UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
Proxy
Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
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Filed
by the Registrant [X]
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Filed
by a Party other than the Registrant [ ]
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Check
the appropriate box:
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Preliminary
Proxy Statement
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Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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[X]
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material under §240.14a-12
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1347
Property Insurance Holdings, Inc.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
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[X]
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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(1)
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Title
of each class of securities to which transaction applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to Exchange Act
Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it
was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
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(1)
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Amount
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Form,
Schedule or Registration Statement No.:
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Date
Filed:
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NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS
TO
BE HELD ON DECEMBER 14, 2020
October
30, 2020
To
Our Stockholders:
You
are cordially invited to attend our 2020 Annual Stockholders’ Meeting, which will be held at 4201 Congress Street, Suite
175, Charlotte, North Carolina 28209, on December 14, 2020 at 11:00 a.m., local time, and any adjournments or postponements thereof
for the following purposes:
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1.
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To
elect to the Board of Directors the six director nominees identified in the accompanying Proxy Statement, each to serve for
a term as described in the Proxy Statement;
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2.
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To
approve an amendment and restatement to our Certificate of Incorporation to change our corporate name from 1347 Property Insurance
Holdings, Inc. to FG Financial Group, Inc.;
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3.
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To
ratify the appointment of BDO USA, LLP as our independent registered public accounting firm for the year ending December 31,
2020;
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4.
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To
consider and act upon a non-binding advisory resolution to approve the compensation of our named executive officers;
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5.
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To
consider and act upon a non-binding advisory resolution to approve the frequency of the named executive officer compensation
advisory stockholder votes; and
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6.
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To
consider and transact such other business as may properly come before the meeting or any postponement or adjournment thereof.
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The
health and well-being of our employees and stockholders are paramount. We are closely monitoring the coronavirus pandemic, and
if we determine it necessary to make changes to our annual meeting, we will announce the decision to do so in advance.
Only
stockholders of record at the close of business on October 19, 2020 are entitled to notice of, and to vote at, the Annual Meeting.
Please
read the Proxy Statement and vote your shares as soon as possible. Your vote is very important. Please complete, sign, date and
return the accompanying proxy card, or follow the instructions on the card for voting by telephone or Internet. You may also attend
the Annual Meeting and vote in person.
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By
Order of the Board of Directors,
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D.
Kyle Cerminara
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Chairman
of the Board
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IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
STOCKHOLDER
MEETING TO BE HELD ON DECEMBER 14, 2020:
This
Notice and the accompanying Proxy Statement are being distributed or made available, as the case may be on or about October 30,
2020, and the Company’s Proxy Statement for the 2020 Annual Meeting of Stockholders and Annual Report on Form 10-K for the
year ended December 31, 2019 are available at
http://www.proxyvote.com.
TABLE
OF CONTENTS
1347
PROPERTY INSURANCE HOLDINGS, INC.
PROXY
STATEMENT FOR 2020 ANNUAL MEETING OF STOCKHOLDERS
This
Proxy Statement is furnished in connection with the solicitation of the accompanying proxies on behalf of the Board of
Directors of 1347 Property Insurance Holdings, Inc. (the “Company”, “we”,
“our” or “us”) for use at the Company’s 2020 Annual Meeting of Stockholders (the
“Annual Meeting”) to be held on December 14, 2020 at 11:00 a.m., local time, at 4201 Congress Street,
Suite 175, Charlotte, North Carolina 28209, and any adjournments or postponements of the Annual Meeting.
QUESTIONS
& ANSWERS ABOUT THE ANNUAL MEETING
Why
am I receiving these materials?
At
the Annual Meeting, stockholders will act upon the matters described in the Notice of Meeting accompanying this Proxy Statement,
including the election of directors. You are receiving this Proxy Statement and the related form of proxy because you held shares
of our common stock at the close of business on the Record Date (as defined below), and the Board of Directors of the Company
(the “Board of Directors” or “Board”) is soliciting your proxy to vote at the Annual
Meeting. You are invited to attend the Annual Meeting to vote on the proposals described in this Proxy Statement. However, you
do not need to attend the meeting to vote your shares. Instead, you may vote your shares as described in further detail under
the heading “How do I vote?” below.
When
will these materials be mailed?
The
notice, this Proxy Statement and the proxy card for stockholders of record were distributed or made available, as the case may
be, beginning on or about October 30, 2020, and the Proxy Statement and our Annual Report on Form 10-K for the fiscal year ended
December 31, 2019 are available at www.proxyvote.com.
Who
is entitled to vote?
Stockholders
of record at the close of business on October 19, 2020 (the “Record Date”) are entitled to vote in person or
by proxy at the Annual Meeting. As of the Record Date, 4,957,364 shares of our common stock were outstanding. Each stockholder
is entitled to one vote for each share of common stock held on the Record Date. Stockholders do not have cumulative voting rights
in the election of directors. For ten days prior to the Annual Meeting during normal business hours, a complete list of all stockholders
of record will be available for examination by any stockholder for any purpose germane to the Annual Meeting at the Company’s
offices located at 970 Lake Carillon Dr, Suite 318, St. Petersburg, FL 33716. Please contact Brian Bottjer at (727) 304-5666 for
information regarding providing proof of eligibility to view the list prior to visiting the Company’s offices. The list
of stockholders will also be available at the Annual Meeting.
Who
can attend the Annual Meeting?
All
stockholders as of the Record Date, or individuals holding their duly appointed proxies, may attend the Annual Meeting. Appointing
a proxy in response to our solicitation will not affect a stockholder’s right to attend the Annual Meeting and to vote in
person. Please note that if you hold your shares in “street name” (in other words, through a broker, bank, or other
nominee), you will need to bring a proxy, executed in your favor, from the holder of record (the broker, bank or other nominee)
to gain admittance to the Annual Meeting.
What
is the difference between a stockholder of record and a beneficial owner?
If
your shares are registered directly in your name with our transfer agent, VStock Transfer, LLC, then you are a “stockholder
of record.” The accompanying proxy card has been provided directly to you by the Company. You may vote by ballot at the
Annual Meeting or vote by proxy. To vote by proxy, complete, sign, date and return the enclosed proxy card or follow the instructions
on the proxy card for voting by telephone or Internet.
If
your shares are held for you by a broker, bank or other nominee (that is, held in “street name”), then you
are not a stockholder of record. Rather, the broker, bank or other nominee is the stockholder of record and you are the “beneficial
owner” of the shares. The accompanying voting instruction card has been forwarded to you by the broker, bank or other nominee.
If you complete and properly sign the voting instruction card and return it in the appropriate envelope, or follow the instructions
on the voting instruction card for voting by telephone or Internet, the broker, bank or other nominee will cause your shares to
be voted in accordance with your instructions. If you are a beneficial owner of shares and wish to vote in person at the Annual
Meeting, then you must obtain a proxy, executed in your favor, from the holder of record (the broker, bank or other nominee).
What
constitutes a quorum?
A
majority of the 4,957,364 shares of common stock outstanding and entitled to vote on the Record Date must be represented, in person
or by proxy, to provide a quorum at the Annual Meeting. If you vote, your shares will be part of the quorum. Shares represented
by a properly executed proxy card that is marked “ABSTAIN” or returned without voting instructions will be counted
as present for the purpose of determining whether the quorum requirement is satisfied. Also, shares held of record by a broker,
bank or other nominee who has not received voting instructions from the beneficial owner of the shares and votes on matters without
discretionary authority to do so (“broker non-votes”) will be counted as present for quorum purposes. However,
although broker non-votes and abstentions are considered as present for purposes of establishing a quorum, we believe broker non-votes
and abstentions will not be considered as votes cast for or against a proposal or director nominee, except that abstentions will
count as votes against Proposal 2. Once a share is represented at the Annual Meeting, it will be deemed present for quorum purposes
throughout the Annual Meeting (including any postponement or adjournment thereof unless a new record date is or must be set for
such postponement or adjournment).
What
is the purpose of the meeting?
The
principal purposes of the Annual Meeting are to (i) elect the six director nominees named in this Proxy Statement to the Company’s
Board of Directors, each to serve for a term as described in this Proxy Statement, (ii) approve an amendment and restatement to
the Company’s Third Amended and Restated Certificate of Incorporation, as amended (the “Certificate
of Incorporation”), to change our corporate name from 1347 Property Insurance Holdings, Inc. to FG Financial
Group, Inc., (iii) ratify the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm
for the year ending December 31, 2020, (iv) consider and act upon a non-binding, advisory resolution to approve the compensation
of our named executive officers, (v) consider and act upon a non-binding, advisory resolution to approve the frequency of the
named executive officer compensation advisory stockholder vote and (v) transact such other business as may properly come before
the meeting or any postponement or adjournment thereof.
How
do I vote?
If
you are a holder of record, you can vote either in person at the Annual Meeting or by proxy without attending the Annual Meeting.
We urge you to vote by proxy even if you plan to attend the Annual Meeting so that we will know as soon as possible that enough
votes will be present for us to hold the meeting. If you attend the meeting and vote in person, your previously submitted proxy
will be revoked and will not be counted.
You
can vote by proxy using any of the following methods:
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Voting
by Telephone or Internet. If you are a holder of record, you may vote by proxy by using either the telephone or Internet
methods of voting. Proxies submitted by telephone or through the Internet must be received by 11:59 p.m., Eastern Time, on
December 13, 2020. Please see the proxy card for instructions on how to access the telephone and Internet voting systems.
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Voting
by Proxy Card. Each stockholder of record may vote by completing, signing, dating and promptly returning the accompanying
proxy card in the self-addressed stamped envelope provided. When you return a properly executed proxy card, the shares represented
by your proxy will be voted as you specify on the proxy card. Your proxy card must be received prior to the Annual Meeting
to be counted.
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If
you hold your shares in “street name,” you must either direct the broker, bank, or other nominee as to how to vote
your shares, or obtain a proxy from the broker, bank, or other nominee, executed in your favor, to vote at the meeting. Please
refer to the voter instruction cards provided by your broker, bank, or other nominee for specific instructions on methods of voting,
including by telephone or using the Internet.
What
does it mean if I receive more than one proxy card?
You
will receive separate proxy cards when you own shares in different ways. For example, you may own shares individually, as a joint
tenant, in an individual retirement account, in trust or in one or more brokerage accounts. You should complete, sign, date and
return each proxy card you receive or follow the telephone or Internet voting instructions on each card. The instructions on each
proxy card may differ. Be sure to follow the instructions on each card.
Can
I change my vote or instruction?
Yes.
If you are a stockholder of record, you may revoke your proxy or change your vote, regardless of whether previously submitted
by mail or via the Internet or by telephone, by (i) delivering a signed written notice stating that you revoke your proxy to the
attention of the Corporate Secretary of the Company at 970 Lake Carillon Dr., Suite 318, St. Petersburg, FL 33716 that bears a
later date than the date of the proxy you want to revoke and is received prior to the Annual Meeting, (ii) submitting a valid,
later-dated proxy via the Internet or by telephone before 11:59 p.m., Eastern Time, on December 13, 2020, or by mail that
is received prior to the Annual Meeting, or (iii) attending the Annual Meeting (or, if the Annual Meeting is postponed or adjourned,
attending the postponed or adjourned meeting) and voting in person, which automatically will cancel any proxy previously given,
or revoking your proxy in person, but your attendance alone at the Annual Meeting will not revoke any proxy previously given.
If
you hold your shares in “street name” through a broker, bank or other nominee, you must contact your broker, bank
or other nominee to change your vote through new voting instructions or, if you wish to change your vote in person at the Annual
Meeting, obtain a written legal proxy from the bank, broker or other nominee to vote your shares.
What
happens if I submit a proxy card and do not give specific voting instructions?
If you are a stockholder of record and
sign and return the proxy card without indicating your voting instructions, your shares will be voted in accordance with the recommendations
of the Board of Directors. With respect to any other matter that properly comes before the meeting, the proxy holders will vote
as recommended by the Board of Directors or, if no recommendation is given, in their own discretion. As of the filing date of
this Proxy Statement, we did not know of any other matter to be raised at the Annual Meeting.
What happens if I do not submit a
proxy card and do not vote by telephone or Internet or do not submit voting instructions to my broker, bank or other nominee?
If you are a stockholder of record and
you neither designate a proxy nor attend the Annual Meeting, your shares will not be represented at the meeting. If you are a
beneficial owner and do not provide voting instructions to your bank, broker or other nominee, then, under applicable rules, the
broker, bank or other nominee that holds your shares in “street name” may generally vote on “routine”
matters but cannot vote on “non-routine” maters. If the broker, bank or other nominee that holds your shares does
not receive instructions from you on how to vote your shares on a “non-routine matter”, the broker, bank or other
nominee will inform the inspector of election for the Annual Meeting that it does not have the authority to vote on the matter
with respect to your shares. This is generally referred to as a “broker non-vote.”
Which
voting matters are considered “routine” or “non-routine”?
We
believe that Proposal 1 regarding the election of directors, Proposal 4 regarding the non-binding, advisory resolution to approve
the compensation of our named executive officers and Proposal 5 regarding the non-binding, advisory resolution to approve the
frequency of the stockholder vote to approve the compensation of our named executive officers are considered “non-routine”
matters under applicable rules. Therefore, a broker, bank or other nominee cannot vote on such proposals without voting instructions
from the beneficial owners, and there may be broker non-votes in connection with Proposals 1, 4 and 5.
We believe that Proposal 2 regarding the
approval of an amendment and restatement to the Certificate of Incorporation to change our corporate name from 1347 Property Insurance
Holdings, Inc. to FG Financial Group, Inc. and Proposal 3 concerning the ratification of the appointment of BDO USA, LLP as
the Company’s independent registered public accounting firm for the year ending December 31, 2020 are considered
“routine” matters under applicable rules. Therefore, a broker, bank or other nominee may generally vote on
these matters, and there will be no broker non-votes in connection with Proposal 2 and 3.
What vote is required to approve
each item? How will abstentions and broker non-votes be counted?
As to the election of directors (Proposal
1), a stockholder may vote “FOR” the election of each of the nominees proposed by the Board, or “WITHHOLD”
authority to vote for one or more of the proposed nominees. The election of a director requires the affirmative vote of a plurality
of the votes properly cast on the election of directors at the Annual Meeting. A “plurality” means that the individuals
who receive the largest number of votes are elected as directors up to the maximum number of directors to be elected at the meeting.
As to Proposal 1, proxies marked “WITHHOLD” and broker non-votes will have no impact on the election of directors.
With respect to Proposal 2 (approval of
an amendment to the Certificate of Incorporation to change our corporate name from 1347 Property Insurance Holdings, Inc. to FG
Financial Group, Inc.), a stockholder may vote “FOR” or “AGAINST” the amendment or “ABSTAIN”
from voting on the proposal. Approval of the amendment does not require a stockholder vote; however, because our Board has determined
to submit this amendment to ratification by our stockholders, approval requires the affirmative vote of at least 66 2/3% of the
voting power of the outstanding shares of common stock entitled to vote in the election of directors. As to Proposal 2, proxies
marked “ABSTAIN” will have the effect of a vote “AGAINST” Proposal 2.
With respect to Proposal 3 (ratification
of BDO USA, LLP as our independent registered public accounting firm), a stockholder may vote “FOR” or “AGAINST”
ratification or “ABSTAIN” from voting on the proposal. Ratification requires an affirmative vote of the majority of
the votes properly cast at the Annual Meeting. Proxies marked “ABSTAIN” will not be considered as votes cast for or
against Proposal 3 and will have no effect on the outcome of the proposal.
With respect to Proposal 4 (advisory approval
of the compensation of our named executive officers), a stockholder may vote “FOR” or “AGAINST” approval
or “ABSTAIN” from voting on the proposal. Approval requires an affirmative vote of the majority of the votes properly
cast at the Annual Meeting. Proxies marked “ABSTAIN” and broker non-votes will not be considered as votes cast for
or against Proposal 4 and will have no effect on the outcome of the proposal.
With respect to Proposal 5 (advisory approval of the frequency of the stockholder
vote to approve the compensation of our named executive officers), a stockholder may vote “FOR” either the option
of every year, every two years or every three years or “ABSTAIN” from voting on the proposal. The choice of frequency
that receives the highest number of “FOR” votes properly cast by the holders of shares of our common stock will be
considered the advisory vote of the stockholders. Proxies marked “ABSTAIN” and broker non-votes will not be considered
as votes cast for or against Proposal 5 and will have no effect on the outcome of the proposal.
What
are the Board’s voting recommendations?
The
Board unanimously recommends a vote “FOR”:
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1.
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election
of each of the six director nominees named in this Proxy Statement to the Board of Directors, each to serve for a term as
described in the Proxy Statement;
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2.
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approval
of the amendment and restatement to the Certificate of Incorporation to change our corporate name from 1347 Property Insurance
Holdings, Inc. to FG Financial Group, Inc.;
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3.
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ratification
of the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm for the fiscal year
ending December 31, 2020;
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approval,
on an advisory, non-binding basis, of the compensation of our named executive officers;
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5.
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the
option of every year as the frequency to have an advisory vote on the compensation of our named executive officers.
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As
of the date of this Proxy Statement, it is expected that Fundamental Global Investors, LLC (“FGI”) and its
affiliates, including Ballantyne Strong, Inc. (“BTN”) and certain of our directors, will vote “FOR”
approval of Proposals 1, 2, 3, 4 and 5. FGI, through its affiliates, is the beneficial owner of 3,045,593 shares of common stock
as of the Record Date, which includes 1,038,409 shares owned by BTN and represents approximately 61.4% of the Company’s
outstanding shares of common stock. In addition, CWA Asset Management Group, LLC, of which 50% is owned by FGI, holds 52,025 shares
of common stock for the accounts of individual investors (excluding shares held in accounts for Messrs. Cerminara and Johnson),
which represents approximately 1.0% of the Company’s outstanding shares of common stock. D. Kyle Cerminara, Chairman of
our Board, serves as Chief Executive Officer, Co-Founder and Partner of FGI, and Chairman of the board of directors of BTN. Lewis
M. Johnson, Co-Chairman of our Board, serves as President, Co-Founder and Partner of FGI, and as a Co-Chairman of the board of
directors of BTN.
Who
is paying for the preparation and mailing of the proxy materials and how will solicitations be made?
The
Company will pay the expenses of soliciting proxies. Proxies may be solicited on our behalf by the Company’s directors,
officers or employees in person or by mail, telephone, facsimile or electronic transmission. We do not compensate them for soliciting
proxies. We have requested brokerage houses and other custodians, nominees and fiduciaries to forward soliciting material to beneficial
owners and have agreed to reimburse those institutions for their out-of-pocket expenses.
PROPOSAL
1 — ELECTION OF DIRECTORS
The
Company’s Board of Directors currently consists of eight directors. Prior to the 2019 annual meeting, our directors were
divided into three classes, with each class being elected to a three-year term. At each annual meeting, only one class of directors
stood for election. At the 2019 annual meeting, the Company’s stockholders approved an amendment to our Certificate of Incorporation
and Third Amended and Restated By-Laws (the “By-laws”) which declassified the Board of Directors
and provides for directors to be elected annually, beginning with those directors who stood for election at the 2019 annual meeting.
Based
upon the recommendation of the Nominating and Corporate Governance Committee, the Board has nominated D. Kyle Cerminara, Rita
Hayes, Lewis M. Johnson, Larry G. Swets, Jr., Dennis A. Wong, and Scott D. Wollney to stand for election at the Annual Meeting,
with each director holding office for a term of one year and until his or her successor has been duly elected and qualified or
until his or her earlier death, retirement, resignation or removal. Prior to the declassification of our Board of Directors, both
Marsha G. King and E. Gray Payne were classified as Class I directors, serving a three-year term expiring in 2021. As such, both
directors will continue to serve on our Board until the 2021 annual meeting, at which point, if nominated by the Board, they will
stand for election for a one-year term along with the other six director nominees of the Board.
Required
Vote
The
election of a director requires the affirmative vote of a plurality of the votes properly cast on the election of directors
at the Annual Meeting. A “plurality” means that the individuals who receive the largest number of votes are
elected as directors up to the maximum number of directors to be elected at the meeting. Therefore, proxies marked “WITHHOLD”
and “broker non-votes” will have no impact on the election of directors. Properly executed proxies submitted pursuant
to this solicitation will be voted “FOR” the election of the directors marked on the proxy, unless specified
otherwise.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE ELECTION OF D. KYLE CERMINARA, RITA
HAYES, LEWIS M. JOHNSON, LARRY G. SWETS, JR., DENNIS A. WONG, AND SCOTT D. WOLLNEY AS DIRECTORS.
Director
Nominees Standing for Election:
D.
Kyle Cerminara, age 43, was appointed to our Board of Directors on December 27, 2016 and became Chairman of our Board
of Directors on May 11, 2018. Mr. Cerminara has been President of FG New America Acquisition Corp. (NYSE: FGNA), a special purpose
acquisition company (“SPAC”) since July 2020. Mr. Cerminara is the Chairman of the Board of Ballantyne Strong, Inc.,
a holding company with diverse business activities focused on serving the cinema, retail, financial and government markets. Mr.
Cerminara assumed responsibilities as Chairman of the Board of Ballantyne Strong in May 2015 and was Chief Executive Officer from
November 2015 to 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 funds and strategies,
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, which position he has held since December
2012. Mr. Cerminara is a member of the board of directors of a number of publicly-held companies focused in the insurance,
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; Itasca Capital, Ltd. (TSXV: ICL) (formerly Kobex Capital Corp.), a publicly-traded investment firm, since June
2016; and FG New America Acquisition Corporation, since July 2020. 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 Boards of Directors
of Limbach Holdings, Inc. (Nasdaq: LMB), a company which provides building infrastructure services, from March 2019 to March 2020;
blueharbor bank from 2013 to January 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 also serves on the board of directors
of Firefly Systems, Inc., a privately held company. He previously served as a Trustee of StrongVest ETF Trust, which was an
open-end management investment company, from July 2016 until October 2019. 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. We believe Mr. Cerminara is qualified to serve on our Board as he contributes
his perspective as one of the Company’s largest stockholders. 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.
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.
Lewis
M. Johnson, age 52, 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 December 2012, 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. Prior to co-founding Fundamental Global
Investors, LLC, 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 cinema, retail, financial 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. We believe
Mr. Johnson brings to the Board the perspective of one of the Company’s largest stockholders.
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. Since June 17, 2020, Mr. Swets has also served as our interim Chief Executive Officer through
a consulting agreement with Itasca Financial LLC. Mr. Swets serves as Managing Member of Itasca Financial LLC, an advisory and
investment firm, and as President of Itasca Golf Managers, Inc., a management services and advisory firm focused on the real estate
and hospitality industries. In August 2020, he began to serve as director and Chief Executive Officer of FG New America Acquisition
Corp., a special purpose acquisition company. Previously, he served as Chief Executive Officer of Kingsway Financial Services
Inc. (TSX: KFS, NYSE: KFS) a holding company which operates primarily in the extended warranty, asset management and real estate
industries, from July 2010 to September 2018, including as its President from July 2010 until March 2017, and as Executive Vice
President of Corporate Development from January 2010 to July 2010. Prior to founding Itasca Financial LLC in 2006, Mr. Swets serviced
as an insurance company executive and advisor, including the role of Director of Investments and Fixed Income Portfolio Manager
for Lumbermens Mutual Casualty Company, formerly known as Kemper Insurance from June 1997 to May 2005. At Kemper Insurance, he
also evaluated business units, executed corporate transactions and divestitures, and developed financial projections and analysis
for the company during its runoff stage. 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 Insurance Income Strategies Ltd., Harbor Custom Development, Inc. (Nasdaq:
HCDI), Alexian Brothers Foundation, Unbounded Media Corporation, and Limbach Holdings, Inc. (Nasdaq: LMB), as well as a director
and Chief Executive Officer of Itasca Capital Ltd. (TSXV: ICL). Previously, he served as a member of the Board of Directors of
Kingsway Financial Services Inc. (TSX: KFS, 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. (Nasdaq: UIHC), from 2008 to March 2012, and Risk Enterprise Management Ltd. from November 2007 to May 2012. Mr.
Swets obtained a bachelor’s degree from Valparaiso University in 1997 and a master’s degree in finance from DePaul
University in 1999. He is currently a member of the Young Presidents’ Organization. He also holds the Chartered Financial
Analyst designation. We believe Mr. Swets’ qualifications to serve on our Board of Directors include his more than twelve
years of executive management and leadership experience in the insurance industry.
Dennis
A. Wong, age 51, 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.
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. (“Atlas”) (OTC: AFHIF), a specialty commercial automobile
insurance business, which became subject to a liquidation order in the State of Illinois in August 2020 as previously disclosed
by Atlas. 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
a 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.
Continuing
Directors Serving a Term Expiring in 2021:
Marsha
G. King, age 53, 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 and is currently a faculty member at the University
at Buffalo, serving as Director of their Leadership Coaching Program since August 2020. Prior to joining SkillPoint Consulting,
Ms. King worked at Capital One Financial Corporation from September 1999 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. 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). TCG is a federal consulting firm
working with the Department of Defense, the Department of Homeland Security, the National Oceanic and Atmospheric Administration,
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. Since December 2011, General Payne has also 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. Prior to September 2010, General Payne was on active duty with
the Marine Corps for 10 years, retiring as a Major General. His three commands as a General Officer included the Marine Corps
Mobilization Command, the Marine Corps Logistics Command, and the 4th Marine Logistics Group. 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. He is a prior chairman of the Board of the Marine Corps Association and Foundation and currently serves as a Director on
the Boards of VetCV (since December 2017) and the National Wildlife Refuge Association (since June 2018). 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. A member of the National
Association of Corporate Directors, he has also earned the Professional Director designation from the American College of Corporate
Directors. We believe General Payne’s 40 years of service in the Marine Corps, as well as over 25 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.
CORPORATE
GOVERNANCE
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. Although we have no formal separate written policy, our Nominating and Corporate Governance
Committee is required under its charter to recommend nominees that ensure sufficient diversity of backgrounds on our Board. 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.
“Controlled
Company” Status
As
discussed under “Security Ownership of Certain Beneficial Owners and Management,” FGI and affiliated entities beneficially
owned 61.4% of our common stock as of the Record Date. As a result, we are a “controlled company,” or a company of
which more than 50% of the voting power for the election of directors is held by an individual, group or another company, under
Nasdaq Stock Market (“Nasdaq”) rules. “Controlled companies” may elect not to comply with
certain Nasdaq corporate governance requirements, including regarding independence of their directors and board committees. Currently,
we have not elected to take advantage of these exemptions and are subject to the same governance standards as companies that are
not “controlled companies.”
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.
Board
Leadership Structure
Mssrs.
Cerminara and Johnson have served as Chairman and Co-Chairman, respectively, of the Board of Directors since May 2018. On December
2, 2019, 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. Effective June 17, 2020, the Company’s Board appointed Mr. Swets, a current director
of the Board, as the Company’s Interim Chief Executive Officer, which role he currently holds as the Company searches for
a permanent replacement for Mr. Raucy. Mr. Swets replaced D. Kyle Cerminara as the Company’s principal executive officer,
with Mr. Cerminara continuing to serve as the Chairman of the Board of 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.
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. 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, including effective monitoring and objective evaluation of the Chief Executive Officer’s performance. 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 policies and operations
and enable him to communicate effectively with the Board on strategic developments and other critical matters facing the Company,
while also providing oversight of the Chief Executive Officer. Meanwhile, as Interim Chief Executive Officer, Mr. Swets is responsible
for setting the Company’s direction and managing its day-to-day leadership and performance.
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 one or more 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.
Risk
Oversight
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.
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.” Any amendment to, or waiver from, a provision
of the code of ethics will be promptly disclosed on our website as required by the laws, rules and regulations of the SEC or Nasdaq.
On October 22, 2020, our Board of Directors
amended the Code of Ethics (the “Code”) to clarify provisions relating to the disclosure of any waivers or amendments
to the Code and to the internal reporting of conflicts of interest, as well as to specify that the Board may take action to waive
the Company’s interest or expectancy in corporate opportunities, as provided for in a Board action adopted pursuant to Section
122(17) of the Delaware General Corporation Law (the “DGCL”). In accordance with this amendment and Section 122(17)
of the DGCL, on October 22, 2020, the Board also resolved to waive the Company’s interest or expectancy in specified business
opportunities set forth in the Board action, in each case if they are presented to Mr. Swets, Mr. Cerminara or Mr. Johnson. The
board action specified, however, that the waiver does not apply to any opportunity if it is expressly offered to any such person
in their capacity as an officer or director of the Company and the opportunity relates to a line of business in which the Company
or any of its subsidiaries are directly engaged.
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 the date of this Proxy Statement 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.
|
|
|
Audit
Committee
|
|
Compensation
and
Management
Resources
Committee(1)
|
|
Nominating
and
Corporate
Governance
Committee(2)
|
|
Dennis
A. Wong
|
|
C
|
|
|
|
|
|
E.
Gray Payne
|
|
X
|
|
C
|
|
C
|
|
Marsha
G. King
|
|
|
|
X
|
|
|
|
Rita
Hayes
|
|
|
|
|
|
X
|
|
Scott
D. Wollney
|
|
X
|
|
X
|
|
X
|
|
C
|
–
|
Indicates
committee chair.
|
|
1
|
–
|
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.
|
|
2
|
–
|
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.
|
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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●
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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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|
|
●
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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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|
|
|
|
●
|
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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|
|
|
|
|
●
|
Provide
oversight of the qualifications, independence and performance of the Company’s external auditors and the appointed actuary.
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|
|
|
|
|
●
|
Provide
an avenue of communication among the external auditors, the appointed actuary, management and the Board.
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|
|
|
|
|
●
|
Review
the annual audited and quarterly financial statements with management and the external auditors.
|
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 Rule 10A-3 under the Exchange Act and 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, (the “Compensation
Committee”) is to assist the Board of Directors in discharging its responsibilities with respect to compensation of
the Company’s executive officers and subsidiary presidents 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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●
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Develop
guidelines for and determine the compensation and performance of the executive officers of the Company (in the case of
the Chief Executive Officer’s compensation, without the Chief Executive Officer being present).
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|
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|
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●
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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 under such
standards), and approve grants of equity and equity-based awards.
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|
|
|
|
|
|
●
|
Review
any 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.
|
|
|
|
|
|
|
●
|
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.
|
The
Compensation Committee receives input and recommendations from the Company’s executive officers (except with respect to
such executive officer’s own compensation), but is not bound by such recommendations. These are generally based on each
executive officer’s individual performance as well as his knowledge of each executive officer’s job responsibilities,
seniority, expected contributions and his understanding of the competitive market for such executives. 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, and is a “non-employee director” as defined in Rule 16b-3 under the Exchange Act. 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, (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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●
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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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|
|
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|
|
●
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Develop
and recommend to the Board a set of corporate governance principles applicable to the Company, as the Committee deems appropriate.
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|
|
|
|
●
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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.
|
Each
Nominating Committee member is independent 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 may engage consultants or third-party search firms to assist in identifying
and evaluating potential nominees and may also seek referrals from other members of the Board, management, stockholders and other
sources. Evaluations of candidates generally involve a review of background materials, internal discussions and interviews with
selected candidates, as appropriate. Upon selection of a qualified candidate, the Nominating Committee recommends the candidate
for consideration by the full Board.
The
Nominating Committee will consider recommendations for directorships submitted by stockholders. Stockholders wishing to propose
director candidates for consideration by the Nominating Committee may do so by writing to the Corporate Secretary of the Company
and providing the information concerning the nominee and his or her proponent(s) as required by the Company’s By-Laws. The
By-Laws set forth further requirements for stockholders wishing to nominate director candidates for consideration at a stockholders’
meeting including, among other things, that a stockholder must give timely written notice of such a nomination to the Corporate
Secretary of the Company. See “Stockholder Proposals for Presentation at the 2021 Annual Meeting” in this Proxy Statement
for more information. Candidates recommended by stockholders will be given the same consideration as all other candidates.
The
Board also has a Reinsurance and Risk Committee, an Investment Committee and a Legal Committee made up of members of its Board.
Stockholder
Communications with the Board
Stockholders
may communicate with the full Board or individual directors by submitting such communications in writing to 1347 Property Insurance
Holdings, Inc., Attn: Corporate Secretary, 970 Lake Carillon Dr., Suite 318, St. Petersburg, FL 33716. The Company’s management
will forward such correspondence, as appropriate. Complaints or concerns relating to our financial reporting, accounting, internal
accounting controls or auditing will be referred to the Chairman of our Audit Committee.
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:
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|
●
|
Each
non-employee director receives an annual cash retainer of $50,000, paid in quarterly installments;
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|
|
|
|
|
|
●
|
Both
the Chairman and Co-Chairman of the Board receive an additional annual cash retainer of $75,000 each, paid in quarterly installments;
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|
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●
|
The
Chairman of the Audit Committee receives an additional cash retainer of $15,000, paid in quarterly installments;
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|
|
|
|
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●
|
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;
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|
|
|
|
|
●
|
The
Chairman of the Reinsurance Committee receives an additional cash retainer of $75,000, paid in quarterly installments;
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|
|
|
|
|
|
●
|
Each
of the members of the Audit, Compensation, and Nominating and Corporate Governance Committees (excluding the Chairman of each
of those committees), receive an additional cash retainer of $2,000, paid in quarterly installments;
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|
|
|
|
●
|
Each
non-employee director receives an annual grant of restricted stock units (“RSUs”) with a value of $40,000;
and
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|
|
|
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●
|
Each
non-employee director will receive reimbursement of reasonable out-of-pocket expenses for attending board and committee meetings.
|
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 (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 $200,000.
The
following table sets forth information with respect to compensation earned by each of our non-employee directors for the year
ended December 31, 2019. Mr. Raucy, who served as a director until December 2, 2019, did not receive any compensation for his
service as a director during 2019 as he concurrently served as President and Chief Executive Officer of the Company. For more
information, see “Compensation of Executive Officers—Summary Compensation Table.” Ms. Hayes’ and Ms. King’s
compensation for 2019 reflects their pro-rata share of the annual compensation awarded to our directors as they were appointed
to our Board on January 11, 2019.
|
Non-Employee
Director
|
|
Fees
Earned or Paid in Cash ($)(3)
|
|
|
Stock
Awards ($)(4)
|
|
|
Total
($)
|
|
|
D.
Kyle Cerminara
|
|
|
125,000
|
|
|
|
40,000
|
|
|
|
165,000
|
|
|
Lewis
M. Johnson
|
|
|
125,000
|
|
|
|
40,000
|
|
|
|
165,000
|
|
|
Rita
Hayes(1)
|
|
|
50,556
|
|
|
|
66,661
|
|
|
|
117,217
|
|
|
Marsha
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 a 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.
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|
|
|
|
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 this table.
|
|
|
|
|
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 awards and option awards outstanding for each director as of December 31, 2019 were as follows:
|
|
●
|
Mr.
Cerminara – 16,294 RSUs
|
|
|
●
|
Mr.
Johnson – 16,294 RSUs
|
|
|
●
|
Ms.
Hayes – 13,119 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.
Appointment
of Mr. Swets as Interim Chief Executive Officer
Effective
June 17, 2020, the Company’s Board appointed Mr. Swets, a current director of the Board, as the Company’s Interim
Chief Executive Officer. Mr. Swets replaced Mr. Cerminara as the Company’s principal executive officer. Mr. Cerminara continues
to serve as the Chairman of the Board of the Company.
On
June 18, 2020, the Company entered into a consulting agreement (the “Consulting Agreement”) by and between the Company
and Itasca Financial LLC (“Itasca Financial”), an advisory and investment firm founded by Mr. Swets in 2005, with
it being agreed that Mr. Swets would be providing the services described on behalf of Itasca Financial. The Consulting Agreement
provides that Mr. Swets act as the Company’s Interim Chief Executive Officer. As Interim Chief Executive Officer, Mr. Swets
is performing services and duties as required by the Board, to whom he reports.
In consideration for the services, the Company
has paid, subject to the monetary limitations or thresholds set forth in applicable award or plan agreements, Itasca Financial
$46,000 per month during the term of the Consulting Agreement, which will terminate on the earlier of (i) the Company’s
hiring of a new Chief Executive Officer or (ii) the six-month anniversary of the commencement date. Mr. Swets will forgo
the compensation of board fees while serving as consultant, with the Company to resume board and committee fees immediately after
the end of the term of the Consulting Agreement or upon earlier termination. Mr. Swets will remain a director of the Company if
he is continued to be elected by its stockholders.
The
Consulting Agreement contains a customary confidentiality provision and a six-month post-termination of the Agreement restriction
against both soliciting employees and independent contractors of the Company and inducing them to terminate their relationship
with the Company.
PROPOSAL
2 — TO APPROVE AN AMENDMENT AND RESTATEMENT TO OUR CERTIFICATE OF INCORPORATION TO CHANGE OUR CORPORATE NAME FROM 1347 PROPERTY
INSURANCE HOLDINGS, INC. TO FG FINANCIAL GROUP, INC.
General
Our
Board has approved, and has submitted to our stockholders for approval, the amendment and restatement of our Certificate of Incorporation
to change our corporate name from 1347 Property Insurance Holdings, Inc. to FG Financial Group, Inc. We refer to this proposal
as the “Name Change Proposal.” The Board recommends that stockholders vote in favor of the Name Change Proposal.
Reasons
for the Proposed Name Change
As
previously disclosed, going forward the Company intends to operate as a diversified holding company of reinsurance and investment
management businesses. The board believes that changing our corporate name to FG Financial Group, Inc. better aligns with our
future business plans. For example, the Company, to be renamed FG Financial Group, Inc. (“FG”) plans
to carry out its business through three primary avenues: insurance, asset management, and real estate. The Company also
intends to change the ticker symbols for its Nasdaq-listed common stock and 8.00% Cumulative Preferred Stock, Series
A (“Series A Preferred Stock”), and has reserved with Nasdaq the ticker symbols “FGF” and
“FGFPP,” respectively.
Insurance:
The
Company has formed a wholly-owned reinsurance subsidiary, Fundamental Global Reinsurance Ltd. (“FGRe”), a Cayman Islands
limited liability company, to provide specialty property and casualty reinsurance. FGRe has been granted a Class B (iii) insurer
license in accordance with the terms of The Insurance Law, 2010 and underlying regulations thereto and is subject to regulation
by the Cayman Islands Monetary Authority (the “Authority”). FGRe intends to write fully collateralized reinsurance
agreements in the near term.
Asset
Management:
The Company has formed a wholly owned
subsidiary, Fundamental Global Advisors, LLC, to serve as an investment advisor to FedNat under the investment advisory agreement
entered into on December 2, 2019. In addition, the Company has formed Fundamental Global Asset Management, LLC, a joint venture
with FGI, which has sponsored, and intends to continue to sponsor investment advisors that will manage private funds ranging the
full spectrum of alternative equities, fixed income, private equity and real estate. FGFC will seek to benefit from the growth
of the assets under management of the investment advisors it sponsors and the performance of the funds they manage. For more
information on the joint venture, see the section entitled “Transactions with Related Persons” in this Proxy Statement.
Real
Estate:
FG
has purchased, and plans to continue to purchase controlling interests in income producing real estate assets. FG will seek to
benefit from underlying rental income on long-term leases with high quality tenants as well as the capital appreciation from the
underlying real estate assets.
Relationship
with FGI
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 Series A Preferred Stock. Mr. Cerminara, 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. For information about transactions
between the Company and FGI, see the section entitled “Transactions with Related Persons” in this Proxy Statement.
Implementation
of Proposed Name Change
By
approving the Name Change Proposal, our stockholders will authorize the Board to amend and restate the Certificate of Incorporation
to effectuate the name change and to change all references in the Certificate of Incorporation from “Third Amended and Restated
Certificate of Incorporation” to “Fourth Amended and Restated Certificate of Incorporation.” In particular,
Article I of the Fourth Amended and Restated Certificate of Incorporation will read as follows:
“ARTICLE
I. The name of the Corporation is FG Financial Group, Inc.”
The
board will also incorporate into the Fourth Amended and Restated Certificate of Incorporation the provisions of the Certificate
of Incorporation that were amended by the Certificate of Amendment, effective December 17, 2019 following the receipt of stockholder
approval.
If
approved by our stockholders, the proposed amendment and restatement, including the corporate name change, will become effective
when the Fourth Amended and Restated Certificate of Incorporation is filed with and accepted by the Secretary of State of the
State of Delaware. The corporate name change will not affect our corporate structure or any of our operations or businesses.
Our common stock and Series A Preferred
Stock currently trade on Nasdaq under the symbols “PIH” and “PIHPP,” respectively. If the Name Change
Proposal is approved and the corporate name change becomes effective, we will continue to be listed on Nasdaq. We expect that
our common stock and Series A Preferred Stock will begin trading under the new Nasdaq symbols “FGF” and “FGFPP,”
respectively, at or around the time we effect our name change.
We
have also entered into a Trademark License Agreement with FGI pursuant to which FGI has granted us a non-exclusive, non-assignable,
non-transferable, royalty-free and fully paid license to use, display and advertise the name “Fundamental Global”
in the United States on the terms and subject to the conditions set forth in the agreement.
The
above summary of the Fourth Amended and Restated Certificate of Incorporation is qualified in its entirety by reference to the
full text thereof, which is attached as Appendix A to this proxy statement (additions are underlined and deletions are
struck through).
Potential
Effects of the Proposed Name Change
If
the corporate name change becomes effective, the rights of stockholders holding certificated shares under currently outstanding
stock certificates and the number of shares represented by those certificates will remain unchanged. The new corporate name will
not affect the validity or transferability of any currently outstanding stock certificates, nor will it be necessary for
stockholders with certificated shares to surrender any stock certificates they currently hold as a result of the name change.
After the name change, all new stock certificates issued by the Company and all uncertificated shares held in direct registration
accounts, including uncertificated common and preferred shares currently held in direct registration accounts, will bear the name
FG Financial Group, Inc.
Upon
the effectiveness of the corporate name change, the Board intends to approve an amendment to the Company’s By-Laws
to change all references to “1347 Property Insurance Holdings, Inc.” in the By-Laws to “FG Financial Group,
Inc.”
In
connection with the corporate name change, the Company has also provided notice to 1347 Advisors LLC that, subject to the approval
of the Name Change Proposal by the Company’s stockholders, the Company intends to terminate the Trademark License Agreement,
effective as of February 28, 2014, pursuant to which the Company licenses the trade name “1347” from 1347 Advisors
LLC.
Stockholder approval of the amendment
and restatement of our Certificate of Incorporation to change our corporate name is not required by our Certificate of Incorporation,
By-laws or Delaware law. However, our Board of Directors is submitting the Name Change Proposal to the stockholders for ratification
as a matter of good corporate governance. If the Name Change Proposal is not approved by stockholders, our Board of Directors,
in its discretion, may take action to effect the name change in our Certificate of Incorporation and throughout other corporate
documents if the Board feels that such a change would be in the best interests of the Company and its stockholders.
Notwithstanding approval of the Name Change
Proposal by the stockholders, the Board reserves the right to, without further vote by our stockholders, abandon the proposed
corporate name change at any time and not file the Fourth Amended and Restated Certificate of Incorporation if the Board
concludes that such action would be in the best interest of the Company or our stockholders.
Applicable
Vote
Approval
of the Name Change Proposal requires the affirmative vote of at least 66 2/3% of the voting power of the outstanding shares of
common stock entitled to vote in the election of directors. A stockholder may vote “FOR” or “AGAINST”
approval or “ABSTAIN” from voting on the proposal. Proxies marked “ABSTAIN” will have the same effect
as a vote “AGAINST” the approval of the Name Change Proposal. A broker, bank or other nominee who has not been
furnished voting instructions from a beneficial owner will be authorized to vote on the Name Change Proposal as it is a “routine”
matter under applicable rules. Therefore, no broker non-votes are expected in connection with this Proposal 2.
Recommendation
of the Board of Directors
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” APPROVAL OF THE NAME CHANGE PROPOSAL.
PROPOSAL
3 — RATIFICATION OF APPOINTMENT OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR
THE YEAR ENDING
DECEMBER 31, 2020
At
the Annual Meeting, stockholders will be asked to ratify the appointment of BDO USA, LLP (“BDO”) as our independent
registered public accounting firm for the year ending December 31, 2020. The Audit Committee of our Board of Directors has appointed
BDO as our independent registered public accounting firm for the year ending December 31, 2020. BDO also served as our independent
registered public accounting firm for the year ended December 31, 2019, and has served as our independent registered public accounting
firm since 2012. If stockholders do not ratify the appointment of BDO, our Board may consider the selection of other independent
registered public accounting firms for the year ending December 31, 2020, but will not be required to do so.
Stockholder
ratification of the appointment of BDO is not required by our Certificate of Incorporation or our By-Laws. However, our Board
of Directors is submitting the appointment of BDO to the stockholders for ratification as a matter of good corporate governance.
Even if the appointment is ratified, our Board of Directors, in its discretion, may direct the appointment of a different
independent registered public accounting firm for 2020 if the Board of Directors feels that such a change would be in the best
interests of the Company and its stockholders.
We
expect that representatives of BDO will not be present at the Annual Meeting.
In
considering the reappointment of BDO as our independent registered public accounting firm, the Audit Committee considered BDO’s
qualifications, experience, independence, tenure as our independent registered public accounting firm and its related depth of
understanding of our businesses, operations and systems. The Audit Committee and the Board of Directors believe that the continued
retention of BDO as our independent registered public accounting firm is in the best interests of the Company and our stockholders
at this time.
Required
Vote
Ratification
requires an affirmative vote of the majority of the votes properly cast at the Annual Meeting. Proxies marked “ABSTAIN”
will not be considered as votes cast for or against Proposal 3 and will have no effect on the outcome of the proposal. A broker,
bank or other nominee who has not been furnished voting instructions from a beneficial owner will be authorized to vote on Proposal
3 as it is a “routine” matter under applicable rules. Therefore, no broker non-votes are expected in connection with
this Proposal.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” THE RATIFICATION OF THE APPOINTMENT
OF BDO USA, LLP AS THE COMPANY’S INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020.
Principal
Accountant Fees and Services
The
consolidated financial statements for the years ended December 31, 2019 and 2018 have been audited by BDO, our independent registered
public accounting firm. 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. Fees for all services provided by BDO were pre-approved by the
Audit Committee. The following table shows the fees that we incurred for professional services rendered by BDO for 2019 and 2018.
|
|
|
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.
|
AUDIT
COMMITTEE REPORT
The
following report of the Audit Committee shall not be deemed to be “soliciting material” or to be “filed”
with the Securities and Exchange Commission, nor shall this report be incorporated by reference into any filing made by the Company
under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
The
primary purpose of the Audit Committee is to assist the Board of Directors in fulfilling its general oversight of the Company’s
financial reporting process. The Audit Committee conducted its oversight activities for the Company in accordance with the duties
and responsibilities outlined in the Audit Committee charter. The Audit Committee has the authority to obtain advice and assistance
from outside legal, accounting or other advisers as the Audit Committee deems necessary to carry out its duties and to receive
appropriate funding, as determined by the Audit Committee, from the Company for such advice and assistance.
The
Company’s management is responsible for the preparation, consistency, integrity and fair presentation of the financial statements,
accounting and financial reporting principles, systems of internal control and procedures designed to ensure compliance with accounting
standards, applicable laws and regulations. The Company’s independent registered public accounting firm, BDO, is responsible
for performing an independent audit of the Company’s financial statements.
The
Audit Committee hereby reports as follows:
|
|
1.
|
The
Audit Committee has reviewed and discussed the audited financial statements as of and for the year ended December 31, 2019
with management.
|
|
|
|
|
|
|
2.
|
The
Audit Committee has discussed with BDO, the Company’s independent auditors for the year ended December 31, 2019, the
matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”)
and the Securities and Exchange Commission.
|
|
|
|
|
|
|
3.
|
The
Audit Committee has received the written disclosures and the letter from BDO required by applicable requirements of the PCAOB
regarding BDO’s communications with the Audit Committee concerning independence, and has discussed with BDO its independence.
|
|
|
|
|
|
|
4.
|
Based
upon the review and discussion referred to in paragraphs (1) through (3) above, the Audit Committee recommended to the Board
of Directors, and the Board approved, that the audited financial statements be included in the Company’s Annual Report
on Form 10-K for the year ended December 31, 2019, for filing with the Securities and Exchange Commission.
|
THE
AUDIT COMMITTEE
Dennis A. Wong, Chairman
General E. Gray Payne
Scott D. Wollney
INFORMATION
ABOUT OUR EXECUTIVE OFFICERS
Below
is biographical information for our executive officers who are not directors. Biographical information regarding Mr. Swets, our
Interim Chief Executive Officer and a current director of the Board, can be found in Proposal 1.
John
S. Hill, CPA, age 63, has served as our Executive Vice President since December 2019, Chief Financial Officer since July
2013 and was also appointed as Secretary in March 2015. Prior to becoming Executive Vice President, he served as our Vice President
since July 2013. 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 46, has served as our Senior Vice President since December 2019, and as our Controller since September
2014. Previously, Mr. Bottjer served as Principal Financial Officer and Controller of Biovest International, Inc., a biotechnology
company focused on developing a cure for various types of cancer of the immune system. Mr. Bottjer has also served in various
financial and regulatory reporting roles for a number of other publicly traded companies in the insurance, financial services,
and retail industries. Mr. Bottjer is a certified public accountant licensed in the state of Florida, and obtained his bachelor’s
of science degree from the State University of New York at Buffalo.
COMPENSATION
OF EXECUTIVE OFFICERS
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, and Brian D. Bottjer, our Senior Vice President and Controller, as well as Douglas N. Raucy,
our former President and Chief Executive Officer. In connection with the sale of the Company’s wholly owned subsidiaries,
Maison Insurance Company, Maison Managers, Inc., and ClaimCor, LLC (the “Asset Sale”), Mr. Raucy resigned from all
positions with the Company effective December 2, 2019. Mr. Raucy also entered into an employment agreement with FedNat Holding
Company, the purchaser in the Asset Sale transaction, effective December 2, 2019. Effective June 17, 2020, the Company’s
Board appointed Mr. Swets, a current director of the Board, as the Company’s Interim Chief Executive Officer, which role
he currently holds as the Company searches for a permanent replacement for Mr. Raucy. For more information, see “Corporate
Governance—Board Leadership Structure.”
With
respect to executive compensation, the primary goal of the Compensation Committee is to retain and motivate highly skilled executives
by 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
The
following table summarizes the compensation for our named executive officers for the years shown. The Company does not have any
employment agreements with its employees.
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
|
|
|
Exec
VP, Chief Financial Officer, & Secretary
|
|
|
2018
|
|
|
|
233,333
|
|
|
|
68,000
|
|
|
|
7,000
|
|
|
|
28,352
|
|
|
|
336,685
|
|
|
Brian
D. Bottjer
|
|
|
2019
|
|
|
|
184,291
|
|
|
|
175,000
|
|
|
|
–
|
|
|
|
36,590
|
|
|
|
395,881
|
|
|
Sr.
VP and Controller
|
|
|
2018
|
|
|
|
165,000
|
|
|
|
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 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 shares 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 2018
Plan. 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 2018
Plan. 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.
Retirement
Benefits
Contributions
to the 401(k) Plan are made up of a 100% matching contribution on the first 3% of pay and a 50% matching contribution on the next
2% of pay to the extent such contributions are not in excess of the Internal Revenue Code limits on contributions to Section 401(k)
plans. Under the 401(k) Plan, the Company may make additional matching contributions or other profit-sharing contributions at
its discretion. There were no discretionary contributions in 2019.
2018
Equity Incentive Plan
The
Company’s stockholders approved the 2018 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, RSUs
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 $200,000.
Outstanding
Equity Awards at 2019 Fiscal Year-End
The
following table shows the number of outstanding equity awards that were held by our named executive officers as of December 31,
2019. Mr. Raucy is not included in the table below, since, upon the closing of the Asset Sale, 32,000 unvested restricted stock
units (RSUs) held by Mr. Raucy vested in full, with each RSU representing one share of the Company’s common stock. All other
equity awards granted to Mr. Raucy were forfeited upon his resignation from all positions held with the Company and its subsidiaries,
effective December 2, 2019. Mr. Bottjer did not hold any equity awards as of December 31, 2019.
|
|
|
|
|
|
Stock
awards
|
|
Name
|
|
Grant
Date
|
|
|
Number
of shares or units of stock that have not vested (#)
|
|
Market
value of shares or units of stock that have not vested ($)(4)
|
|
|
Equity
incentive plan awards: Number of unearned shares, unit or other rights that have not vested (#)
|
|
|
Equity
incentive plan awards: Market or payout value of unearned shares, unit or other rights that have not vested ($)(4)
|
|
|
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 beginning with the first anniversary
of grant date, 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.
|
|
|
|
|
(4)
|
The
market value of unvested shares underlying the RSUs is based on $5.52, the closing market price of our common stock on December
31, 2019.
|
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.”
PROPOSAL
4 — To consider and act upon a non-binding advisory resolution to approve the compensation
of our Named Executive Officers
In
accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and Section
14A of the Exchange Act, we are asking our stockholders to vote to approve, on an advisory (non-binding) basis, the compensation
of our named executive officers as disclosed in this proxy statement pursuant to the compensation disclosure rules promulgated
by the SEC. This proposal, commonly known as a “say-on-pay” proposal, gives our stockholders the opportunity to express
their views on the compensation of our named executive officers. This vote is not intended to address any specific item of compensation,
but rather the overall compensation of our named executive officers and the philosophy, policies and practices described in this
proxy statement. Accordingly, we are asking our stockholders to vote “FOR” the following resolution at our Annual
Meeting:
“RESOLVED,
that the Company’s stockholders approve, on an advisory basis, the compensation paid to the Company’s named executive
officers, as disclosed in the Company’s proxy statement pursuant to Item 402 of Regulation S-K, including the compensation
tables and accompanying narrative disclosures.”
This
advisory say-on-pay vote on executive compensation is not binding on the Board or the Compensation Committee. However, the Board
values the opinion of our stockholders and will consider the result of the vote when making future decisions regarding executive
compensation. We design our executive compensation programs to implement our core objectives of attracting key leaders, motivating
our executives to remain with the Company for long and productive careers, rewarding sustained financial and operating performance
and leadership excellence and aligning the long-term interests of our executives with those of our stockholders. The Board believes
that the policies and practices described in “Compensation of Executive Officers” are effective in achieving the Company’s
goals.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE APPROVAL OF THE COMPENSATION OF OUR NAMED
EXECUTIVE OFFICERS.
Required
Vote
Approval
requires an affirmative vote of the majority of the votes properly cast at the Annual Meeting. Proxies marked “ABSTAIN”
and broker non-votes will not be considered as votes cast for or against Proposal 4 and will have no effect on the outcome of
the proposal.
PROPOSAL
5 - To consider and act upon a non-binding advisory resolution to approve the frequency of the stockholder vote to approve the
compensation of our Named Executive Officers
In
accordance with the Dodd-Frank Act and Section 14A of the Exchange Act, we are providing our stockholders with the opportunity
to cast a non-binding, advisory vote on whether future stockholder advisory votes on named executive officer compensation (the
“say-on-pay” vote of the nature reflected in Proposal 4 above) should occur every year, or up to every three years
(commonly referred to as a “say-when-on-pay” vote). Stockholders will be able to specify one of four choices for this
proposal on the proxy card: one year, two years, three years or abstain. Although the vote is advisory and non-binding, the Board
values the opinions that our stockholders express in their votes and will take into account the outcome of the vote when considering
how frequently we should conduct a “say-on-pay” vote. Accordingly, we are asking our stockholders to vote upon the
following resolution at our Annual Meeting:
“RESOLVED,
that the stockholders wish the Company to include an advisory vote on the compensation of the Company’s named executive
officers pursuant to Section 14A of the Securities Exchange Act every:
year;
two
years; or
three
years.”
While
our compensation strategies are related to both the short-term and longer-term business outcomes, we realize that compensation
decisions are made annually. We also believe that an annual advisory vote on named executive officer compensation will give us
more frequent feedback on our compensation disclosures and named executive officer compensation program. The Board has determined
that holding an advisory vote on named executive officer compensation every year is the most appropriate policy for us at this
time and recommends that stockholders vote for future advisory votes on named executive officer compensation to occur each year.
Notwithstanding the Board’s recommendation and the outcome of the stockholder vote, the Board may in the future decide to
conduct advisory votes on a more or less frequent basis and may vary its practice based on factors such as discussions with stockholders
and the adoption of material changes to compensation programs.
THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE OPTION OF EVERY YEAR AS THE FREQUENCY TO HAVE AN
ADVISORY VOTE ON THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
Required
Vote
The choice of frequency that receives the
highest number of “FOR” votes will be considered the advisory vote of the stockholders. Proxies marked “ABSTAIN”
and broker non-votes will not be considered as votes cast for or against this Proposal 5 and will have no effect on the outcome
of the proposal.
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.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information regarding the beneficial ownership of shares of our common stock as of the Record
Date of October 19, 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 directors, director nominees and named executive officers; and
|
|
|
●
|
All
of our current directors, director nominees and executive officers as a group.
|
The
number and percentages of shares beneficially owned are based on 4,957,364 common shares outstanding as of October 19, 2020. Information
with respect to beneficial ownership has been furnished by each director, director nominee, executive officer and beneficial owner
of more than 5% of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and 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, options and
RSUs held by each such person that are exercisable or vest within 60 days of the Record Date 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 Carillon Drive, Suite 314, St. Petersburg, FL 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
|
|
|
3,045,593
|
|
|
|
61.4
|
%
|
|
Kingsway
Financial Services, Inc.(2)
150
Pierce Road, Itasca, IL 60143
|
|
|
1,500,000
|
|
|
|
23.2
|
%
|
|
Solas
Capital Management, LLC(3)
1063
Post Rd., 2nd Floor, Darien, CT 06820
|
|
|
444,108
|
|
|
|
9.0
|
%
|
|
Named
Executive Officers and Directors
|
|
|
|
|
|
|
|
|
|
Larry
G. Swets, Jr., Interim Chief Executive Officer and Director(4)
|
|
|
11,178
|
|
|
|
*
|
|
|
John
S. Hill, Executive Vice President, Secretary and Chief Financial Officer(4)
|
|
|
37,100
|
|
|
|
*
|
|
|
Brian
D. Bottjer, Senior Vice President and Controller
|
|
|
–
|
|
|
|
–
|
|
|
Douglas
N. Raucy, Former President and Chief Executive Officer and Director(5)
|
|
|
15,873
|
|
|
|
*
|
|
|
D.
Kyle Cerminara, Chairman of the Board(1)(4)
|
|
|
3,056,754
|
|
|
|
61.6
|
%
|
|
Lewis
M. Johnson, Co-Chairman of the Board(1)(4)
|
|
|
3,056,754
|
|
|
|
61.6
|
%
|
|
E.
Gray Payne, Director
|
|
|
3,829
|
|
|
|
*
|
|
|
Rita
Hayes, Director
|
|
|
2,623
|
|
|
|
*
|
|
|
Marsha
G. King, Director(6)
|
|
|
3,623
|
|
|
|
*
|
|
|
Scott
D. Wollney, Director
|
|
|
6,829
|
|
|
|
*
|
|
|
Dennis
A. Wong, Director(4)
|
|
|
11,328
|
|
|
|
*
|
|
|
Current
Executive Officers and Directors as a Group (10 individuals)(4)(6)(7)
|
|
|
3,144,425
|
|
|
|
63.4
|
%
|
*
Less than 1.0%
|
1.
|
Fundamental
Global Investors, LLC (referred to in this Proxy Statement as “FGI”) shares voting and dispositive
power with respect to 3,045,593 shares of common stock. Fundamental Activist Fund I, LP (“FAFI”) shares
voting and dispositive power with respect to 788,199 shares of common stock and also holds a call option to purchase 50,000
shares of common stock, for a purchase price of $6.00 per share, expiring at 5:00 pm, Eastern time on April 16, 2022. 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 628,875 shares of common stock and also holds a call option to purchase 50,000 shares of
common stock, for a purchase price of $6.00 per share, expiring at 5:00 pm, Eastern time on April 16, 2022. 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. Fundamental Global Capital Appreciation Fund, LP (“FGCA”) shares voting and dispositive
power with respect to 3,000 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 BTN and Mr. Johnson is Co-Chairman
of the Board of BTN. 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 filed with the SEC on April 22, 2020 and a Form 4 filed
with the SEC on August 17, 2020. In addition, CWA Asset Management Group, LLC (“CWA”), of which 50% is
owned by Fundamental Global Investors, LLC, holds 52,025 shares of common stock for the accounts of individual investors (excluding
shares held in accounts for BTN as well as for Messrs. Cerminara and Johnson), which represents approximately 1.0% 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, FGGM and FGCA. 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
2,667 shares potentially issuable to each of Messrs. Cerminara and Johnson pursuant to RSUs granted on December 15, 2017,
3,429 shares potentially issuable to each of Messrs. Cerminara and Johnson pursuant to RSUs granted on August 22, 2018, 6,178
shares potentially issuable to each of Messrs. Cerminara and Johnson pursuant to RSUs granted on August 13, 2019, and 8,714
shares potentially issuable to each of Messrs. Cerminara and Johnson pursuant to RSUs granted on August 12, 2020. The business
addresses for Mr. Cerminara are c/o Fundamental Global Investors, LLC, 4201 Congress Street, Suite 140, Charlotte, North Carolina
28209; c/o Ballantyne Strong, Inc., 4201 Congress Street, Suite 175, 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.
|
1347
Advisors, LLC (“1347 Advisors”) a wholly-owned subsidiary of Kingsway Financial Services, Inc., (“KFSI”)
beneficially owns warrants 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.
|
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.
|
|
4.
|
The
beneficial interests listed include the following shares that each individual has the right to acquire within 60 days of the
Record Date.
|
|
RSU
Grantee
|
|
RSU
Grant Date
|
|
No.
Shares Subject to a
Right
to Acquire within 60 days of Record Date
|
|
|
Larry
G. Swets, Jr.
|
|
12/15/2017
|
|
|
1,333
|
|
|
John
S. Hill
|
|
12/15/2017
|
|
|
6,400
|
|
|
D.
Kyle Cerminara
|
|
12/15/2017
|
|
|
1,333
|
|
|
Dennis
A. Wong
|
|
12/15/2017
|
|
|
1,333
|
|
|
Lewis
M. Johnson
|
|
12/15/2017
|
|
|
1,333
|
|
|
|
|
|
|
|
11,732
|
|
|
5.
|
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.
|
|
|
|
|
6.
|
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.
|
|
|
|
|
7.
|
Includes
3,045,593 shares reported as beneficially owned by Fundamental Global Investors, LLC and its affiliates, of which Messrs.
Cerminara and Johnson are deemed to have beneficial ownership by virtue of their respective positions with Fundamental Global
Investors, LLC, as discussed in footnote 1.
|
TRANSACTIONS
WITH RELATED PERSONS
It
is the responsibility of the Audit Committee or, on a case-by-case basis, a special committee created by the Board, to review
and oversee proposed “related party transactions” as defined in Item 404(a) of the SEC’s Regulation S-K. These
include transactions and series of similar transactions to which we were a party or will be a party, in which
|
|
●
|
the
amounts involved exceeded or will exceed $120,000; and
|
|
|
|
|
|
|
●
|
any
of our directors, director nominees, executive officers or beneficial owners of more than 5% of any class of our voting stock,
or any immediate family members thereof, had or will have a direct or indirect material interest.
|
Below
is a summary of our related party transactions between January 1, 2018 and the Record Date.
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 KFSI, a publicly owned Delaware holding company. As of the Record Date, KFSI and its affiliates
beneficially owned approximately 23% of our outstanding shares of common stock. Larry G. Swets, Jr., our interim Chief Executive
Officer and 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 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. The Company expects to terminate the
Trademark License Agreement in connection with the name change described in Proposal 2.
The Company also expects to enter into
a Trademark License Agreement with FGI in connection with Proposal 2, pursuant to which FGI will grant us a non-exclusive, non-assignable,
non-transferable, royalty-free and fully paid license to use, display and advertise the name “Fundamental Global”
in the United States on the terms and subject to the conditions set forth in the agreement.
Investment
in Argo Management Group LLC
On
April 21, 2016, KFSI completed the acquisition of Argo Management Group LLC (“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 and September 30, 2020, 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
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 Series A Preferred Stock. Mr. Cerminara, 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
FGPM,
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
has invested 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 47% and 50% as of December 31, 2019 and September 30, 2020, respectively. As of December 31, 2019 and
September 30, 2020, the total amount invested in Metrolina was $2,219,000 and $4,000,000, respectively.
Shared
Services Agreement
On
March 31, 2020, the Company entered into a Shared Services Agreement (the “Shared Services Agreement”) with
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.
Share
Repurchase and Cooperation Agreement
On
September 15, 2020, the Company entered into a Share Repurchase and Cooperation Agreement (the “Share Repurchase Agreement”)
with Hale Partnership Capital Management, LLC and certain of its affiliates (collectively, the “Hale Parties”),
which, prior to the transaction owned more than 18% of our outstanding common stock.
Pursuant
to the Share Repurchase Agreement, the Company agreed to purchase (exclusive of any fees or expenses) all of the 1,130,152 shares
of the Company’s common stock, par value $0.001 per share (“Common Stock”) owned, of record or beneficially,
by the Hale Parties, in exchange for an aggregate $2,752,617 in cash and 330,231 shares of common stock, par value $0.01 per share,
of FedNat Holding Company previously owned by the Company (the “FedNat Shares”). As acknowledged by the Hale
Parties in the Share Repurchase Agreement, that certain Standstill Agreement, dated December 2, 2019, by and between FedNat Holding
Company and the Company, imposes certain restrictions in respect of the FedNat Shares transferred by the Company to the Hale Parties.
FedNat Holding Company is not party to, or a third-party beneficiary of, the Agreement.
The
Share Purchase Agreement contains certain customary standstill provisions that, for a period of five years commencing September
15, 2020 (the “Standstill Period”), prohibit, among other things, the Hale Parties from (i) making certain
announcements regarding the Company’s transactions, (ii) soliciting proxies, (iii) acquiring ownership of any securities
of the Company, (iv) advising, encouraging or influencing any vote or disposition of any securities of the Company, (v) selling
securities of the Company resulting in any third party owning more than 4.9% of the outstanding shares of the Company’s
common stock (subject to certain exceptions set forth in the Share Purchase Agreement), (vi) taking actions to change or influence
the Board of Directors of the Company, Company management or the direction of certain Company matters and (vii) exercising certain
stockholder rights. The Company and the Hale Parties further agreed that they will not disparage each other and that they will
not initiate any lawsuit, claim or proceeding with respect to any claims against the Company or any of the Hale Parties, as applicable,
based on facts known as of the Effective Date, in each case applicable during the Standstill Period, and to a mutual release of
claims.
Each
of the Company and the Hale Parties has the right to terminate the Share Purchase Agreement prior to the end of the Standstill
Period if (i) any of the Hale Parties, in the case of the Company, or (ii) the Company, in the case of the Hale Parties, commits
a material breach of the Share Purchase Agreement and such breach is not cured within 15 days after notice is given to the breaching
party.
Other
Transactions
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, 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.
OTHER
MATTERS
The
Board of Directors does not currently know of any other matters to be presented at the Annual Meeting. If any other matters properly
come before the Annual Meeting, it is intended that the shares represented by proxies will be voted as recommended by the Board
of Directors or, if no recommendation is given, in the discretion of the proxy holders using their best judgement.
HOUSEHOLDING
The
SEC has adopted a rule concerning the delivery of annual reports and proxy statements. It permits the Company, with your permission,
to send a single copy of this Proxy Statement and our 2019 annual report to any household at which two or more of the Company’s
stockholders reside. This rule is called “householding,” and its purpose is to help reduce printing and mailing costs
of proxy materials. We do not “household” proxy materials to stockholders of record. However, some banks, brokers
and other nominees may be participating in the practice of “householding.”
We
will promptly deliver, upon oral or written request, a separate copy of this Proxy Statement and our 2019 annual report to any
stockholders residing at an address to which only one copy of this Proxy Statement and our 2019 annual report was mailed. Requests
for additional copies should be directed in writing to a stockholder’s broker, bank or other nominee holding shares of our
common stock for such stockholder or to the attention of our Corporate Secretary at (727) 304-5666 or in writing at 970 Lake Carillon
Dr., Suite 318., St. Petersburg, FL 33716. In the future, stockholders wishing to receive separate copies of our proxy statements
and annual reports in the future, and stockholders sharing an address that wish to receive a single copy of our proxy statement
and annual report if they are receiving multiple copies of those documents, should contact their bank, broker or other nominee
record holder, or may contact our Corporate Secretary as described above.
STOCKHOLDER
PROPOSALS FOR PRESENTATION
AT THE 2021 ANNUAL MEETING
Stockholder
proposals intended to be considered for inclusion in next year’s proxy statement and form of proxy for presentation at the
2021 Annual Meeting of Stockholders must comply with Exchange Act Rule 14a-8. The deadline for submitting such proposals is July
2, 2021, unless the date of the 2021 Annual Meeting is more than 30 days before or after the one-year anniversary date of the
Annual Meeting, in which case proposals must be submitted a reasonable time before we print our proxy materials for the 2021 Annual
Meeting. The submission of a stockholder proposal does not guarantee that it will be included in our proxy statement.
Stockholders
wishing to submit proposals for the 2021 Annual Meeting outside the process of Exchange Act Rule 14a-8 or to nominate individuals
to our Board of Directors must comply with the advance notice and other provisions of Article I, Section 4 of our By-Laws. To
be timely, notice of the proposal must be received by the Secretary of the Company between August 16, 2021 and September 15, 2021;
provided, however, that in the event the date of the 2021 Annual Meeting is advanced by more than 30 days before or delayed by
more than 60 days after the anniversary date of our Annual Meeting, to be timely, notice by the stockholder must be so delivered
not earlier than the close of business on the 120th day prior to the 2021 Annual Meeting and not later than the close of business
on the later of (i) the 90th day prior to the 2021 Annual Meeting or (ii) the 10th day following the day on which public announcement
of the date of such meeting is first made.
Stockholder
proposals should be addressed to 1347 Property Insurance Holdings, Inc., 970 Lake Carillon Dr., Suite 318., St. Petersburg, FL
33716. The specific requirements for submitting stockholder proposals are set forth in Article I, Section 4 of our By-Laws.
By
Order of the Board of Directors,
|
/s/
D. Kyle Cerminara
|
|
|
D.
Kyle Cerminara
|
|
|
Chairman
of the Board
|
|
A
copy of our annual report on Form 10-K for the fiscal year ended December 31, 2019 is available without charge upon written request
to: 1347 Property Insurance Holdings, Inc., Corporate Secretary, 970 Lake Carillon Dr., Suite 318., St. Petersburg, FL 33716.
You may also access this Annual Report, along with all our filings made electronically with the SEC, including on Forms 10-Q and
8-K, on our website at www.1347pih.com.
APPENDIX
A
THIRD AMENDED AND RESTATED
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
1347 PROPERTY INSURANCE HOLDINGS,
INC. FG FINANCIAL GROUP, INC.
1347 Property Insurance
Holdings, Inc. FG Financial Group, Inc. (the “Corporation”), a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
1. The
name of the Corporation is 1347 Property Insurance Holdings, Inc. FG Financial Group, Inc. The Corporation’s
Certificate of Incorporation was originally filed with the Secretary of State of Delaware on October 2, 2012 and was subsequently
amended and restated on November 19, 2013, January 16, 2014 (the second amended and restated Certificate of Incorporation
referred to herein as the “Second Amended and Restated Certificate”). , and March
19, 2014 (the Third Amended and Restated Certificate of Incorporation is referred to herein as the “Third Amended and Restated
Certificate”). The Third Amended and Restated Certificate was subsequently amended by a Certificate of Amendment filed with
the Secretary of State of Delaware on December 17, 2019 (the “Certificate of Amendment”).
2. This
Third Fourth Amended and Restated Certificate of Incorporation (the “Certificate”) amends,
restates and integrates the provisions of the SecondThird Amended and Restated Certificate and the Certificate
of Amendment and was duly adopted in accordance with the provisions of Sections 242 and 245 of the Delaware General Corporation
Law (“DGCL”).
3. The
text of the SecondThird Amended and Restated Certificate is hereby amended and restated in its entirety
to provide as follows:
ARTICLE I
The name of the Corporation
is 1347 Property Insurance Holdings, IncFG Financial Group, Inc.
ARTICLE
II
The
address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington,
in the County of New Castle, in the State of Delaware 19801. The name of its registered agent at that address is The Corporation
Trust Company.
ARTICLE
III
The
purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.
ARTICLE
IV
CAPITAL
STOCK
The
total number of shares of capital stock which the Corporation shall have authority to issue is Eleven Million (11,000,000) shares,
of which (i) Ten Million (10,000,000) shares shall be a class designated as common stock, par value $0.001 per share (the “Common
Stock”), and (ii) One Million (1,000,000) shares shall be a class designated as preferred stock, par value $25.00 per share
(the “Preferred Stock”).
The
number of authorized shares of the class of Preferred Stock may from time to time be increased or decreased (but not below the
number of shares outstanding) by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock entitled
to vote, without a vote of the holders of the Preferred Stock (except as otherwise provided in any certificate of designations
of any series of Preferred Stock).
The
powers, preferences and rights of, and the qualifications, limitations and restrictions upon, each class or series of stock shall
be determined in accordance with, or as set forth below in, this Article IV.
A.
COMMON STOCK
Subject
to all the rights, powers and preferences of the Preferred Stock and except as provided by law or in this Article IV (or in any
certificate of designations of any series of Preferred Stock):
(a)
the holders of the Common Stock shall have the exclusive right to vote for the election of Directors of the Corporation (the “Directors”)
and on all other matters requiring stockholder action, each outstanding share entitling the holder thereof to one vote on each
matter properly submitted to the stockholders of the Corporation for their vote; provided, however, that, except
as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to this Certificate
(or on any amendment to a certificate of designations of any series of Preferred Stock) that alters or changes the powers, preferences,
rights or other terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled
to vote, either separately or together with the holders of one or more other such series, on such amendment pursuant to this Certificate
(or pursuant to a certificate of designations of any series of Preferred Stock) or pursuant to the DGCL, irrespective of the provisions
of Section 242(b)(2) of the DGCL;
(b)
dividends may be declared and paid or set apart for payment upon the Common Stock out of any assets or funds of the Corporation
legally available for the payment of dividends, but only when and as declared by the Board of Directors of the Corporation (the
“Board of Directors”) or any authorized committee thereof;
(c)
upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the net assets of the Corporation
shall be distributed pro rata to the holders of the Common Stock; and
(d)
the holders of the Common Stock shall vote together as a single class on all matters (or, if any holders of Preferred Stock are
entitled to vote together with the holders of the Common Stock, as a single class with such holders of Preferred Stock).
B.
UNDESIGNATED PREFERRED STOCK
The
Board of Directors or any authorized committee thereof is expressly authorized, to the fullest extent permitted by law, to provide
for the issuance of the shares of Preferred Stock in one or more series of such stock, and by filing a certificate pursuant to
applicable law of the State of Delaware, to establish or change from time to time the number of shares of each such series, and
to fix the designations, powers, including voting powers, full or limited, or no voting powers, preferences and the relative,
participating, optional or other special rights of the shares of each series and any qualifications, limitations and restrictions
thereof. The powers, preferences and relative, participating, optional or other special rights of each series of Preferred Stock,
and any qualifications, limitations or restrictions thereof, may differ from those of any and all other series outstanding at
any time.
ARTICLE
V
STOCKHOLDER
ACTION
1.
ACTION WITHOUT A MEETING. Subject to all the rights, powers and preferences of any series of Preferred Stock, any action required
or permitted to be taken by the stockholders of the Corporation must be effected at an annual or special meeting of the stockholders
and may not be effected by written consent in lieu of a meeting.
2.
SPECIAL MEETINGS. Except as otherwise required by the DGCL and subject to the rights, if any, of the holders of any series of
Preferred Stock, special meetings of the stockholders of the Corporation shall be called (i) by the Board of Directors acting
pursuant to a resolution approved by the affirmative vote of a majority of the Directors then in office, or (ii) by the Chief
Executive Officer, the President or the Secretary at the written request of any person or persons holding of record not less than
fifty percent (50%) of the total number of shares of stock of the Corporation entitled to vote on any issue contemplated to be
considered at such proposed special meeting, which written request shall state with specificity the purpose or purposes of such
meeting. Only those matters set forth in the notice of the special meeting may be considered or acted upon at a special meeting
of stockholders of the Corporation.
ARTICLE
VI
DIRECTORS
1.
GENERAL. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except
as otherwise provided herein or required by law.
2.
ELECTION OF DIRECTORS. Election of Directors need not be by written ballot unless the By-laws of the Corporation (the “By-laws”)
shall so provide.
3.
NUMBER OF DIRECTORS; TERM OF OFFICE. Subject to all the rights, powers and preferences of any series of Preferred Stock, the number
of Directors of the Corporation shall be fixed solely and exclusively by resolution duly adopted from time to time by the Board
of Directors. The successors of the Directors whose terms expire at the 2019 annual meeting of stockholders shall serve a term
of office to expire at the 2020 annual meeting of stockholders. At the 2020 annual meeting of stockholders, the successors of
the Directors whose terms expire at that meeting shall serve a term of office to expire at the 2021 annual meeting of stockholders.
At the 2021 annual meeting of stockholders, and at each annual meeting of stockholders thereafter, the successors of the Directors
whose terms expire at each such meeting shall serve a term of office expiring at the annual meeting of stockholders next following
their election. Notwithstanding the foregoing, the Directors shall hold office until their successors are duly elected and qualified
or until their earlier resignation or removal.
Subject
to the rights of the holders of any one or more series of Preferred Stock then outstanding, any and all vacancies in the Board
of Directors, however occurring, including, without limitation, newly-created Directorships by reason of an increase in the size
of the Board of Directors, or the death, resignation, disqualification or removal of a Director, shall, unless otherwise required
by law or by resolution of the Board of Directors, be filled only by a majority vote of the remaining Directors then in office,
even if less than a quorum (and not by stockholders), and Directors so chosen shall serve for a term expiring at the annual meeting
of stockholders at which their term of office expires or until such Directors’ successors shall have been duly elected and
qualified. No decrease in the authorized number of Directors shall shorten the term of any incumbent Director. In the event of
a vacancy in the Board of Directors, the remaining Directors then in office, except as otherwise provided by law, shall exercise
the powers of the full Board of Directors until the vacancy is filled.
Notwithstanding
the foregoing, whenever, pursuant to the provisions of Article IV of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or together with holders of other such series, to elect Directors
at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such
Directorships shall be governed by the terms of this Certificate and any certificate of designations applicable thereto.
ARTICLE
VII
LIMITATION
OF LIABILITY
To
the fullest extent permitted by the DGCL, as the same exists or as may hereafter be amended, a Director of the Corporation shall
not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a Director;
provided, however, that nothing contained in this Article VII shall eliminate or limit the liability of a Director
(i) for any breach of the Director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to the provisions of Section
174 of the DGCL, or (iv) for any transaction from which the Director derived an improper personal benefit. If the DGCL is amended
after the effective date of this Certificate to authorize corporate action further eliminating or limiting the personal liability
of Directors, then the liability of a Director of the Corporation shall be eliminated or limited to the fullest extent permitted
by the DGCL, as so amended.
Any
repeal or modification of this Article VII by either of (i) the stockholders of the Corporation or (ii) an amendment to the DGCL,
shall not adversely affect any right or protection existing at the time of such repeal or modification with respect to any acts
or omissions occurring before such repeal or modification of a person serving as a Director at the time of such repeal or modification.
ARTICLE
VIII
INDEMNIFICATION
The
Corporation shall indemnify its Directors and officers to the fullest extent authorized or permitted by applicable law, as now
or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a Director or officer
of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided,
however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify
any Director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection
with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors. The right to indemnification conferred by this Article VIII shall include the right to be paid by
the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition
upon receipt by the Corporation of an undertaking by or on behalf of the Director or officer receiving advancement to repay the
amount advanced if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation under
this Article VIII.
The
Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to
the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to Directors
and officers of the Corporation.
The
rights to indemnification and to the advancement of expenses conferred in this Article VIII shall not be exclusive of any other
right which any person may have or hereafter acquire under this Third Amended and Restated Certificate of Incorporation, the By-laws
of the Corporation, any statute, agreement, vote of stockholders or disinterested Directors or otherwise.
Any
repeal or modification of this Article VIII by the stockholders of the Corporation shall not adversely affect any rights to indemnification
and to the advancement of expenses of a Director or officer of the Corporation existing at the time of such repeal or modification
with respect to any acts or omissions occurring prior to such repeal or modification.
ARTICLE
IX
AMENDMENT
OF BY-LAWS
1.
AMENDMENT BY DIRECTORS. Except as otherwise provided by law, the Board of Directors is expressly authorized to adopt, repeal,
alter or amend the By-laws of the Corporation by the affirmative vote of a majority of the Directors then in office.
2.
AMENDMENT BY STOCKHOLDERS. Notwithstanding anything to the contrary contained in this Certificate, the affirmative vote of the
holders of at least 66 2/3 % of the voting power of all the then outstanding shares of stock of the Corporation entitled to vote
generally in the election of Directors, voting together as a single class, shall be required for the stockholders to make, amend,
alter, change, add to or repeal any provision of the By-laws of the Corporation.
ARTICLE
X
AMENDMENT
OF CERTIFICATE OF INCORPORATION
This
Certificate may be amended at any meeting of the stockholders; provided, that notice of the proposed change was given in
the notice of the meeting of the stockholders, if applicable; and provided further, that notwithstanding any other provision
of this Certificate or any provision of law which might otherwise permit a lesser vote of the stockholders, the affirmative vote
of the holders of at least 66 2/3% of the voting power of all the then outstanding shares of stock of the Corporation entitled
to vote generally in the election of Directors, voting together as a single class, shall be required for the stockholders to amend
any provision of this Certificate.
ARTICLE
XI
1.
This Article XI anticipates the possibility that (A) KFSI may be a significant stockholder of the Corporation, (B) certain KFSI
Officials may also serve as Corporation Officials, and (C) benefits may be derived by the Corporation Entities through their contractual,
corporate and business relations with the KFSI Entities. The provisions of this Article XI shall, to the fullest extent permitted
by law, define the conduct of certain affairs of the Corporation Entities and Corporation Officials as they may involve the KFSI
Entities, and the powers, rights, duties and liabilities of the Corporation Entities and Corporation Officials in connection therewith.
2.
No contract, agreement, arrangement or transaction (or any amendment, modification or termination thereof) entered into between
any Corporation Entity, on the one hand, and any KFSI Entity, on the other hand, before the Corporation ceases to be a wholly
owned subsidiary of KFSI shall be void or voidable or be considered unfair to the Corporation or any Corporation Affiliate for
the reason that any KFSI Entity is a party thereto, or because any KFSI Official is a party thereto, or because any KFSI Official
was present at or participated in any meeting of the Board of Directors, or committee thereof, or the Board of Directors, or committee
thereof, of any Corporation Affiliate, that authorized the contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof), or because his, her or their votes were counted for such purpose. No such contract, agreement,
arrangement or transaction (or any amendment, modification or termination thereof) or the performance thereof by any Corporation
Entity shall be considered to be contrary to any fiduciary duty owed to any of the Corporation Entities or to any of their respective
stockholders by any KFSI Entity or by any Corporation Official (including any Corporation Official who may have been a KFSI Official)
and each such Corporation Official shall be deemed to have acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation Entities, and shall be deemed not to have breached his or her
duties of loyalty to the Corporation Entities and their respective stockholders, and not to have derived an improper personal
benefit therefrom. No Corporation Official shall have or be under any fiduciary duty to any Corporation Entity or its stockholders
to refrain from acting on behalf of any such Corporation Entity (or on behalf of any KFSI Entity if such Corporation Official
is also a KFSI Official) in respect of any such contract, agreement, arrangement or transaction (or any amendment, modification,
or termination thereof) or to refrain from performing any such contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof) in accordance with its terms.
3.
The Corporation may from time to time enter into and perform, and cause or permit any Corporation Affiliate to enter into and
perform, one or more agreements (or amendments or modifications to pre-existing agreements) with any one or more of the KFSI Entities
pursuant to which any one or more Corporation Entities, on the one hand, and any one or more of the KFSI Entities, on the other
hand, agree to engage in transactions of any kind or nature, or agree to compete, or to refrain from competing or to limit or
restrict their competition, with each other (or with any one or more other KFSI Entities or Corporation Entities, respectively),
including to allocate and to cause Corporation Officials and KFSI Officials (including any person who is both a Corporation Official
and a KFSI Official) to allocate or refer opportunities between such Corporation Entities and KFSI Entities. To the fullest extent
permitted by law, neither any such agreement, nor the performance thereof by any Corporation Entity or any KFSI Entity, shall
be considered contrary to (1) any fiduciary duty that any KFSI Entity may owe to any Corporation Entity, or its stockholders,
by reason of any KFSI Entity being, directly or indirectly, a significant stockholder of any such Corporation Entity or participating
in the control of any such Corporation Entity or (2) any fiduciary duty that any Corporation Official who is also a KFSI Official
may owe to any Corporation Entity or its stockholders. To the fullest extent permitted by law, no KFSI Entity, by reason of being,
directly or indirectly, a significant stockholder of any Corporation Entity or participant in control of any Corporation Entity,
shall have or be under any fiduciary duty to refrain from entering into any agreement or participating in any transaction referred
to above, and no Corporation Official who is also a KFSI Official shall have or be under any fiduciary duty to any Corporation
Entity, or its stockholders, to refrain from acting on behalf of any Corporation Entity or any KFSI Entity in respect of any such
agreement or transaction or performing any such agreement in accordance with its terms.
4.
Anything in this Certificate to the contrary notwithstanding, the provisions of Section 3 of this Article XI shall automatically
terminate, expire and have no further force and effect from and after the date on which the KFSI Entities collectively cease to
beneficially own shares of Common Stock representing at least 20% of the votes entitled to be cast by the then-outstanding shares
of all classes and series of capital stock of the Corporation entitled generally to vote on the election of the Directors of the
Corporation (or any class thereof) at any annual or special meeting of stockholders.
5.
Except as otherwise defined in this Certificate, the following terms shall have the meanings ascribed to them below:
“Corporation
Affiliate” shall mean (1) any person of which the Corporation is the beneficial owner (directly or indirectly) of 20%
or more of the outstanding voting stock, voting power, partnership interests or similar voting interests or (2) any other person
that (directly or indirectly) is controlled by the Corporation;
“Corporation
Entity” shall mean any one or more of the Corporation and the Corporation Affiliates;
“Corporation
Official” shall mean each person who is a Director or an officer (or both) of the Corporation or one or more Corporation
Affiliates;
“KFSI”
shall mean Kingsway Financial Services Inc., a corporation incorporated under the Business Corporations Act (Ontario), any of
its successors by way of merger or share exchange, any acquiror of all or substantially all of its assets and any person of which
KFSI becomes a subsidiary;
“KFSI
Affiliate” shall mean, other than the Corporation or any Corporation Affiliate, (1) any person of which KFSI is the
beneficial owner (directly or indirectly) of 20% or more of the outstanding voting stock, voting power, partnership interests
or similar voting interests or (2) any other person that (directly or indirectly) is controlled by KFSI, controls KFSI or is under
common control with KFSI;
“KFSI
Entity” shall mean any one or more of KFSI and the KFSI Affiliates;
“KFSI
Official” shall mean each person who is a Director or an officer (or both) of KFSI or one or more KFSI Affiliates;
“person”
shall mean a natural person, corporation, partnership, limited liability company, joint venture, association or legal entity of
any kind; each reference to a “natural person” (or to a “record holder” of shares, if a natural person)
shall be deemed to include in his or her representative capacity a guardian, committee, executor, administrator or other legal
representative of such natural person or record holder; and
“subsidiary”
shall mean, as to any person, a corporation, partnership, limited liability company, joint venture, association or other entity
in which such person beneficially owns (directly or indirectly) 50% or more of the outstanding voting power or partnership interests
or similar voting interests.
For
purpose of the foregoing definitions, the term “control” (including the terms “controlling,” “controlled
by” and “under common control with”) means the possession, direct or indirect, of the power to direct or cause
the direction of the management and policies of an entity, whether through the ownership of voting securities, by contract, or
otherwise.
*
* *
4. The foregoing ThirdFourth Amended and
Restated Certificate of Incorporation has been duly adopted by the Corporation’s Directors and stockholders in accordance
with the applicable provisions of Sections 228, 242 and 245 of the DGCL.
IN WITNESS WHEREOF, this ThirdFourth Amended
and Restated Certificate of Incorporation is executed as of this ___ day of ____________, 2020.
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