material failure by the Company
or a subsidiary to comply with its agreed obligations to the participant, other than an isolated, insubstantial and inadvertent
failure which is remedied by the Company promptly after receipt of notice from the participant.
The
award agreements entered into under the 2018 Plan also contain provisions concerning the vesting and termination of the awards
subject to the agreements. Except as described above with respect to a change in control, unexercisable stock options, unless
otherwise provided in the applicable award agreement, are generally forfeited automatically upon termination of employment prior
to a vesting date, unless (i) the Compensation Committee, in its discretion, provides for the full or partial acceleration of
vesting and exercisability of the option in connection with the termination, or (ii) the termination is due to the grantee’s
death or disability, in which case the unvested options will automatically become vested and exercisable upon termination. The
stock options that are exercisable at the time of termination of employment expire (a) twelve months after the termination of
employment by reason of death or disability or (b) three months after the termination of employment for other reasons. Upon the
termination of a grantee’s employment for cause (as defined under the 2018 Plan), all of the grantee’s vested and
unvested options automatically terminate. With respect to unvested restricted shares and RSUs, unless otherwise provided in the
applicable award agreement, unvested restricted shares and restricted share units that have not yet vested are generally forfeited
automatically in the event of the termination of the grantee’s employment for any reason prior to a vesting date, unless
(i) the Compensation Committee, in its sole discretion, provides for the full or partial acceleration of vesting of the restricted
shares or restricted share units, as applicable, in connection with the termination, or (ii) the termination is due to the grantee’s
death or disability, in which case the unvested restricted shares or restricted share units, as applicable, will automatically
become vested in full.
The
Compensation Committee has the discretion to determine the form, amount and timing of each award granted under the 2018 Plan and
all other terms and conditions of the award, including, without limitation, the form of the agreement evidencing the award. As
such, future awards granted under the 2018 Plan may be subject to additional terms providing for accelerated vesting, pay outs
or termination of the award upon a termination of employment or a change in control of the Company.
Amended
and Restated 2014 Equity Incentive Plan
Under
the 2014 Plan, upon a change in control of the Company, our Board of Directors (as constituted immediately prior to such change
in control) may, in its discretion, (i) require that shares of the Company resulting from such change in control, or a parent
corporation thereof, be substituted for some or all of the common shares subject to an outstanding award granted under the 2014
Plan, with an appropriate and equitable adjustment as shall be determined by the Board, and/or (ii) require outstanding awards
granted under the 2014 Plan, in whole or in part, to be surrendered to the Company by the holder, and to be immediately cancelled
by the Company, and to provide for the holder to receive: (1) a cash payment in an amount equal to the aggregate number of common
shares then subject to the portion of any stock option surrendered multiplied by the excess, if any, of the fair market value
(as defined under the 2014 Plan) of a common share as of the date of the change in control, over the exercise price per common
share subject to such stock option; (2) shares of capital stock of the corporation resulting from or succeeding to the business
of the Company pursuant to such change in control, or a parent corporation thereof, having a fair market value not less than the
amount determined under clause (1) above; or (3) a combination of the payment of cash pursuant to clause (1) above and the issuance
of shares pursuant to clause (2) above.
A
“change in control” under the 2014 Plan generally means (i) the acquisition by any individual, entity or group of
beneficial ownership of 50% or more of the then outstanding common shares or the combined voting power of the then outstanding
securities of the Company, with certain exceptions; (ii) the consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company, unless (A) the Company’s current beneficial
owners retain more than 50% of the Company’s outstanding shares and combined voting power following such transaction, (B)
no new individual entity or group will beneficially own 50% or more of the Company’s outstanding shares or combined voting
power following such transaction, or (C) current members of the Board will constitute at least a majority of the board following
such transaction; or (iii) the consummation of a plan of complete liquidation or dissolution of the Company.
The
Company has RSU awards outstanding that were issued under the 2014 Plan and no outstanding stock option awards. The Company’s
RSU agreements entered into with Mr. Hill and non-employee directors under the 2014 Plan generally provide that the RSUs granted
thereunder remain restricted until the applicable vesting date set forth in the agreement. In the event the grantee’s employment
with the Company or service on the Company’s board of directors, as applicable, is terminated due to the grantee’s
death or disability (as defined under the 2014 Plan) prior to one or more of the vesting dates, all unvested RSUs will vest as
of the date of death or the date the grantee is determined to be experiencing a disability. In addition, in the event the grantee’s
employment with the Company or service on the Company’s board of directors, as applicable, is terminated by the Company
or by the grantee for any reason other than death or disability (as defined under the 2014 Plan), all unvested RSUs granted under
the agreement will be forfeited as of the date of termination.
In
addition to the general provisions described above, the RSU agreements entered into by the Company in connection with the share
matching arrangements for Mr. Hill and the Company’s non-employee directors (other than Mr. Wollney) on December 15, 2017
contain special acceleration and termination provisions. Specifically, the agreement for Mr. Hill provides that the vesting of
the RSUs thereunder is subject to the continued employment of Mr. Hill through the applicable vesting date, with the ability of
the board, in its discretion, to accelerate vesting in the event of Mr. Hill’s early retirement, and provided that Mr. Hill
maintains ownership of the shares purchased through the full five-year vesting period. The agreements for the non-employee directors
provide that the vesting of the RSUs granted thereunder is subject to the director’s continued service on the board through
the applicable vesting date, provided that if a director makes himself available and consents to be nominated by the Company for
continued service but is not nominated by the Board for election by the stockholders, other than for good reason as determined
by the Board in its discretion, then such director’s RSUs will vest in full as of his last date of service as a director
with the Company.
Impact
of the Asset Sale
The
Asset Sale with FedNat generally did not constitute a change in control under the 2014 Plan or the 2018 Plan or the award agreements
entered into thereunder; however, the Compensation Committee had the discretion to accelerate the vesting of outstanding equity
awards for those employees who left employment with the Company or one of its subsidiaries in connection with the Asset Sale.
Mr. Raucy, the Company’s then-serving President and Chief Executive Officer and a director as well as a named executive
officer for 2019, resigned from all positions he held with the Company and its subsidiaries on December 2, 2019 in connection
with the Asset Sale. In connection with his resignation, the Compensation Committee approved the accelerated vesting of RSUs granted
by the Company to Mr. Raucy on December 15, 2017. Accordingly, on December 2, 2019, upon the closing of the Asset Sale, 32,000
unvested RSUs held by Mr. Raucy vested in full, with each RSU representing one share of the Company’s common stock. In addition,
12,500 unvested RSU held by Mr. Raucy, that were originally granted to him on May 29, 2015, were forfeited.
Pursuant
to his resignation agreement entered into with the Company, the Company paid Mr. Raucy a transaction bonus in the amount of $162,500
promptly following the closing of the Asset Sale.
For
more information, see “Compensation and Employment Actions Taken in Connection with the Asset Sale.”
Director
Compensation
Under
our director compensation program, we provide compensation to our non-employee directors. Directors who are employees of the Company
do not receive compensation for their service as directors. The current director compensation program was adopted on August 22,
2018 (effective as of September 1, 2018) to remain competitive in attracting and retaining qualified board members and to better
align director compensation to other public companies of comparable size to the Company. The terms of the program are as follows:
|
|
●
|
Each
non-employee director receives an annual cash retainer of $50,000, paid in quarterly installments.
|
|
|
●
|
Both
the Chairman and Co-Chairman of the Board receive an additional annual cash retainer of $75,000 each, paid in quarterly installments.
|
|
|
●
|
The
Chairman of the Audit Committee receives an additional cash retainer of $15,000, paid in quarterly installments.
|
|
|
●
|
The
Chairman of the Compensation Committee as well as the Chairman of the Nominating and Corporate Governance Committee each receive
an additional cash retainer of $5,000, paid in quarterly installments.
|
|
|
●
|
Each
of the members of the Audit, Compensation, and Nominating and Corporate Governance Committees (excluding the Chairman of each
of those committees), each receive an additional annual cash retainer of $2,000, paid in quarterly installments.
|
|
|
●
|
Each
non-employee director will receive an annual grant of RSUs with a value of $40,000.
|
|
|
●
|
Each
non-employee director will receive reimbursement of reasonable out-of-pocket expenses for attending board and committee meetings.
|
Additionally,
on May 14, 2019, the Board appointed Mr. Swets as chairman of the Reinsurance and Risk Committee. As chairman, he receives an
annual retainer of $75,000, in addition to the compensation that he receives as a director of the Company and/or member of other
committees of the Board.
RSUs
granted to our directors vest in five equal annual installments, beginning with the first anniversary of the grant date, provided
that, if the director makes him or herself available and consents to be nominated by the Company for continued service as a director
of the Company, but is not nominated by the Board for election by stockholders, other than for good reason as determined by the
Board in its discretion, then the next 20% tranche of RSUs shall vest as of the director’s last date of service as a director
of the Company.
The
Company’s 2018 Equity Incentive Plan provides that the aggregate grant date fair value of all awards granted to any single
non-employee director during any single calendar year (determined as of the applicable grant date(s) under applicable financial
accounting rules), taken together with any cash fees paid to the non-employee director during the same calendar year, may not
exceed $200,000.
Prior
to September 1, 2018, the effective date of the current director compensation plan, non-employee directors were compensated with
cash payments that included an annual fee of $50,000 paid in four equal quarterly installments, to each member of the Board serving
at each payment date, as well as an additional $25,000 paid to the Chairman of the Board and an additional $15,000 paid to the
Chairman of the Audit Committee.
The
following table sets forth information with respect to compensation earned by each of our non-employee directors for the year
ended December 31, 2019. Mr. Raucy, who served as a director until December 2, 2019, did not receive any compensation for his
service as a director during 2019 as he concurrently served as President and Chief Executive Officer of the Company. Ms. Hayes’
and Ms. King’s compensation for 2019 reflects their pro-rata share of the annual compensation awarded to our directors as
they were appointed to our Board on January 11, 2019.
|
Non-Employee Director
|
|
Fees Earned or Paid in Cash(3)
($)
|
|
|
Stock
Awards(4)
($)
|
|
|
Total ($)
|
|
|
D. Kyle Cerminara
|
|
|
125,000
|
|
|
|
40,000
|
|
|
|
165,000
|
|
|
Rita Hayes(1)
|
|
|
50,556
|
|
|
|
66,661
|
|
|
|
117,217
|
|
|
Lewis M. Johnson
|
|
|
125,000
|
|
|
|
40,000
|
|
|
|
165,000
|
|
|
Marsha G. King(1)
|
|
|
50,556
|
|
|
|
66,661
|
|
|
|
117,217
|
|
|
E. Gray Payne
|
|
|
62,000
|
|
|
|
40,000
|
|
|
|
102,000
|
|
|
Larry G. Swets, Jr.(2)
|
|
|
106,250
|
|
|
|
40,000
|
|
|
|
146,250
|
|
|
Scott D. Wollney
|
|
|
56,000
|
|
|
|
40,000
|
|
|
|
96,000
|
|
|
Dennis A. Wong
|
|
|
65,000
|
|
|
|
40,000
|
|
|
|
105,000
|
|
|
(1)
|
Mses.
Hayes and King were appointed to our Board on January 11, 2019. Cash fees represent their pro-rata share of the annual cash
retainer of $50,000 payable to each non-employee director as well as their pro-rata share of $2,000 payable to Ms. Hayes for
her service on the Nominating and Corporate Governance Committee, and $2,000 payable to Ms. King for her service on the Compensation
Committee. Stock awards are comprised of a grant of 5,397 RSUs issued to each of Mses. Hayes and King on January 11, 2019,
representing their pro-rata share of the annual grant of RSUs with a value of $40,000 covering the period beginning August
2018 and ending August 2019, as well as a grant 7,722 RSUs issued to each of Mses. Hayes and King on August 13, 2019 covering
the period beginning August 2019 and ending August 2020.
|
|
|
|
|
(2)
|
Mr.
Swets was appointed as chairman of the Reinsurance and Risk Committee on May 14, 2019. His cash fees include his pro-rata
share of the $75,000 annual retainer paid to the chairman of the committee, in addition to the $50,000 annual cash retainer
payable to each non-employee director.
|
|
|
|
|
(3)
|
In
addition to their compensation, directors are reimbursed for travel and other reasonable out-of-pocket expenses related to
their attendance at Board or committee meetings, or for other travel on behalf of the Company. These expenses have not been
included in the table above.
|
|
(4)
|
Stock
awards represent the aggregate grant date fair value of 7,722 RSUs granted to each non-employee director on August 13, 2019
as well as the aggregate grant date fair value of 5,397 RSUs granted to each of Mses. Hayes and King on January 11, 2019.
The aggregate grant date fair value for the RSUs has been presented in the table above in accordance with Financial Accounting
Standards Board Accounting Standards Codification Topic 718. For additional information relating to the assumptions made in
valuing and expensing these awards, please see Note 2 – Significant Accounting Policies and Note 7 – Equity Incentive
Plans in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The RSUs were valued
using the closing price of the Company’s common shares on the Nasdaq on each grant date. The RSUs vest in five equal
annual installments, beginning one year from the date of grant, provided that, if the director makes themselves available
and consents to be nominated by the Company for continued service as a director of the Company, but is not nominated by the
Board for election by stockholders, other than for good reason as determined by the Board in its discretion, then the next
20% tranche of RSUs shall vest as of the director’s last date of service as a director of the Company.
|
The
aggregate number of stock and option awards outstanding for each director as of December 31, 2019 was as follows:
|
|
●
|
Mr.
Cerminara – 16,294 RSUs.
|
|
|
●
|
Ambassador
Hayes – 13,119 RSUs.
|
|
|
●
|
Mr.
Johnson – 16,294 RSUs.
|
|
|
●
|
Ms.
King – 13,119 RSUs.
|
|
|
●
|
General
Payne – 12,294 RSUs.
|
|
|
●
|
Mr.
Swets – 16,294 RSUs.
|
|
|
●
|
Mr.
Wollney – 12,294 RSUs.
|
|
|
●
|
Mr.
Wong – 16,294 RSUs.
|
2019
Appointment of New Directors and Grants of Restricted Stock Units
On
January 11, 2019, the Board appointed Mses. Hayes and King as directors, effective immediately. Pursuant to the director compensation
program, Ms. Hayes and Ms. King were each granted 5,397 RSUs with a value of $26,661 on January 11, 2019. The RSUs vest in five
equal annual installments, subject to the director’s continued service on the board, beginning with the first anniversary
of the grant date.
On
August 13, 2019, the Compensation Committee granted 7,722 RSUs with a value of $40,000 to each of the Company’s eight non-employee
directors, representing the annual grant of RSUs for the 2019 fiscal year under the director compensation program. The RSUs vest
in five equal annual installments, subject to the director’s continued service on the Board, beginning with the first anniversary
of the grant date.
The
award agreements for each of the RSU grants made during 2019 discussed above also provide that if a director makes herself or
himself available and consents to be nominated by the Company for continued service as a director of the Company, but is not nominated
by the Board for election by stockholders, other than for good reason as determined by the Board in its discretion, then the next
20% tranche of RSUs shall vest as of the director’s last date of service as a director of the Company.
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The
following table sets forth certain information regarding the beneficial ownership of shares of our common stock as of April 20,
2020, by:
|
|
●
|
Each
person (or group of affiliated persons) known by us to beneficially own more than 5% of our common stock;
|
|
|
●
|
Each
of our current directors and named executive officers; and
|
|
|
●
|
All
of our current directors and executive officers as a group.
|
The
number and percentages of shares beneficially owned are based on 6,068,106 common shares outstanding as of April 20, 2020. Information
with respect to beneficial ownership has been furnished by each director, named executive officer (which includes all of our executive
officers) and beneficial owner of more than 5% of our common stock. Beneficial ownership is determined in accordance with the
rules of the SEC and generally requires that such persons have voting or investment power with respect to the securities. In computing
the number of shares beneficially owned by a person listed below and the percentage ownership of such person, shares of common
stock underlying warrants and RSUs held by each such person that are exercisable or vest within 60 days of April 20, 2020 are
deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person. Except as otherwise
noted below, and subject to applicable community property laws, the persons named have sole voting and investment power with respect
to all shares of common stock shown as beneficially owned by them. Except as otherwise indicated below, the address for each beneficial
owner is 1347 Property Insurance Holdings, Inc., 970 Lake Carillion Drive, Suite 314, St. Petersburg, Florida 33716.
|
|
|
Beneficially
Owned
|
|
|
Name
and Address of Beneficial Owner
|
|
Number
of
Shares
|
|
|
Percentage
of
Shares
|
|
|
5% Beneficial Owners
|
|
|
|
|
|
|
|
|
|
Fundamental
Global Investors, LLC(1)
4201
Congress Street, Suite 140, Charlotte, NC 28209
|
|
|
2,984,786
|
|
|
|
49.2
|
%
|
|
Kingsway
Financial Services, Inc.(2)
150
Pierce Road, Itasca, IL 60143
|
|
|
1,500,000
|
|
|
|
19.8
|
%
|
|
Hale
Partnership Capital Management, LLC(3)
2924
Archdale Drive, Charlotte, NC 28210
|
|
|
1,044,950
|
|
|
|
17.2
|
%
|
|
Solas
Capital Management, LLC(4)
1063
Post Road, 2nd Floor, Darien, CT 06820
|
|
|
444,108
|
|
|
|
7.3
|
%
|
|
Named Executive Officers
and Directors
|
|
|
|
|
|
|
|
|
|
John S. Hill, Executive
Vice President and Chief Financial Officer(5)
|
|
|
30,500
|
|
|
|
*
|
|
|
Brian D. Bottjer, Senior Vice President
and Controller
|
|
|
–
|
|
|
|
–
|
|
|
D. Kyle Cerminara,
Chairman of the Board(1)(6)
|
|
|
2,991,927
|
|
|
|
49.3
|
%
|
|
Lewis M. Johnson, Co-Chairman
of the Board(1)(6)
|
|
|
2,991,927
|
|
|
|
49.3
|
%
|
|
Rita Hayes, Director(6)(7)
|
|
|
1,079
|
|
|
|
*
|
|
|
Marsha G. King, Director(6)
|
|
|
2,079
|
|
|
|
*
|
|
|
E. Gray Payne, Director(6)
|
|
|
1,142
|
|
|
|
*
|
|
|
Larry G. Swets, Jr.,
Director(6)
|
|
|
7,158
|
|
|
|
*
|
|
|
Scott D. Wollney, Director(6)
|
|
|
4,142
|
|
|
|
*
|
|
|
Dennis A. Wong, Director(6)
|
|
|
7,308
|
|
|
|
*
|
|
|
Douglas N. Raucy, Former
President and Chief Executive Officer(8)
|
|
|
15,873
|
|
|
|
*
|
|
|
Current Executive Officers
and Directors as a Group (10 individuals)(9)
|
|
|
3,052,476
|
|
|
|
50.3
|
%
|
|
*
|
Denotes
less than 1.0%
|
|
|
|
|
(1)
|
Fundamental
Global Investors, LLC shares voting and dispositive power with respect to 2,984,786 shares of common stock (including 100,000
shares of common stock subject to a call option). Fundamental Activist Fund I, LP (“FAFI”) shares voting
and dispositive power with respect to 838,199 shares of common stock (including 50,000 shares of common stock subject to a
call option). FGI 1347 Holdings, LP (“FGIH”), of which BK Technologies, Inc., a wholly-owned subsidiary
of BK Technologies Corporation (“BKTI”), is the sole limited partner, shares voting and dispositive power
with respect to 477,282 shares of common stock. Mr. Cerminara is Chairman of the Board of Directors of BKTI and Mr. Johnson
is the Co-Chairman of the Board of Directors of BKTI. Fundamental Global Partners Master Fund, LP (“FGPM”)
shares voting and dispositive power with respect to 621,068 shares of common stock (including 50,000 shares of common stock
subject to a call option). FGI Global Asset Allocation Fund, Ltd. (“FGAA”) shares voting and dispositive
power with respect to 5,296 shares of common stock. FGI Global Asset Allocation Master Fund, LP (“FGGM”)
shares voting and dispositive power with respect to 4,532 shares of common stock. Ballantyne Strong, Inc. (“BTN”)
shares voting and dispositive power with respect to 1,038,409 shares of common stock. Mr. Cerminara is Chairman of the Board
of Directors of BTN and Mr. Johnson is Co-Chairman of the Board of Directors of BTN. The call option reported as beneficially
owned by Fundamental Global Investors, LLC represents a call option to acquire from Fund Management Group LLC an additional
100,000 shares of common stock, for a purchase price of $6.00 per share, at any time during the two-year period beginning
on April 16, 2020, ending at 5:00 p.m. Eastern time on April 16, 2022. Information regarding beneficial ownership of our common
stock by Fundamental Global Investors, LLC and its affiliates is included herein in reliance on a Schedule 13D/A and Form
4 both filed with the SEC on April 20, 2020. In addition, CWA Asset Management Group, LLC (“CWA”), of which
50% is owned by Fundamental Global Investors, LLC, holds 64,710 shares of common stock for the accounts of individual investors
(excluding shares held in accounts for Messrs. Cerminara and Johnson), which represents approximately 1.1% of the Company’s
outstanding shares of common stock. CWA has the power to direct the disposition of the shares of common stock held in its
customer accounts while CWA’s customers retain the power to direct the voting of the shares of common stock held in
their respective accounts. Due to their positions with Fundamental Global Investors, LLC and affiliated entities, D. Kyle
Cerminara, Lewis M. Johnson and Joseph H. Moglia may be deemed to be beneficial owners of the shares of the Company’s
common stock disclosed as directly owned by FAFI, FGIH, FGPM, FGAA and FGGM. Due to their positions with BTN, Fundamental
Global Investors, LLC and affiliated entities, Messrs. Cerminara and Johnson may be deemed to be beneficial owners of the
shares of the Company’s common stock disclosed as directly owned by BTN. Due to their positions as managers of CWA,
Messrs. Cerminara and Johnson may be deemed to beneficially own the number of shares of common stock held in CWA’s customer
accounts and disclosed as beneficially owned by CWA. The beneficial interests of Messrs. Cerminara and Johnson do not include
4,000 shares potentially issuable to each of Messrs. Cerminara and Johnson pursuant to RSUs granted on December 15, 2017,
4,572 shares potentially issuable to each of Messrs. Cerminara and Johnson pursuant to RSUs granted on August 22, 2018 and
7,722 shares potentially issuable to each of Messrs. Cerminara and Johnson pursuant to RSUs granted on August 13, 2019. In
addition to the shares of common stock reported as owned in this footnote 1, FGPM directly owns an aggregate of 34,620 shares
of the Company’s 8.00% Cumulative Preferred Stock, Series A, $25.00 par value per share (the “Preferred Stock”),
which represents approximately 4.9% of the Company’s outstanding shares of Preferred Stock. In addition, CWA owns 33,519
shares of the Series A Preferred Stock for customer accounts, including 44 shares of Series A Preferred Stock held by Mr.
Cerminara in a joint account with his spouse. The business addresses for Mr. Cerminara are c/o Fundamental Global Investors,
LLC, 4201 Congress Street, Suite 140, Charlotte, North Carolina 28209 and 131 Plantation Ridge Dr., Suite 100, Mooresville,
North Carolina 28117. The business addresses for Mr. Johnson are c/o CWA Asset Management Group, LLC, 9130 Galleria Court,
Third Floor, Naples, Florida 34109 and c/o Fundamental Global Investors, LLC, 4201 Congress Street, Suite 140, Charlotte,
North Carolina 28209.
|
|
(2)
|
Kingsway
America Inc., an affiliate of Kingsway Financial Services, Inc., or KFSI, beneficially owns warrants exercisable within 60
days of April 16, 2020 to purchase 1,500,000 shares of common stock. The warrants have an exercise price of $15.00 per share
and expire on February 24, 2022. KFSI shares voting and dispositive power with respect to all 1,500,000 shares of common stock
underlying the warrants. Information regarding beneficial ownership of our common stock by KFSI and its affiliates is included
herein based on internal information and in reliance on a Schedule 13D/A filed with the SEC on March 20, 2018.
|
|
|
|
|
(3)
|
Hale
Partnership Capital Management, LLC (“Hale Advisor”) shares voting and dispositive power with respect to 1,044,950
shares of common stock. Hale Partnership Capital Advisors, LLC (“Hale GP”) shares voting and dispositive power
with respect to 623,322 shares of common stock. Hale Partnership Fund, L.P. (“Hale Fund I”) shares voting and
dispositive power with respect to 500,629 shares of common stock. MGEN II – Hale Fund, L.P. (“Hale Fund II”)
shares voting and dispositive power with respect to 30,558 shares of common stock. Clark – Hale Fund, L.P. (“Hale
Fund III”) shares voting and dispositive power with respect to 90,135 shares of common stock. Smith – Hale Fund,
L.P. (“Hale Fund IV” and, together with Hale Fund I, Hale Fund II and Hale Fund III, the “Hale Funds”)
shares voting and dispositive power with respect to 2,000 shares of common stock. Hale Advisor, as the investment manager
for each of the Hale Funds, Hale GP, as the general partner for each of the Hale Funds, and Steven A. Hale II, as the sole
manager of Hale Advisor and Hale GP, may be deemed to have the shared power to direct the voting and disposition of shares
of common stock beneficially owned by the Hale Funds and, consequently, Hale Advisor, Hale GP and Mr. Hale may be deemed to
possess indirect beneficial ownership of such shares. Information regarding beneficial ownership of our common stock by Hale
Advisor and its affiliates is included herein in reliance on a Schedule 13D/A filed with the SEC on April 9, 2020.
|
|
|
|
|
(4)
|
Solas
Capital Management, LLC and Frederick Tucker Golden, its managing member, share voting and dispositive power with respect
to 444,108 shares of common stock. Information regarding beneficial ownership of our common stock by Solas Capital Management,
LLC and its affiliates is included herein in reliance on a Schedule 13G/A filed with the SEC on February 14, 2020.
|
|
|
|
|
(5)
|
The
beneficial ownership of Mr. Hill does not include (i) 4,000 shares potentially issuable to Mr. Hill pursuant to RSUs granted
on May 29, 2015, (ii) 19,200 shares potentially issuable to Mr. Hill pursuant to RSUs granted on December 15, 2017, and (iii)
800 shares potentially issuable to Mr. Hill pursuant to RSUs granted on August 22, 2018. In addition to the shares of common
stock reported as owned in this footnote 5, Mr. Hill owns, through his IRA account, an aggregate of 100 shares of the Company’s
Preferred Stock, which represents less than 1.0% of the Company’s outstanding shares of Preferred Stock.
|
|
|
|
|
(6)
|
The
beneficial ownership of Messrs. Cerminara, Johnson, Wong and Swets does not include 4,000 shares potentially issuable to each
of them pursuant to RSUs granted on December 15, 2017. The beneficial ownership of Messrs. Cerminara, Johnson, Wong, Swets,
Wollney and General Payne does not include 4,572 shares potentially issuable to each of them pursuant to RSUs granted on August
22, 2018. The beneficial ownership of Mses. Hayes and King does not include 4,318 shares potentially issuable to each of them
pursuant to RSUs granted on January 11, 2019. The beneficial ownership of Messrs. Cerminara, Johnson, Swets, Wollney, Wong,
General Payne and Mses. Hayes and King does not include 7,722 shares potentially issuable to each of them pursuant to RSUs
granted on August 13, 2019.
|
|
(7)
|
Includes
1,000 shares of common stock held by Ms. King in a joint account with her spouse. In addition, Ms. King holds 800 shares of
Series A Preferred Stock in a joint account with her spouse.
|
|
|
|
|
(8)
|
Douglas
N. Raucy, a named executive officer, resigned from all positions with the Company and its subsidiaries effective December
2, 2019 in connection with the Company’s sale of its former insurance subsidiaries to FedNat. The shares reported are
based on our records as of April 20, 2020 which reflect the accelerated vesting of 32,000 RSUs held by Mr. Raucy in connection
with the FedNat transaction as well as transactions made by Mr. Raucy for the sale of our common stock which occurred between
March 23, 2020 and April 20, 2020. Information regarding the sale transactions of our common stock is included herein in reliance
upon information reported to us by Mr. Raucy.
|
|
|
|
|
(9)
|
Includes
2,984,786 shares reported as beneficially owned by Fundamental Global Investors, LLC,
of which Messrs. Cerminara and Johnson are deemed to have beneficial ownership by virtue
of their respective positions with Fundamental Global Investors, LLC.
Does
not include (i) 4,000 shares potentially issuable to Mr. Hill pursuant to RSUs granted on May 29, 2015, (ii) 19,200 shares
potentially issuable to Mr. Hill pursuant to RSUs granted on December 15, 2017, (iii) 4,000 shares potentially issuable
to each of Messrs. Cerminara, Johnson, Wong and Swets pursuant to RSUs granted on December 15, 2017, (iv) 4,572 shares
potentially issuable to each of Messrs. Cerminara, Johnson, Wong, Swets, Wollney and General Payne pursuant to RSUs granted
on August 22, 2018, (v) 4,318 shares potentially issuable to Mses. Hayes and King pursuant to RSUs granted on January
11, 2019, and (vi) 7,722 shares potentially issuable to each of Messrs. Cerminara, Johnson, Swets, Wollney, Wong, General
Payne and Mses. Hayes and King pursuant to RSUs granted on August 13, 2019.
Includes
1,000 shares of common stock held by Ms. King in a joint account with her spouse.
|
Equity
Compensation Plans
The
following table provides information as of December 31, 2019 with respect to the Company’s 2018 Equity Incentive Plan, under
which the Company’s common stock is authorized for issuance, and the 2014 Amended and Restated Equity Incentive Plan.
|
Plan Category
|
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights(1)
|
|
|
Weighted-average exercise price of outstanding options, warrants and rights
|
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(2)
|
|
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
Equity compensation plans approved by security holders
|
|
|
140,002
|
|
|
$
|
–
|
|
|
|
192,146
|
|
|
Equity compensation plans not approved by security holders
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Total
|
|
|
140,002
|
|
|
$
|
–
|
|
|
|
192,146
|
|
|
(1)
|
Includes
39,200 common shares to be issued upon vesting of restricted stock units issued under our 2014 Equity Incentive Plan and 100,802
common shares to be issued upon vesting of restricted stock units issued under our 2018 Equity Incentive Plan.
|
|
(2)
|
Represents
shares available for future issuance under the 2018 Plan.
|
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
It
is the responsibility of the Audit Committee to review and oversee proposed transactions or courses of dealings with respect to
which executive officers or directors or members of their immediate families have an interest (including all transactions required
to be disclosed pursuant to the SEC’s related person disclosure requirements). In carrying out this responsibility, the
Audit Committee will annually review a summary of directors’ and officers’ related party transactions and potential
conflicts of interest. Below is a summary of our related party transactions for the fiscal years ended December 31, 2019 and 2018.
Transactions
with Kingsway and its Affiliates
Prior
to our initial public offering on March 31, 2014, the Company was a wholly-owned subsidiary of Kingsway America Inc. (“KAI”),
which is a wholly-owned subsidiary of Kingsway Financial Services Inc. (“KFSI”), a publicly owned Delaware holding
company. As of December 31, 2019, KFSI and its affiliates beneficially owned warrants exercisable to acquire approximately 20.0%
of our outstanding shares of common stock. Larry G. Swets, Jr., a member of our Board of Directors, previously held the positions
of Director and Chief Executive Officer of KFSI.
Stock
Purchase Agreement
On
January 2, 2018, we entered into a Stock Purchase Agreement with 1347 Advisors LLC (“1347 Advisors”) and IWS Acquisition
Corporation (“IWS”), affiliates of KFSI, pursuant to which we repurchased 60,000 shares of our Series B preferred
stock (the “Series B Preferred Stock”) from 1347 Advisors for an aggregate purchase price of $1,740,000, representing
(i) $1,500,000, comprised of $25 per share of Series B Preferred Stock, and (ii) declared and unpaid dividends in respect of the
dividend payment due on February 23, 2018 amounting to $240,000 in the aggregate. Pursuant to the Stock Purchase Agreement, we
also agreed to repurchase 60,000 shares of Series B Preferred Stock from IWS for an aggregate purchase price of $1,500,000, comprised
of $25 per share of Series B Preferred Stock, without any dividend or interest payment, upon the completion of a capital raise
resulting in the Company receiving net proceeds in excess of $5,000,000. On February 28, 2018, we completed the purchase of the
60,000 shares of Series B Preferred Stock from IWS using the proceeds from the underwritten public offering of shares of our 8.00%
Cumulative Preferred Stock, Series A.
In
connection with the Stock Purchase Agreement, the Performance Shares Grant Agreement, dated February 24, 2015, between the Company
and 1347 Advisors (the “2015 PSGA”) was terminated. Under the 2015 PSGA, 1347 Advisors was entitled to receive 100,000
shares of our common stock from us if at any time the last sales price of our common stock equaled or exceeded $10.00 per share
for any 20 trading days within any 30-trading day period. As certain events specified in the 2015 PSGA were never achieved, we
did not issue any shares of common stock to 1347 Advisors under the 2015 PSGA. We paid $300,000 to 1347 Advisors in consideration
of its agreement to voluntarily terminate the 2015 PSGA.
The
foregoing transactions were approved by a special committee of the Board of Directors of the Company consisting solely of independent
directors. Mr. Swets served as Chief Executive Officer and as a director of KFSI at the time we entered into the Stock Purchase
Agreement and terminated the 2015 PSGA.
Termination
of 2014 Performance Share Grant Agreement
On
July 24, 2018, we entered into a Termination Agreement with KAI pursuant to which KAI agreed to terminate the Performance Share
Grant Agreement, dated March 26, 2014, between us and KAI (the “2014 PSGA”) in exchange for a payment of $1,000,000
from the Company. As a result of the Termination Agreement, KAI has no further rights to any of the performance share grants contemplated
by the 2014 PSGA. Under the 2014 PSGA, KAI was entitled to receive up to an aggregate of 375,000 shares of our common stock upon
achievement of certain milestones regarding our stock price. The Company did not issue any shares under the 2014 PSGA while the
2014 PSGA was outstanding. The Termination Agreement was approved by a special committee of the Board of Directors of the Company
consisting solely of independent directors. Mr. Swets served as Chief Executive Officer and as a director of KFSI on the date
the Company entered into the Termination Agreement.
Trademark
License Agreement
We
are party to a Trademark License Agreement with 1347 Advisors, dated as of February 28, 2014, whereby 1347 Advisors granted us
a limited personal, non-exclusive, royalty-free right and license to use the trade name “1347” in our corporate name
and corporate logo. The agreement may be terminated by either party upon providing sixty days’ written notice to the other
party. The agreement also expires upon the liquidation or dissolution of the Company.
Investment
in Argo Management Group LLC
On
April 21, 2016, KFSI completed the acquisition of Argo Management Group LLC, or Argo. Argo’s primary business is to act
as the managing member of Argo Holdings Fund I, LLC, an investment fund in which the Company has committed to invest $500,000.
As of December 31, 2019, the Company has invested $341,000 into the investment fund. The managing member of Argo, Mr. John T.
Fitzgerald, was appointed as President and Chief Executive Officer of KFSI on September 5, 2018 and has served on its board of
directors since April 21, 2016.
Transactions
involving Fundamental Global Investors, LLC and its Affiliates
Fundamental
Global Investors, LLC (“FGI”), a registered investment advisor, is, together with its affiliates, the Company’s
largest stockholder. Funds managed by FGI directly hold shares of our common stock and 8.00% Cumulative Preferred Stock, Series
A (“Series A Preferred Stock”). Mr. Cerminara, our designated principal executive officer and Chairman of our Board,
is Chief Executive Officer, Co-Founder and Partner of FGI, and Mr. Johnson, Co-Chairman of our Board, is President, Co-Founder
and Partner of FGI.
Public
Offering of Series A Preferred Stock
Fundamental
Global Partners Master Fund, LP, a fund managed by FGI, purchased an aggregate of 34,620 shares of our Series A Preferred Stock
in the Company’s underwritten public offering of the shares, at the public offering price of $25.00 per share, including
(i) 31,680 shares purchased for a total of approximately $792,000 on February 28, 2018, the closing date of the offering, and
(ii) 2,940 shares purchased for a total of approximately $74,000 on March 26, 2018 in connection with the underwriters’
exercise of their over-allotment option. In addition, CWA Asset Management Group, LLC, of which 50% is owned by FGI, purchased
57,060 shares of the Series A Preferred Stock for customer accounts, including 44 shares of Series A Preferred Stock held by Mr.
Cerminara in a joint account with his spouse, at the public offering price. Messrs. Cerminara and Johnson each serve as Co-Chief
Investment Officer of CWA Asset Management Group, LLC.
Investment
in FGI Metrolina Property Income Fund, LP
On
June 18, 2018, the Company invested $2,219,000 in FGI Metrolina Property Income Fund, LP (“Metrolina”), which invests
in real estate through a real estate investment trust which is wholly owned by Metrolina. The general partner of Metrolina, FGI
Metrolina GP, LLC, is managed, in part, by Messrs. Cerminara and Johnson. Metrolina’s investment program is managed by FGI
Funds Management LLC, an affiliate of FGI. The Company is a limited partner of Metrolina and owns an economic interest of approximately
49% as of December 31, 2019. The Company has committed to a total potential investment of up to $4,000,000 in Metrolina. As of
December 31, 2019, the total amount invested in Metrolina was $2,719,000. The principals of FGI waived their share of fees
associated with the Company’s investment in Metrolina. In 2018 and 2019, the principals of FGI waived $117,934.20 and $37,405.25
of fees that were owed by the Company.
Investment
Advisory Agreement
Pursuant
to the Investment Advisory Agreement entered into upon closing of the Asset Sale, Fundamental Global Advisors LLC, a wholly-owned
subsidiary of the Company (“Advisor”), was formed to provide investment advisory services to FedNat, which include
identifying, analyzing and recommending potential investments, advising as to existing investments and investment optimization,
recommending investment dispositions, and providing advice regarding macro-economic conditions. In exchange for providing the
investment advisory services, FedNat has agreed to pay Advisor an annual fee of $100,000, all of which is paid for the benefit
of the Company. FGI Funds Management, LLC, an affiliate of FGI, serves as the manager to the Advisor but does not receive any
fees for its services other than those outlined in the Shared Services Agreement below. The term of the Investment Advisory Agreement
is five years.
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”), an affiliate of FGI, 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. On April 3, 2020, the Company made its initial quarterly payment of $456,250 under the Shared Services
Agreement.
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.
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 have been appointed by each Member. The Company has
appointed 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 its 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.
Transaction
between Fundamental Global and Kingsway
On
October 25, 2017, KAI entered into a purchase agreement with FGI pursuant to which KAI agreed to sell 900,000 shares of our common
stock to FGI or to one of FGI’s affiliate companies in two separate transactions. The first transaction, for the sale of
475,428 shares of our common stock, occurred on November 1, 2017. The second transaction, for the sale of 424,572 shares of our
common stock, occurred on March 15, 2018.
On
July 31, 2018, two funds managed by FGI, Fundamental Global Partners Master Fund, LP and Fundamental Activist Fund I, LP, each
purchased 37,500 shares of our common stock from Mendakota Casualty Company, an affiliate of KAI, in a privately negotiated transaction,
at a price of $7.131 per share. The purchases were effected pursuant to the terms of a letter agreement entered into on July 30,
2018 between FGI and Mendakota Casualty Company.
Transaction
between Fundamental Global and Fund Management Group LLC
On
April 16, 2020, FGI entered into a Purchase Agreement, dated as of the same date, with Fund Management Group LLC (“FMG”),
a Florida limited liability company and previously a greater-than-5% holder of the Company’s common stock, pursuant to which
FGI acquired on behalf of the funds managed by it 100,000 shares of Common Stock from FMG, in a privately negotiated transaction,
at a price of $4.75 per share, for an aggregate purchase price of $475,000. FMG also granted a call option to FGI to acquire from
FMG an additional 100,000 shares of Common Stock (the “Option Shares”), for a purchase price of $6.00 per Option Share,
at any time during the two-year period beginning on the date of the Purchase Agreement, ending at 5:00 p.m. Eastern time on April
16, 2022 (the “Expiration Time”). Pursuant to the Purchase Agreement, FGI agreed to pay $100,000 in the aggregate
to FMG for the call option. Additionally, FGI granted FMG a put option to sell the Option Shares to FGI at a purchase price of
$4.75 per Option Share, at any time during the two-year period beginning on the date of the Purchase Agreement, ending on the
Expiration Time. If FMG exercises the put option on or before 5:00 p.m. Eastern time on October 16, 2021, then the purchase price
per Option Share will be reduced by $1.00 per Option Share. With respect to any Option Shares then held by FMG and/or its affiliates
at any time through and until the Expiration Time, FMG has agreed to vote, and to cause all of its affiliates to vote, all such
Option Shares in accordance with the recommendation of the board of directors of the Company in connection with any matter submitted
to the shareholders of the Company for vote or action. Gordon G. Pratt manages FMG and holds exclusive authority over the entity.
Mr. Pratt retired from the Company’s Board of Directors on March 5, 2017
Indemnification
Agreements
We
have entered into indemnification agreements with each of our directors and executive officers. These agreements provide that
we will, among other things, indemnify and advance expenses to our directors and executive officers for certain expenses, including
attorneys’ fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including
any action by us arising out of such person’s services as our director or executive officer, or any other company or enterprise
to which the person provides services at our request. We believe that these agreements are necessary to attract and retain qualified
persons as directors and executive officers.
As
discussed above, FGI, together with its affiliates, is the largest stockholder of the Company. Mr. Cerminara, our designated principal
executive officer and Chairman of our Board, is Chief Executive Officer, Partner and Manager of FGI, and Mr. Johnson, Co-Chairman
of our Board, is President, Partner and Manager of FGI. The funds managed by FGI, including the funds that directly own shares
of our common stock and Series A Preferred Stock, have agreed to indemnify FGI, the principals of FGI, including Messrs. Cerminara
and Johnson, or any other person designated by FGI for claims arising from Messrs. Cerminara’s and Johnson’s service
on our Board, provided that a fund’s indemnity obligations are secondary to any obligations we may have with respect to
Messrs. Cerminara’s and Johnson’s service on our Board.
Director
Independence
The
Board has determined that five of its members are “independent directors” as defined under the applicable rules of
the Nasdaq Stock Market and the SEC. The five independent directors currently serving on the Board are Scott D. Wollney, Dennis
A. Wong, Rita Hayes, Marsha G. King, and General E. Gray Payne. In making its determination of independence, the Board of Directors
considered questionnaires completed by each director and all ordinary course transactions between the Company and all entities
with which the director is employed. Nasdaq’s listing rules require that the Board of Directors be comprised of a majority
of independent directors.
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
BDO
USA, LLP (“BDO”) has served as the Company’s independent registered public accounting firm since 2012. Our Audit
Committee requires that management obtain the prior approval of the Audit Committee for all audit and permissible non-audit services
to be provided by BDO. The following table sets forth the aggregate fees for professional service rendered by BDO for each of
the last two fiscal years.
|
|
|
Year
ended December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Audit fees
(1)
|
|
$
|
176,330
|
|
|
$
|
209,273
|
|
|
Audit-related fees
|
|
|
–
|
|
|
|
–
|
|
|
Tax fees
|
|
|
–
|
|
|
|
–
|
|
|
All other fees
|
|
|
–
|
|
|
|
–
|
|
|
Total
|
|
$
|
176,330
|
|
|
$
|
209,273
|
|
|
(1)
|
Includes
professional fees billed for the audits of our financial statements, the review of interim condensed financial statements,
as well as other professional services that are normally provided by BDO in connection with statutory and regulatory filings
or engagements.
|