As filed with the U.S. Securities and Exchange Commission on January 29, 2014.

Registration No. 333-193314

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



 

1347 PROPERTY INSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



 

   
Delaware   6331   46-1119100
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (IRS Employer
Identification No.)

9100 Bluebonnet Centre Blvd., Suite 502
Baton Rouge, LA 70809
(225) 361-8747

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)



 

Douglas N. Raucy
President and Chief Executive Officer
1347 Property Insurance Holdings, Inc.
9100 Bluebonnet Centre Blvd., Suite 502
Baton Rouge, LA 70809
(225) 361-8747

(Name, address, including zip code, and telephone number, including area code, of agent for service)



 

Copies of communications to:

 
Joel L. Rubinstein, Esq.
Eric Orsic, Esq.
McDermott Will & Emery LLP
340 Madison Avenue
New York, New York 10173
Telephone: (212) 547-5400
Facsimile: (212) 547-5444
  Anthony J. Marsico, Esq.
Greenberg Traurig, LLP
200 Park Avenue
New York, New York 10166
Telephone: (212) 801-9362
Facsimile: (212) 805-9362


 

Approximate date of commencement of proposed sale to the public : As soon as practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this Form is filed to register additional shares for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 
Large accelerated filer o   Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)   Smaller reporting company x

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 


 
 

TABLE OF CONTENTS

  

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities, nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

   
PRELIMINARY PROSPECTUS   SUBJECT TO COMPLETION   DATED JANUARY 29, 2014

     Shares
Common Stock

[GRAPHIC MISSING]

This is 1347 Property Insurance Holdings, Inc.’s initial public offering. We are selling    shares of our common stock. 1347 Property Insurance Holdings, Inc. is currently a wholly-owned subsidiary of Kingsway Financial Services Inc.

Prior to this offering, there has been no public market for our common stock. We anticipate that the initial public offering price per share of our shares of common stock will be between $    and $    per share. We have applied to list our common stock on The NASDAQ Capital Market under the symbol “PIH”. No assurance can be given that our application will be approved.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 9 of this prospectus for a discussion of information that should be considered in connection with an investment in our common stock.

We qualify as an “emerging growth company” as defined in the Jumpstart our Business Startups Act of 2012, and therefore will be subject to reduced reporting requirements.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

   
  Per Share   Total
Public offering price   $          $       
Underwriting discounts and commissions (1)   $     $  
Offering proceeds to us, before expenses   $          $       
(1) Does not include a non-accountable expense allowance equal to 1% of the gross proceeds of this offering payable to Aegis Capital Corp, the representative of the underwriters. See “Underwriting” beginning on page 78 of this prospectus for a description of compensation payable to the underwriters.

We have granted a 45-day option to the underwriters to purchase up to    additional shares of our common stock solely to cover over-allotments, if any.

The underwriters expect to deliver our shares to purchasers in the offering on or about            , 2014.

Sole Book-Running Manager

Aegis Capital Corp

Co-Manager

EarlyBirdCapital, Inc.

           , 2014


 
 

TABLE OF CONTENTS

TABLE OF CONTENTS

Through and including            , 2014 (the 25 th day after the commencement of our initial public offering), all dealers effecting transactions in these securities, whether or not participating in our initial public offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

You should rely only on the information contained in this prospectus. Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares of common stock offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of its date, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock.

Unless otherwise indicated, statements in this prospectus concerning our market and where we operate, including our general expectations and competitive position, business opportunity, and category size, growth, and share, are based on information from independent industry organizations and other third-party sources (including industry publications, surveys, and forecasts), government publications, data from our internal research, and management estimates. Management estimates are derived from the information and data referred to above, and are based on assumptions and calculations made by us based upon our interpretation of such information and data, and our knowledge of our industry and the categories in which we operate, which we believe to be reasonable. Furthermore, the information and data referred to above are imprecise. Projections, assumptions, expectations, and estimates regarding our industry and the markets in which we operate and our future performance are also necessarily subject to risk.

i


 
 

TABLE OF CONTENTS

  

PROSPECTUS SUMMARY

The following summary highlights selected information contained in this prospectus. This summary does not contain all the information that may be important to you. You should read the more detailed information contained in this prospectus, including but not limited to, the risk factors beginning on page 9 . References herein to “we,” “us,” “our,” or the “company” refer to 1347 Property Insurance Holdings, Inc. Unless otherwise expressly indicated or the context otherwise requires, the information in this prospectus assumes that the underwriters' overallotment option is not exercised.

Defined Terms

“1347 Advisors” means 1347 Advisors LLC, a Delaware limited liability company and wholly-owned subsidiary of KFSI.

“Citizens” means Louisiana Citizens Property Insurance Corporation, a state-created and state-regulated insurer in Louisiana that provides property insurance for Louisiana property owners who are unable to obtain insurance from private insurance companies.

“KFSI” means Kingsway Financial Services Inc., a corporation incorporated under the Business Corporations Act (Ontario). Prior to this Offering, KFSI was our ultimate parent company and indirect owner of all of our shares of common stock. Immediately following the closing of this Offering, KFSI will continue to own approximately     % of our outstanding common stock (or   % if the underwriters exercise their over-allotment option in full).

“LDOI” means Louisiana Department of Insurance.

“Maison Insurance” means Maison Insurance Company, our wholly-owned subsidiary, a Louisiana insurance company that provides property and casualty insurance to individuals in Louisiana.

“Maison Managers” means Maison Managers Inc., our wholly-owned subsidiary, a Delaware corporation that is a management services company responsible for our marketing programs and other management services.

“Management Services Agreement” means the agreement, which will be effective prior to the completion of this Offering, by and between 1347 Advisors, and us, whereby 1347 Advisors will provide us with certain permanent services.

“Offering” means this initial public offering.

“Transition Services Agreements” means the agreement, which will be effective upon the completion of this Offering, by and between KFSI or an affiliate or subsidiary thereof and us, whereby KFSI or an affiliate or subsidiary will provide us with services.

Business Overview

We are a property and casualty insurance holding company incorporated in Delaware on October 2, 2012. In December 2012, we began providing property and casualty insurance to individuals in Louisiana through our wholly-owned subsidiary, Maison Insurance Company, or Maison Insurance. Our insurance offerings currently include homeowners’ insurance, manufactured home insurance and dwelling fire insurance. We believe the Louisiana property and casualty insurance market has historically been underserved due to the unique weather-related risks in the region. We provide our policyholders with a selection of insurance products at competitive rates, while pursuing profitability using our selective underwriting criteria.

We currently derive all of our business from insuring properties located in Louisiana. Our focus on the Louisiana market is due, in part, to our management’s expertise and specialized knowledge of Louisiana’s homeowner insurance industry trends and demographics. We believe that our local market knowledge provides us with a competitive advantage in terms of marketing, underwriting, claims servicing and policyholder service. We also believe that there currently is a unique growth opportunity for smaller insurance companies like us in Louisiana. National insurers have been reducing and continue to reduce their exposures to personal property insurance in Louisiana, creating an opportunity for us to increase our market share in the full peril protection market and with respect to wind/hail-only exposures. Specifically, in recent years, some insurers in Louisiana have begun to write policies excluding the coverage of wind/hail, creating an opportunity for us to

1


 
 

TABLE OF CONTENTS

  

fill the gap for customers who need that coverage. Historically, Louisiana Citizens Property Insurance Company, or Citizens, which was created by the state of Louisiana has been the only option for wind/hail policies. We continue to build relationships with national carriers, so that agents of those national carriers consider us, instead of Citizens, when placing wind/hail policies. In addition, Citizens itself has been affording state-approved insurance companies, like Maison Insurance, the opportunity to assume full peril protection and wind/hail-only policies written by Citizens.

We have an experienced management team led by Douglas N. Raucy, our President and Chief Executive Officer. Mr. Raucy has served in his current position since our founding in October 2012 and has more than 33 years of experience in the insurance industry. As a group, our executive officers have, on average, more than 35 years of experience in the property and casualty insurance industry, as well as long-standing relationships with agents and insurance regulators in Louisiana. Our management team intends to focus on underwriting and claims management, which we believe will enable us to achieve loss ratios that outperform industry averages.

We currently distribute our insurance policies through a network of more than 130 independent agents. These agents typically represent several insurance companies in order to provide various insurance product lines to their clients. We refer to policies we write through independent agents as voluntary policies.

As of September 30, 2013, we had total assets of $16.9 million and stockholders’ equity of $7.2 million. Our net loss was $1.4 million for the nine months ended September 30, 2013. As of December 31, 2013, we had approximately 11,500 policies in-force. Of the 11,500 policies in force, approximately 52% were obtained from take-out policies from Citizens and approximately 48% were voluntary policies obtained from our independent agents.

Our Corporate Structure

The chart below displays our corporate structure prior to the closing of this Offering:

[GRAPHIC MISSING]

2


 
 

TABLE OF CONTENTS

  

Immediately following the closing of this Offering, Kingsway Financial Services Inc., or KFSI, will continue to indirectly own approximately     % of the shares of 1347 Property Insurance Holdings, Inc. (or     % if the underwriters exercise their over-allotment option in full).

1347 Property Insurance Holdings, Inc. was incorporated under the name Maison Insurance Holdings Inc. to hold all of the capital stock of our two subsidiaries: Maison Insurance and Maison Managers Inc., or Maison Managers. As a holding company for these subsidiaries, we are subject to regulation by the LDOI. In the future, we intend to form another subsidiary that will be a non-U.S. domiciled reinsurance company.

Maison Insurance, our insurance subsidiary, is a Louisiana insurance company that provides property and casualty insurance to individuals in Louisiana. As an insurance company, Maison Insurance is subject to examination and comprehensive regulation by the LDOI.

Maison Managers serves as our management services subsidiary, known as a managing general agency. In its role as our management services subsidiary, Maison Managers is responsible for our marketing programs and other management services. It is this subsidiary that contracts with our independent agents for sales services and with our outsourced provider for policy administration services. As a managing general agency, Maison Managers is licensed by and subject to the regulatory oversight of the LDOI.

We are also considering the formation of a reinsurance subsidiary domiciled offshore to augment our current practice of placing reinsurance with unaffiliated reinsurers. If deemed appropriate by management, Maison Insurance may use this reinsurance subsidiary to meet certain of its reinsurance needs. In the event that Maison Insurance decides to purchase reinsurance from our reinsurance subsidiary, the reinsurance contracts entered into between these two subsidiaries will contain terms and rates that are substantially similar to the terms and rates found in the reinsurance contracts between Maison Insurance and other third party reinsurers. Any reinsurance contracts entered into between these two subsidiaries will be subject to review by the LDOI.

We believe that our holding company structure gives us flexibility to expand our operations and the products and services we offer in the event we choose to expand, although presently there are no definitive plans or arrangements to do so. We may diversify our business through existing or newly formed subsidiaries or acquisitions. We may issue additional shares of capital stock or obtain debt financing to fund such diversification.

Our Market

Historically, the Louisiana property and casualty insurance market has been dominated by large national insurance companies, which began writing property and casualty insurance policies in Louisiana when rates were much lower than they are today. Following a period of unusual hurricane activity, it became apparent that the historical rates charged by these insurance companies were not adequate to cover the risks they assumed. Consequently, many insurers began to decrease the number of property and casualty insurance policies they wrote in Louisiana.

As these large national insurance companies decreased their property and casualty insurance policies in Louisiana, Louisiana property owners experienced increasing difficulty in procuring insurance policies from private insurance companies. This issue was alleviated in part by the creation in 2004 of Citizens, a Louisiana state-created and state-regulated insurer that provides property insurance for Louisiana property owners who are unable to obtain insurance from private insurance companies. Citizens is an “insurer of last resort,” writing approximately 8% of Louisiana’s homeowners’ policies. Citizens is required by statute to charge rates 10% higher than the rest of the private insurance market, or higher than the highest rate charged by insurers actively writing a defined number of personal lines property policies in defined “non-competitive” parishes, which are primarily coastal parishes.

Because Citizens is a state-created insurer and because the State of Louisiana has not historically been in the business of serving as an insurer, an insurance “take-out” program was implemented to reduce the number of properties insured by Citizens. Under this take-out program, state-approved insurance companies, such as Maison Insurance, have the opportunity to assume insurance policies written by Citizens. It has been Maison Insurance’s practice to date to participate in such take-out programs and plans to continue doing so from time to time in the future. While Citizens writes full peril protection policies in addition to wind and hail only policies, the policies that we have obtained through the Citizens take-out program cover losses arising only from wind and hail. These policyholders were not able to obtain such coverage from the marketplace prior to

3


 
 

TABLE OF CONTENTS

  

our take-out other than through Citizens. As of December 31, 2013, the company has in-force approximately 6,000 take-out policies from Citizens, of which approximately 3,500 were from the latest take-out which occurred on December 1, 2013, and approximately 2,500 remaining in-force as of December 31, 2013 were from the December 1, 2012 take-out. Opportunities for insurance companies to take-out Citizens policies have historically occurred annually on each December 1 st .

We believe that the decrease in the number of Louisiana property and casualty insurance policies written by various large national insurance companies, coupled with the Citizens take-out program, has provided smaller, domestic insurance companies, such as Maison Insurance, with greater access to and a unique opportunity for growth in the Louisiana property and casualty insurance market. According to the LDOI, the market in Louisiana for homeowners’ insurance, manufactured homes insurance, and dwelling fire insurance (i.e., the insurance products offered by Maison Insurance) in Louisiana represents annual premiums of approximately $2.5 billion. Citizens currently writes approximately 8% of these policies and large national insurance companies account for approximately 76% of these policies.

Although the Louisiana property and casualty insurance market is particularly susceptible to risks due to hurricanes, the statistical likelihood of experiencing catastrophic hurricane-related losses is not as great as recent storm activity might suggest. Each year, forecasters predict the number of storms for the year and the number of storms likely to hit the United States. These forecasts refer to all manner of storms ranging from tropical storms to category 5 hurricanes. Moreover, these predictions do not attempt to anticipate the number of storms which will impact a particular state, such as Louisiana.

The Saffir/Simpson Hurricane Wind Scale classifies hurricanes into five categories according to intensity of sustained winds, central barometric pressure and storm surge. The scale is used primarily to measure the potential damage and flooding a hurricane will cause upon landfall. The U.S. National Hurricane Center classifies hurricanes of category 3 and above as “major hurricanes.” Tropical storms and the lowest two categories, category 1 and category 2 hurricanes, have wind speeds of less than 110 mph and do not present a significant risk of loss. According to the National Hurricane Center, category 1 storms do not cause significant damage to building structures, other than unanchored mobile homes. According to the same source, category 2 storms may cause damage to roofing material, poorly constructed doors and windows and mobile homes. Consequently, we believe only category 2 storms (for manufactured houses) and category 3 and above hurricanes present a significant risk of property damage to our insureds.

The National Weather Service — National Hurricane Center published the National Oceanic and Atmospheric Administration Technical Memorandum in August 2011, listing the 30 most costly mainland United States tropical cyclones from 1900 through 2010, nine of which impacted Louisiana.

Since 1969, there have been four landfalls of major hurricanes (category 3 or above) in Louisiana, with the last being Hurricane Katrina in 2005. The strongest hurricane was Camille in 1969, with winds of 185 miles per hour, which directly hit the Mississippi coast with the effects being felt in Louisiana as well. The most recent hurricane to hit Louisiana was Isaac in 2011, a category 1 hurricane that directly hit New Orleans.

Competitive Strengths

Since we began operations in December of 2012, our growth has been due to our competitive strengths, which include:

our knowledge of insurance products;
our local market expertise;
our ability to attract independent agents;
our outsourced policy administration system;
our strategy to accept wind/hail-only policies through Citizens; and
our underwriting eligibility criteria and underwriting approach.

4


 
 

TABLE OF CONTENTS

  

Our Strategies

Our primary goal is to continue to expand our property and casualty writings in Louisiana through:

Increasing our number of voluntary policies.   In recent years, large national insurance companies have significantly reduced their writing of homeowners’ policies in Louisiana. We believe this trend presents an opportunity to acquire a number of homeowners’ policies from these national insurers. We will focus on expanding our relationship with our network of agents in an effort to secure new voluntary business from such agents.
Increasing our assumption of policies held by Citizens.   Approximately 8% of Louisiana’s homeowners’ policies are currently written by Citizens. We intend to continue selecting and assuming existing insurance policies from the large pool of policies held by Citizens that meet our underwriting criteria.
Strategic acquisitions.   We intend to explore growth opportunities through strategic acquisitions, although we are not currently involved in any active negotiations to execute this strategy.
Attracting and retaining high-quality agents.   We intend to focus our marketing efforts on maintaining and improving our relationships with highly productive independent agents, as well as on attracting new high-quality agents in areas with a substantial potential for growth.
Reducing our ratio of expenses to net premiums earned and using technology to increase our operating efficiency.   We are committed to improving our profitability by reducing expenses through enhanced technologies and by increasing the number of policies we write through the strategic deployment of our capital.
Evaluating appropriate levels of reinsurance and potentially utilizing a reinsurance subsidiary.   We will continue evaluating the appropriate amount of reinsurance that we believe will limit our loss exposure on individual property and casualty risks in the most cost-effective manner. We are also considering the formation of a new offshore reinsurance subsidiary through which we can meet certain of our insurance subsidiary’s reinsurance needs.

In addition to the goals and strategies described above, in the future we may diversify our business by offering additional insurance products while maintaining our selective underwriting standards. We may also expand our business outside the State of Louisiana through organic growth or through strategic acquisitions. We are currently assessing strategic opportunities with regard to product line diversification and geographic expansion outside Louisiana.

Risks Associated With Our Business

In evaluating our business, the following items should be taken into consideration:

We have a limited operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development.
In the Louisiana property and casualty insurance market, we compete with large, well-established insurance companies, as well as other specialty insurers. Most of these competitors possess greater financial resources, larger agency networks and greater name recognition than we do.
We write insurance policies that cover homeowners, manufactured homes and dwelling fire for losses that result from, among other things, catastrophes. We are, therefore, subject to claims arising out of catastrophes that may have a significant effect on our business, results of operations, and financial condition. Catastrophes can be caused by various events, including hurricanes, windstorms, hailstorms, explosions, power outages, fires and man-made events.
The insurance industry is highly regulated and supervised. Our insurance subsidiary is subject to the supervision and regulation of the State of Louisiana. Louisiana’s regulations relate to, among other things: approval of policy forms and premium rates; licensing of insurers and their products;

5


 
 

TABLE OF CONTENTS

  

restrictions on the nature, quality and concentration of investments; restrictions on the ability of our insurance subsidiary to pay dividends to us; restrictions on transactions between insurance company subsidiaries and their affiliates; and standards of solvency, including risk-based capital measurements.
We lack geographic diversification of our policyholders, who are concentrated in Louisiana.
A majority of our in-force policies were acquired through the Citizens take-out program and all of such assumed policies cover losses arising only from wind and hail, which creates large concentration of our business in wind and hail only coverage and limits our ability to implement our restrictive underwriting guidelines.

For a detailed discussion on risk factors associated with our business, see “ Risk Factors — Risks Relating to Our Company .”

Investment Prior to the Offering

On January 23, 2014, Fund Management Group LLC, an entity of which our Chairman of the board, Gordon G. Pratt, is Managing Member and controlling equity holder, invested $2 million in the company in exchange for 80,000 Series A Convertible Preferred Shares (the “Preferred Shares”) of the company pursuant to the terms and conditions of the Series A Convertible Preferred Shares Purchase Agreement between Fund Management Group LLC and the company (the “Preferred Shares Purchase Agreement”), which is filed as an exhibit to this Registration Statement. The Preferred Shares will be non-voting and will rank senior to all classes of capital stock of the company. The Preferred Shares will not pay any dividends. When converted, the Preferred Shares will convert into i)      common shares of the company, which is equal to $2 million of our common stock at 80% of the offering price per share of our common stock issued in this Offering, subject to certain adjustments, and ii) one warrant per each common share issued as a result of the conversion. The conversion into shares of our common stock and warrants will be deemed to have occured immediately prior to closing of this Offering. Each warrant will entitle the holder to purchase one share of our common stock at a price equal to 120% of the offering price per share of our common stock issued in this Offering, subject to certain adjustments under a warrant agreement (the “Warrant Agreement”) to be entered into upon issuance of such warrants between Fund Management Group LLC and the company in substantially the form attached as an exhibit to the Preferred Shares Purchase Agreement. The warrants will have an expiry date of 5 years from the date of issuance and will be immediately exercisable after issuance in accordance with the exercise procedure under the Warrant Agreement. The warrants will be redeemable by us at a price of $0.01 per warrant during any period in which the closing price of our common shares is at or above 175% of the price of shares of our common stock issued in this Offering for 20 consecutive trading days. The warrant holder will be entitled to a 30 day notice prior to the date of such redemption. If the Offering is not completed within one year from the date of issuance, we will redeem the Preferred Shares at a value equal to original investment plus a 12% premium. The common stock issuable to Fund Management Group LLC upon conversion of the Preferred Shares will have piggyback registration rights for future registrations of the company’s common stock under the Securities Act (other than certain excluded registrations) and, upon the two-year anniversary of the Offering, Fund Management Group LLC will also have a one-time demand registration right for such common stock, subject to certain restrictions. If all the Preferred Shares are converted and all the warrants are exercised immediately after the Offering, Fund Management Group LLC will own approximately     % of our outstanding common stock immediately after the Offering. We intend to use the proceeds from this investment to settle intercompany payables to our immediate parent, Kingsway America Inc. This intercompany payable amount originates from payments made by Kingsway America Inc. on our behalf to various third-party vendors and does not represent a payable for any services provided by Kingsway America Inc. to us. For a complete description of the terms of this investment and the rights and preferences of the Preferred Shares (and the common stock and warrants underlying such Preferred Shares), please refer to the Preferred Shares Purchase Agreement, the Warrant Agreement and the Certificate of Designation of Preferred Shares filed as exhibits to this Registration Statement.

Corporate Information and Relationship with Kingsway Financial Services Inc.

We were incorporated under the laws of the State of Delaware on October 2, 2012. Our principal executive offices are located at 9100 Bluebonnet Centre Blvd., Suite 502, Baton Rouge, LA 70809. Our telephone

6


 
 

TABLE OF CONTENTS

  

number is (225) 361-8747. Our website is located at www.maisonins.com . The information on our website is not part of this prospectus. Prior to the closing of this Offering, we have been a wholly-owned subsidiary of KFSI. We were incorporated by KFSI to create a new homeowners’ insurance company. Prior to this Offering, KFSI has contributed approximately $9 million in capital to us.

Immediately following the closing of this Offering, KFSI will own approximately     % of our outstanding common stock, or     % if the underwriters exercise their over-allotment in full. However, KFSI will have no responsibility to fund our operations.

Two of our directors, Larry G. Swets, Jr. and Hassan R. Baqar, are currently executive officers of KFSI. Mr. Swets is the Chief Executive Officer of KFSI and Mr. Baqar is Vice President of Kingsway America Inc., a wholly owned subsidiary of KFSI.

Emerging Growth Company

We are an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible for and intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including (i) the exemption from the auditor attestation requirements with respect to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, (ii) delayed application of newly adopted or revised accounting standards, (iii) the exemptions from say-on-pay, say-on-frequency and say-on-golden parachute voting requirements and (iv) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. Following this Offering, we will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year during which we had total annual gross revenues of at least $1 billion (as indexed for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common stock under this registration statement, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv) the date on which we are deemed to be a “large accelerated filer,” as defined under the Securities Exchange Act of 1934, as amended, or the Exchange Act.

7


 
 

TABLE OF CONTENTS

  

The Offering

Securities offered    
         shares of common stock
Shares of common stock to be outstanding after the Offering assuming the sale of all shares covered by this prospectus    
         shares of common stock
Shares of common stock to be held by KFSI immediately after this Offering    
         shares of common stock
Over-allotment option    
    The underwriters may exercise their option to acquire up to an additional 15% of the total number of shares of common stock to be offered in the Offering within 45 days of the closing of the Offering, solely for the purpose of covering over-allotments.
Use of proceeds    
    We estimate we will receive approximately $     (or approximately $     if the underwriters exercise their over-allotment option in full) in net proceeds from the sale of the shares of common stock in this Offering, based on a price of $     per share, and after deducting underwriting discounts and commissions and estimated Offering expenses payable by us. We expect to use the net proceeds of this Offering as follows: approximately $5.0 million to provide further capital to our existing insurance underwriting subsidiary Maison Insurance, approximately $2.0 million for other general corporate purposes, including settlement of payables, spending for business development, sales and marketing, and working capital, and the remainder used for the formation of a new subsidiary, which will allow for the expansion of our insurance products in new markets. We may also use a portion of the net proceeds from this offering to pursue acquisitions, or to capitalize an offshore reinsurance subsidiary that we intend to form. See “Use of Proceeds” for more information.
Risk factors    
    The shares of common stock offered hereby involve a high degree of risk. See “Risk Factors” beginning on page 9 .
Dividend policy    
    We currently intend to retain any future earnings to fund the development and growth of our business. Therefore, we do not currently anticipate paying cash dividends on our shares of common stock.
Proposed NASDAQ trading symbol    
    “PIH”

The number of shares of common stock that will be outstanding immediately after this offering excludes the following shares:

       shares of common stock issuable upon exercise of the Representative's warrants, and
an aggregate of      additional shares of common stock that will be available for future awards under our equity incentive plan.

Unless otherwise expressly indicated or the context otherwise requires, the information in this prospectus assumes that the underwriters' overallotment option is not exercised.

8


 
 

TABLE OF CONTENTS

RISK FACTORS

An investment in our common stock involves a high degree of risk. Before making an investment in our common stock, you should carefully consider the following risks, as well as the other information contained in this prospectus. Any of the risks described below could materially harm our business, financial condition, results of operations and prospects. As a result, the trading price of our common stock could decline, and you may lose part or all of your investment. Some statements in this prospectus, including such statements in the following risk factors, constitute forward-looking statements. See the section entitled “Special Note Regarding Forward-Looking Statements.”

Risks Relating To Our Company

We have not generated a profit over a fiscal year to date and we may never achieve or sustain such profitability.

Since our formation in October 2012, we have not generated a profit in consecutive quarters, nor did we record a profit in either of fiscal year 2012 or the nine month period ended on September 30, 2013. While we did generate a profit in the three-month period ended September 30, 2013, there can be no assurance that such profitability will continue and we do not expect to record a profit for fiscal year 2013. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with potential future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We have a limited operating history and it is difficult to predict our future growth and operating results.

We were organized in October 2012 and we commenced operations in December 2012. Due to our limited operating history, our ability to execute our business strategy is uncertain and our operations and prospects are subject to all risks inherent in a developing business enterprise. Our limited operating history also makes it difficult to evaluate our long-term commercial viability. More specifically, our ability to execute our business strategy must be evaluated in light of the problems, expenses and difficulties frequently encountered by new businesses in general as well as by property and casualty insurance companies doing business only in one state and offering primarily homeowners insurance policies in particular.

We may not have future opportunities to participate in Citizens take-out programs.

We were able to obtain policies from the annual Citizens take-out process in 2012 and 2013, from which we have approximately 6,000 policies in-force as of December 31, 2013. Additionally, we have obtained approximately 5,500 policies from our independent agents as of December 31, 2013. As of December 31, 2013, approximately 52% of our in-force policies were obtained from the Citizens take-out programs in December 2012 and 2013, collectively. While the company plans on continued annual participation in this Citizens take-out program the marketplace environment may change in future years and we may not be able to obtain the quantity or quality of policies currently obtained. Additionally, competitors could change their risk profile characteristics, and write these risks directly, which would cause us to lose these policies. The loss of these policies could impact our ability to absorb fixed expenses with lower volumes in the future.

A majority of our in-force policies were acquired through the Citizens take-out program and all of such assumed policies cover losses arising only from wind and hail, which creates large concentration of our business in wind and hail only coverage and limits our ability to implement our restrictive underwriting guidelines.

While Citizens writes full peril protection policies in addition to wind and hail only policies, the policies that we have obtained through the Citizens take-out program cover losses arising only from wind and hail and these policyholders prior to our take-out were not able to obtain such coverage from the marketplace other than through Citizens. This creates a large concentration of our business in wind and hail only coverage that other insurance companies have declined to insure, which may expose us to greater risk from catastrophic events. As of December 31, 2013 wind and hail only policies represent 52.3% of our total policies. Our voluntary independent agency program includes various restrictive underwriting strategies. We are unable to implement these restrictive underwriting strategies in the first year to the wind and hail only policies that are taken-out from Citizens. Upon renewal of these policies, however, we analyze replacement cost scenarios to

9


 
 

TABLE OF CONTENTS

ensure appropriate amount of coverage is in effect. , and are only able to employ such restrictive underwriting strategies at their renewal. Our results may be negatively impacted by these is limitations.

We have a risk posed by the lack of geographic diversification and concentration of policyholders in Louisiana.

Louisiana is a relatively small state with only 100 miles of exposed coastline to the Gulf of Mexico. 70% of the state’s population resides from Baton Rouge east and south toward the Gulf of Mexico. If we are not able to expand to other states or increase distribution within Louisiana, we may risk higher reinsurance costs and greater loss experience with storm activity occurring in Louisiana. Our current policies are concentrated in certain parishes within Louisiana as follows: Jefferson Parish 25.1%, Saint Tammany Parish 10.9%, Orleans Parish 9.6% and Terrebonne Parish 6.9%. No other single parish has over 4.6% of the policies.

We have exposure to unpredictable catastrophes, which may have a material adverse effect on our financial results if they occur.

We offer full peril protection and wind/hail-only insurance policies that cover homeowners and owners of manufactured homes, as well as dwelling fire policies for owners of property rented to others, for losses that result from, among other things, catastrophes. We are therefore subject to claims arising out of catastrophes that may have a significant effect on our business, results of operations, and/or financial condition. Catastrophes can be caused by various events, including hurricanes, tropical storms, tornadoes, windstorms, earthquakes, hailstorms, explosions, power outages, fires and by man-made events, such as terrorist attacks. The incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Our policyholders are currently concentrated in Louisiana, which is especially subject to adverse weather conditions such as hurricanes and tropical storms. Insurance companies are not permitted to reserve for catastrophes until such an event takes place. Therefore, although we actively manage our exposure to catastrophes through our underwriting process and the purchase of reinsurance protection, an especially severe catastrophe or series of catastrophes could exceed our reinsurance protection and may have a material adverse impact on our results of operations and/or financial condition.

Our results may fluctuate based on many factors, including cyclical changes in the insurance industry.

The insurance business has historically been a cyclical industry characterized by periods of intense price competition due to excessive underwriting capacity, as well as periods when shortages of capacity permitted an increase in pricing and, thus, more favorable underwriting profits. An increase in premium levels is often offset over time by an increasing supply of insurance capacity in the form of capital provided by new entrants and existing insurers, which may cause prices to decrease. Any of these factors could lead to a significant reduction in premium rates, less favorable policy terms and fewer opportunities to underwrite insurance risks and any of these factors could have a material adverse effect on our results of operations and cash flows. In addition to these considerations, changes in the frequency and severity of losses suffered by insureds and insurers may affect the cycles of the insurance business significantly. These factors may cause the price of our common stock to be volatile.

We cannot predict whether market conditions will improve, remain constant or deteriorate. Negative market conditions may impair our ability to write insurance at rates that we consider appropriate relative to the risk assumed. If we are not able to write insurance at appropriate rates, our ability to transact business would be materially and adversely affected.

Increased competition could adversely impact our results and growth.

The property and casualty insurance industry is highly competitive. We compete not only with other stock companies but also with mutual companies, underwriting organizations and alternative risk sharing mechanisms. While our principal competitors cannot be easily classified, Maison Insurance Company considers it primary competing insurers to be: ASI Lloyds, Lighthouse Property Insurance Corporation, Imperial F&C Insurance Company, Americas Insurance Company, Access Home Insurance Company, and Centauri Specialty Insurance Company. Our principal lines of business are written by numerous other insurance companies. Competition for any one account may come from very large national firms, smaller

10


 
 

TABLE OF CONTENTS

regional companies or companies that write insurance only in Louisiana. We compete for business not only on the basis of price, but also on the basis of financial strength, availability of coverage desired by customers, underwriting criteria and quality of service to our agents and insureds. We may have difficulty in continuing to compete successfully on any of these bases in the future.

In addition, industry developments could further increase competition in our industry, including:

an influx of new capital in the marketplace as existing companies attempt to expand their businesses and new companies attempt to enter the insurance business as a result of better pricing and/or terms;
the creation or expansion of programs in which state-sponsored entities provide property insurance in catastrophe-prone areas or other alternative markets types of coverage;
changing practices caused by the Internet, which has led to greater competition in the insurance business;
changes in Louisiana’s regulatory climate; and
the passage of federal proposals for an optional federal charter that would allow some competing insurers to operate under regulations different or less stringent than those applicable to our insurance subsidiary.

These developments and others could make the property and casualty insurance marketplace more competitive. If competition limits our ability to write new business at adequate rates, our future results of operations would be adversely affected.

If our actual losses from insureds exceed our loss reserves, our financial results would be adversely affected.

We record liabilities, which are referred to as reserves, for specific claims incurred and reported as well as reserves for claims incurred but not reported. The estimates of losses for reported claims are established on a case-by-case basis. Such estimates are based on our particular experience with the type of risk involved and our knowledge of the circumstances surrounding each individual claim. Reserves for reported claims encapsulate our total estimate of the cost to settle the claims, including investigation and defense of the claim, and may be adjusted for differences between costs as originally estimated and the costs as re-estimated or incurred. Reserves for incurred but not reported claims are based on the estimated ultimate cost of settling claims, including the effects of inflation and other social and economic factors, using past experience adjusted for current trends and any other factors that would modify past experience. We use a variety of statistical and actuarial techniques to analyze current claim costs, frequency and severity data, and prevailing economic, social and legal factors. While management believes that amounts included in the consolidated financial statements for loss and loss adjustment expense reserves are adequate, there can be no assurance that future changes in loss development, favorable or unfavorable, will not occur. The estimates are periodically reviewed and any changes are reflected in current operations.

Our objective is to set reserves that represent management’s best estimate of the amount needed to at least equal the ultimate cost to investigate and settle claims. However, the process of establishing adequate reserves is inherently uncertain, and the ultimate cost of a claim may vary materially from the amounts reserved. We regularly monitor and evaluate loss and loss adjustment expense reserves to verify reserve adequacy. Any adjustment to reserves is reflected in underwriting results for the accounting period in which the adjustment is made. Due to the uncertainties discussed above, the ultimate losses may vary materially from current loss reserves which could have a material adverse effect on our future financial condition, results of operations and cash flows.

As of September 30, 2013, our loss and loss adjustment expense reserves of $209,000 were comprised of incurred but not reported reserves of $200,000 and known case reserves of $9,000.

The effects of emerging claim and coverage issues on our business are uncertain.

As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverage may emerge. These changes may have a material adverse effect on our business by extending coverage beyond our underwriting intent or by increasing the number or size of claims. In some instances, these changes may not become apparent until sometime after we have

11


 
 

TABLE OF CONTENTS

issued insurance contracts that are affected by the changes. As a result, the full extent of liability under our insurance contracts may not be known for many years after a contract is issued and/or renewed, and this may have a material adverse effect on our financial position and results of operations.

The failure of third party adjusters to properly evaluate claims or the failure of our claims handling administrator to pay claims fairly could adversely affect our business, financial results and capital requirements.

We have outsourced our claim adjusting function to third party adjusters while Maison Managers functions as our claim administrator. We therefore rely on these third party adjusters to accurately evaluate claims that are made under our policies. Many factors affect the ability of Maison Managers and our third party adjuster firms to pay claims accurately, including the training and experience of their claims representatives, the culture of their respective claims organizations, the effectiveness of their management and their ability to develop or select and implement appropriate procedures and systems to support their claims functions. Maison Managers functions as our claims administrator and authorizes payment based on recommendations from third party adjusters; any failure on the part of the third party adjusters to recommend payment on claims fairly could lead to material litigation, undermine our reputation in the marketplace, impair our image and adversely affect our financial results.

If we are unable to expand our business because our capital must be used to pay greater than anticipated claims, our financial results may suffer.

Our future growth may depend on our ability to expand the number of insurance policies we write, the kinds of insurance products we offer and the geographic markets in which we do business, all balanced by the business risks we choose to assume and cede. Our existing sources of funds include possible sales of our securities and our earnings from operations and investments. Unexpected catastrophic events in our market areas, such as the hurricanes experienced in Louisiana in recent years, may result in greater claims losses than anticipated, which could require us to limit or halt our growth while we redeploy our capital to pay these unanticipated claims, unless we are able to raise additional capital.

Our financial results may be negatively affected by the fact that a portion of our income is generated by the investment of our company’s capital and surplus, premiums and loss reserves in money market funds and other investment vehicles.

A portion of our expected income is likely to be generated by the investment of our cash reserves in money market funds and other investment vehicles. The amount of income generated in this manner is a function of our investment policy, available investment opportunities, and the amount of invested assets. If we experience larger than expected losses, our invested assets may need to be liquidated in order to meet the operating cash needs for paying current claims, which may result in lower investment income. Currently, all of our capital is invested in money market funds or held in bank accounts. After the closing of the Offering, and periodically thereafter, we will review our investment policy in light of our then-current circumstances and available investment opportunities. Fluctuating interest rates and other economic factors make it impossible to accurately estimate the amount of investment income that will actually be realized. We may realize losses on our investments, which may have a material adverse impact on our results of operations and/or financial condition.

We may experience financial exposure from climate change.

Our financial exposure from climate change is most notably associated with losses in connection with increasing occurrences of hurricanes striking Louisiana. We attempt to mitigate the risk of financial exposure from climate change through restrictive underwriting criteria, sensitivity to geographic concentrations and reinsurance. Restrictive underwriting criteria can include, but are not limited to, higher premiums and deductibles and excluded policy risks, such as fences and screened-in enclosures. Our maximum reinsurance coverage amount is determined by subjecting our homeowner exposures to statistical forecasting models that are designed to quantify a catastrophic event in terms of the frequency of a storm occurring once in every 100 years. 100 years is used as a measure of the relative size of a storm as compared to a storm expected to occur once every 250 years, which would be larger, or conversely, a storm expected to occur once every 50 years, which would be smaller. We assess appropriateness of the level of reinsurance we purchase by

12


 
 

TABLE OF CONTENTS

giving consideration to our own risk appetite, the opinions of independent rating agencies and the LDOI requirements. Our amount of losses retained (referred to as our deductible) in connection with a catastrophic event is determined by market capacity, pricing conditions and surplus preservation.

Industry trends, such as increased litigation against the insurance industry and individual insurers, the willingness of courts to expand covered causes of loss, rising jury awards, and the escalation of loss severity, may contribute to increased costs and to the deterioration of the reserves of our insurance subsidiary.

Loss severity in the property and casualty insurance industry has continued to increase in recent years, principally driven by larger court judgments. In addition, many legal actions and proceedings have been brought on behalf of classes of complainants, which can further increase the size of judgments. The propensity of policyholders and third party claimants to litigate, the willingness of courts to expand causes of loss and the size of awards may render the loss reserves of our insurance subsidiary inadequate for current and future losses, which could have a material adverse effect on our financial position, results of operation and cash flows.

Our ability to compete in the property and casualty insurance industry and our ability to expand our business may be negatively affected by the fact that we do not have a rating from A.M. Best.

We are not rated by A.M. Best, although we currently have a Financial Stability Rating (FSR) of ‘A’ Exceptional from Demotech, Inc. We have never been reviewed by A.M. Best and do not intend to seek a rating from A.M. Best. Unlike Demotech, A.M. Best tends to penalize companies that are highly leveraged, i.e. that utilize reinsurance to support premium writings. We do not plan to give up revenues or efficiency of size as a means to qualify for an acceptable A.M. Best rating. While our Demotech rating has proved satisfactory to date in attracting an acceptable amount of business from independent agents, some independent agents are reluctant to do business with a company that is not rated by A.M. Best. As a result, not having an A.M. Best rating may prevent us from expanding our business into certain independent agencies or limit our access to credit from certain financial institutions, which may in turn limit our ability to compete with large, national insurance companies and certain regional insurance companies.

We face a risk of non-availability of reinsurance, which may have a material adverse effect on our ability to write business and our results of operations and financial condition.

We use, and we expect to continue to use, reinsurance to help manage our exposure to catastrophic losses due to various events, including hurricanes, windstorms, hailstorms, explosions, power outages, fires and man-made events. The availability and cost of reinsurance are each subject to prevailing market conditions beyond our control which can affect business volume and profitability. We may be unable to maintain our current reinsurance coverage, to obtain additional reinsurance coverage in the event our current reinsurance coverage is exhausted by a catastrophic event, or to obtain other reinsurance coverage in adequate amounts or at acceptable rates. Similar risks exist whether we are seeking to replace coverage terminated during the applicable coverage period or to renew or replace coverage upon its expiration. We can provide no assurance that we can obtain sufficient reinsurance to cover losses resulting from one or more storms in the future, or that we can obtain such reinsurance in a timely or cost-effective manner. If we are unable to renew our expiring coverage or to obtain new reinsurance coverage, either our net exposure to risk would increase or, if we are unwilling to accept an increase in net risk exposures, we would have to reduce the amount of risk we underwrite. Either increasing our net exposure to risk or reducing the amount of risk we underwrite may cause a material adverse effect on our results of operations and our financial condition.

Of the $8.0 million of premiums Maison Insurance has written for the nine month period ended September 30, 2013, Maison Insurance has ceded $2.1 million, or 25.6%, of such premium to its reinsurers. Such reinsurance cessions meet the present needs and expectations of Maison Insurance for its reinsurance program.

We face a risk of non-collectability of reinsurance, which may have a material adverse effect on our business, results of operations and/or financial condition.

Although reinsurers are liable to us to the extent of the reinsurance coverage we purchase, we remain primarily liable as the direct insurer on all risks that we reinsure. Therefore, our reinsurance agreements do not eliminate our obligation to pay claims. As a result, we are subject to risk with respect to our ability to

13


 
 

TABLE OF CONTENTS

recover amounts due from reinsurers. The risk could arise in two situations: (a) our reinsurers may dispute some of our reinsurance claims based on contract terms, and we may ultimately receive partial or no payment, or (b) the amount of losses that reinsurers incur related to worldwide catastrophes may materially harm the financial condition of our reinsurers and cause them to default on their obligations. While we will attempt to manage these risks through underwriting guidelines, collateral requirements, financial strength ratings, credit reviews and other oversight mechanisms, our efforts may not be successful. Further, while we on occasion require collateral to support balances due from reinsurers not authorized to transact business in the applicable jurisdictions, certain balances are not collateralized because it has not always been standard business practice to require security for balances due. As a result, our exposure to credit risk may have a material adverse effect on our results of operations, financial condition and cash flow.

Significant reinsurers of the company, along with the cession percentages, are as follows: Hannover Rueckversicherung AG 54.2%, Lloyds of London Syndicates 31.0%, Odyssey Reinsurance Company 5.9%, Renaissance Reinsurance Ltd. 4.1%, DaVinci Reinsurance Ltd. 2.8% and Everest Reinsurance Company 2.0%. Each of these reinsurers has an S&P rating of at least an A-.

We use actuarially driven catastrophe models to provide us with risk management guidelines.

As is common practice within the insurance industry, we run our exposures in an actuarially driven model that uses past storm data to predict future loss of certain events reoccurring based upon the location and other data of our insured properties. These models, which are provided by independent third parties can produce wide ranging results within Louisiana. While we use these models along with the advice of our reinsurance intermediary to select the amount and type of reinsurance to mitigate the loss of capital from catastrophic wind events, these models are not verified and there are risks that the amount of reinsurance purchased will be insufficient to cover the ultimate catastrophic wind event and that the probability of a catastrophic event occurring, may be larger.

The failure of the risk mitigation strategies we utilize could have a material adverse effect on our financial condition or results of operations.

We utilize a number of strategies to mitigate our risk exposure including:

utilizing restrictive underwriting criteria;
carefully evaluating and monitoring terms and conditions of our policies;
focusing on our risk aggregations by geographic zones; and
ceding insurance risk to reinsurance companies.

However, there are inherent limitations in all of these tactics. No assurance can be given that an event or series of events will not result in loss levels which could have a material adverse effect on our financial condition or results of operations.

Our strategy to expand into other states may not succeed

Our strategy for growth includes potentially entering into new states. This strategy could divert management’s attention. We cannot predict whether we will be able to enter new states or whether applicable state regulators will grant Maison Insurance a license to do business in such states. We cannot know if we will realize the anticipated benefits of operating in new states or if there will be substantial unanticipated costs associated with such expansion. Any of these factors could adversely affect our financial position and results of operations.

The failure of any of the loss limitation methods we employ could have a material adverse effect on our financial condition or our results of operations.

Various provisions of our policies, such as limitations or exclusions from coverage which have been negotiated to limit our risks, may not be enforceable in the manner we intend. At the present time, we employ a variety of endorsements to our policies that limit exposure to known risks, including but not limited to exclusions relating to homes in close proximity to the coast line. In addition, the policies we issue contain conditions requiring the prompt reporting of claims to us or to our claims handling administrator and our right to decline coverage in the event of a violation of that condition. While our insurance product exclusions and

14


 
 

TABLE OF CONTENTS

limitations reduce the loss exposure to us and help eliminate known exposures to certain risks, it is possible that a court or regulatory authority could nullify or void an exclusion or that legislation could be enacted modifying or barring the use of such endorsements and limitations in a way that would increase our loss experience, which could have a material adverse effect on our financial condition or results of operations.

Maison Insurance is subject to an independent third party rating agency and must maintain certain rating levels to continue to write much of its current and future policies.

In the event that Maison Insurance fails to maintain an “A” rating given by a rating agency acceptable to both our insurance agents and our insureds’ home lenders, it will be unable to continue to write much of its current and future insurance policies. Principally, among several factors, Maison Insurance must maintain certain minimum capital and surplus. The loss of such an acceptable rating may lead to a significant decline in our premium volume and adversely affect the results of our operations. Demotech, Inc. affirmed our Financial Stability Rating of “A” on November 11, 2013. This “Exceptional” rating continues as long as we maintain a minimum amount of capital and surplus of $7.5 million, and continue to satisfy additional requirements, which include submitting quarterly statutory financial statements within 45 days and annual statutory financial statements within 60 days of the period end.

If we fail to establish and maintain an effective system of integrated internal controls, we may not be able to report our financial results accurately, which could have a material adverse effect on our business, financial condition and results of operations.

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be evaluated frequently. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and attestations of the effectiveness of internal controls by independent auditors. We would be required to perform the annual review and evaluation of our internal controls no later than for the fiscal year ending December 31, 2015. We initially expect to qualify as an emerging growth company, and thus, we would be exempt from the auditors’ attestation requirement until such time as we no longer qualify as an emerging growth company. Regardless of whether we qualify as an emerging growth company, we will still need to implement substantial control systems and procedures in order to satisfy the reporting requirements under the Exchange Act and applicable NASDAQ requirements, among other items. Establishing these internal controls will be costly and may divert management’s attention.

Evaluation by us of our internal controls over financial reporting may identify material weaknesses that may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the U.S. Securities and Exchange Commission, or SEC, or violations of NASDAQ listing rules. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This may have a material adverse effect on our business, financial condition and results of operations and could also lead to a decline in the price of our common stock.

While we currently qualify as an “emerging growth company” under the JOBS Act, we cannot be certain if we take advantage of the reduced disclosure requirements applicable to emerging growth companies that we will not make our common stock less attractive to investors. Once we lose emerging growth company status, the costs and demands placed upon our management are expected to increase.

The JOBS Act permits “emerging growth companies” like us to take advantage of certain exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies. As long as we qualify as an emerging growth company, we would be permitted, and we intend to, omit the auditor’s attestation on internal control over financial reporting that would otherwise be required by the Sarbanes-Oxley Act, as described above. We also intend to take advantage of the exemption provided under the JOBS Act from the requirements to submit say-on-pay, say-on-frequency and say-on-golden parachute votes to our stockholders and we will avail ourselves of reduced executive compensation disclosure that is already available to smaller reporting companies.

15


 
 

TABLE OF CONTENTS

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of these benefits until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

Following this Offering, we will continue to be an emerging growth company until the earliest to occur of (i) the last day of the fiscal year during which we had total annual gross revenues of at least $1 billion (as indexed for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the date of the first sale of common stock under this registration statement, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt or (iv) the date on which we are deemed to be a “large accelerated filer,” as defined under the Exchange Act.

Until such time that we lose “emerging growth company” status, it is unclear if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and could cause our stock price to decline. Once we lose emerging growth company status, we expect the costs and demands placed upon our management to increase, as we would have to comply with additional disclosure and accounting requirements.

Our information technology systems may fail or suffer a loss of security which may have a material adverse effect on our business.

Our business is highly dependent upon the successful and uninterrupted functioning of our computer and data processing systems. We rely on these systems to perform actuarial and other modeling functions necessary for our underwriting business, as well as to handle our policy administration processes (such as the printing and mailing of our policies, endorsements, renewal notices, etc.). The failure of these systems could interrupt our operations. This could result in a material adverse effect on our business results.

The development and expansion of our business is dependent upon the successful development and implementation of advanced computer and data processing systems. The failure of these systems to function as planned could slow our growth and adversely affect our future business volume and results of operations.

We believe that our independent agents will play a key role in our efforts to increase the number of voluntary policies written by our insurance subsidiary. We utilize various policy administration, rating, and issuance systems. Internet disruptions or system failures of our current policy administration, policy rating and policy issuance system could affect our future business volume and results of operations. In addition, a security breach of our computer systems could damage our reputation or result in liability. We retain confidential information regarding our business dealings in our computer systems. We may be required to spend significant capital and other resources to protect against security breaches or to alleviate problems caused by such breaches. It is critical that these facilities and infrastructure remain secure. Despite the implementation of security measures, our infrastructure may be vulnerable to physical break-ins, computer viruses, programming errors, attacks by third parties or other disruptive problems. In addition, we could be subject to liability if hackers were able to penetrate our network security or otherwise misappropriate confidential information.

Any failure on the part of our third-party policy administration processor could lead to material litigation, undermine our reputation in the marketplace, impair our image and negatively affect our financial results.

We outsource our policy administration process to WaterStreet Company, an unaffiliated, independent third party service provider. Any failure on the part of such third party to properly handle our policy administration process could lead to material litigation, undermine our reputation in the marketplace, impair our image and negatively affect our financial results.

16


 
 

TABLE OF CONTENTS

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and NASDAQ rules, including those promulgated in response to the Sarbanes-Oxley Act. The requirements of these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls for financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional staff and provide additional management oversight. We will be implementing additional procedures and processes for the purpose of addressing the standards and requirements applicable to public companies. In addition, sustaining our growth also will require us to commit additional management, operational and financial resources to identify new professionals to join our organization and to maintain appropriate operational and financial systems to adequately support expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We expect to incur significant additional annual expenses related to these steps associated with, among other things, director fees, reporting requirements, transfer agent fees, additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. We also expect that the new rules and regulations to which we will be subject as a result of being a public company will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage for such directors and officers. Any of these factors could make it more difficult for us to attract and retain qualified members of our board of directors. Finally, we expect to incur additional costs once we lose “emerging growth company status.” We estimate incurring approximately $1.2 million of additional annual operating costs as a result of being a publicly traded company.

We have no operating history as a publicly-traded company, and our inexperience may have a material adverse effect on us and our stockholders.

While KFSI, our ultimate parent company until the completion of this Offering, has been a public company, we have no operating history as a publicly-traded company. Our board of directors and senior management team will have overall responsibility for our management and not all of our directors and members of our senior management team have prior experience in operating a public company. As a publicly-traded company, we will be required to develop and implement substantial control systems, policies and procedures in order to satisfy our periodic Securities and Exchange Commission reporting and NASDAQ obligations. We cannot assure you that management’s past experience will be sufficient to successfully develop and implement these systems, policies and procedures and to operate our company. Failure to do so could jeopardize our status as a public company, and the loss of such status may have a material adverse effect on us and our stockholders.

We may require additional capital in the future which may not be available or may only be available on unfavorable terms.

Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. To the extent that our present capital is insufficient to meet future operating requirements or to cover losses, we may need to raise additional funds through financings or curtail our projected growth. Based on our current operating plan, we believe our current capital together with our anticipated retained earnings will support our operations without the need to raise additional capital. However, we cannot provide any assurance in that regard, since many factors will affect our capital needs and their amount and timing, including our growth and profitability, the availability of reinsurance, as well as possible acquisition opportunities, market disruptions and other developments. If we had to raise additional capital, equity or debt financing may not be available at all or may be available only on terms that are not favorable to us. In the case of equity financings, dilution to our stockholders could result, and in any case such securities may have rights, preferences and privileges that are

17


 
 

TABLE OF CONTENTS

senior to those of existing stockholders. If we cannot obtain adequate capital on favorable terms or at all, our business, financial condition or results of operations could be materially adversely affected.

Our acquisition strategy may not succeed.

Our strategy for growth includes acquisition transactions. This strategy could divert management’s attention, or, if implemented, create difficulties including the integration of operations and the retention of employees, and the contingent and latent risks associated with our transaction partner. The risks associated with the acquisition of a smaller insurance company include:

inadequacy of reserves for losses and loss expenses;
quality of their data and underwriting processes;
the need to supplement management with additional experienced personnel;
conditions imposed by regulatory agencies that make the realization of cost-savings through integration of operations more difficult;
the requirement for regulatory approval for certain acquisitions;
a need for additional capital that was not anticipated at the time of the acquisition; and
the use of a substantial amount of our management’s time.

We cannot predict whether we will be able to identify and complete a future transaction on terms favorable to us. We cannot know if we will realize the anticipated benefits of a completed transaction or if there will be substantial unanticipated costs associated with the transaction. In addition, a future transaction may result in tax consequences at either or both the stockholder and company level, potentially dilutive issuances of our securities, the incurrence of additional debt and the recognition of potential impairment of goodwill and other intangible assets. Each of these factors could adversely affect our financial position and results of operations.

The development and implementation of new technologies will require an additional investment of our capital resources in the future.

Frequent technological changes, new products and services and evolving industry standards all influence the insurance business. The Internet, for example, is increasingly used to transmit benefits and related information to clients and to facilitate business-to-business information exchange and transactions. We believe that the development and implementation of new technologies will require additional investment of our capital resources in the future. We have not determined, however, the amount of resources and the time that this development and implementation may require, which may result in short-term, unexpected interruptions to our business, or may result in a competitive disadvantage in price and/or efficiency, as we endeavor to develop or implement new technologies.

We rely on independent agents to write our insurance policies, and if we are not able to attract and retain independent agents, our revenues would be negatively affected.

While we currently obtain many of our policies through the assumption of policies from Citizens, we still require the cooperation and consent of our network of independent agents. We have contractual relationships with more than 130 independent agents. In the future, we may rely on these independent agents to be the primary source for our property insurance policies. Many of our competitors also rely on independent agents. As a result, we must compete with other insurers for independent agents’ business. Our competitors may offer a greater variety of insurance products, lower premiums for insurance coverage or higher commissions to their agents. If our products, pricing and commissions are not competitive, we may find it difficult to attract business from independent agents to sell our products. A material reduction in the amount of our products that independent agents sell would adversely affect our revenues.

Our success depends on our ability to accurately price the risks we underwrite.

The results of our operations and the financial condition of our insurance subsidiary depend on our ability to underwrite and set premium rates accurately for a wide variety of risks. Rate adequacy is necessary to generate sufficient premiums to pay losses, loss adjustment expenses and underwriting expenses and to earn a

18


 
 

TABLE OF CONTENTS

profit. In order to price our products accurately, we must collect and properly analyze a substantial amount of data, develop, test and apply appropriate rating formulas, closely monitor and timely recognize changes in trends and project both severity and frequency of losses with reasonable accuracy. Our ability to undertake these efforts successfully, and thereby price our products accurately, is subject to a number of risks and uncertainties, some of which are outside our control, including:

the availability of sufficient reliable data and our ability to properly analyze such data;
uncertainties that inherently characterize estimates and assumptions;
our selection and application of appropriate rating and pricing techniques;
changes in legal standards, claim settlement practices and restoration costs; and
legislatively imposed consumer initiatives.

Because we have assumed the substantial majority of our current policies from Citizens, our rates are based, to a certain extent, on the rates charged by Citizens. In determining the rates we charge in connection with the policies we assumed from Citizens, our rates must be equal to or less than the rates charged by Citizens. If Citizens reduces its rates, we must reduce our rates to keep them equivalent to or less than Citizens’ rates; however, if Citizens increases its rates, we may not automatically increase our rates. Additionally, absent certain circumstances, we must continue to provide coverage to the policyholders that we assume from Citizens if we have underwritten the same policyholder for a period of three consecutive years. If we underprice our risks, it may negatively affect our profit margins and if we overprice risks, it could reduce our customer retention, sales volume and competitiveness. Either event may have a material adverse effect on the profitability of our insurance subsidiary.

Current operating resources are necessary to develop future new insurance products.

We currently intend to expand our product offerings by underwriting additional insurance products and programs, and marketing them through our distribution network. Expansion of our product offerings will result in increases in expenses due to additional costs incurred in actuarial rate justifications, software and personnel. Offering additional insurance products may also require regulatory approval, further increasing our costs and potentially affecting the speed with which we will be able to pursue new market opportunities. There can be no assurance that we will be successful bringing new insurance products to our marketplace.

As an insurance holding company, we are currently subject to regulation by the State of Louisiana and in the future may become subject to regulation by certain other states or a federal regulator.

All states regulate insurance holding company systems. State statutes and administrative rules generally require each insurance company in the holding company group to register with the department of insurance in its state of domicile and to furnish information concerning the operations of the companies within the holding company system which may materially affect the operations, management or financial condition of the insurers within the group. As part of its registration, each insurance company must identify material agreements, relationships and transactions with affiliates, including without limitation loans, investments, asset transfers, transactions outside of the ordinary course of business, certain management, service, and cost sharing agreements, reinsurance transactions, dividends, and consolidated tax allocation agreements. Insurance holding company regulations generally provide that transactions between an insurance company and its affiliates must be fair and equitable, allocated between the parties in accordance with customary accounting practices, and fully disclosed in the records of the respective parties. Many types of transactions between an insurance company and its affiliates, such as transfers of assets among such affiliated companies, certain dividend payments from insurance subsidiaries and certain material transactions between companies within the system, may be subject to prior notice to, or prior approval by, state regulatory authorities. If we are unable to provide the required materials or obtain the requisite prior approval for a specific transaction, we may be precluded from taking the actions, which could adversely affect our financial condition and results of operations.

Our insurance subsidiary currently operates only in Louisiana. In the future, our insurance subsidiary may become authorized to transact business in other states and therefore will become subject to the laws and regulatory requirements of those states. These regulations may vary from state to state, and certain states may have regulations which conflict with the regulations of other states. Currently, the federal government’s role in

19


 
 

TABLE OF CONTENTS

regulating or dictating the policies of insurance companies is limited. However, Congress, from time to time, considers proposals that would increase the role of the federal government in insurance regulation, either in addition to or in lieu of state regulation. The impact of any future federal insurance regulation on our insurance operations is unclear and may adversely impact our business or competitive position.

Our insurance subsidiary is subject to extensive regulation which may reduce our profitability or inhibit our growth. Moreover, if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may have a material adverse effect on our financial condition and results of operations.

The insurance industry is highly regulated and supervised. Maison Insurance, our insurance subsidiary, is subject to the supervision and regulation of the state in which it is domiciled (Louisiana) and the state(s) in which it does business (currently only Louisiana). Such supervision and regulation is primarily designed to protect policyholders rather than shareholders. These regulations are generally administered by a department of insurance in each state and relate to, among other things:

the content and timing of required notices and other policyholder information;
the amount of premiums the insurer may write in relation to its surplus;
the amount and nature of reinsurance a company is required to purchase;
approval of insurance company acquisitions;
participation in guaranty funds and other statutorily-created markets or organizations;
business operations and claims practices;
approval of policy forms and premium rates;
standards of solvency, including risk-based capital measurements;
licensing of insurers and their products;
licensing of agents and managing general agents;
restrictions on the nature, quality and concentration of investments;
restrictions on the ability of our insurance company subsidiary to pay dividends to us;
restrictions on transactions between insurance company subsidiaries and their affiliates;
restrictions on the size of risks insurable under a single policy;
requiring deposits for the benefit of policyholders;
requiring certain methods of accounting;
periodic examinations of our operations and finances;
prescribing the form and content of records of financial condition required to be filed; and
requiring reserves as required by statutory accounting rules.

The LDOI and regulators in other jurisdictions where our insurance subsidiary may become licensed conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to financial condition, holding company issues and other matters. These regulatory requirements may adversely affect or inhibit our ability to achieve some or all of our business objectives. These regulatory authorities also conduct periodic examinations into insurers’ business practices. These reviews may reveal deficiencies in our insurance operations or differences between our interpretations of regulatory requirements and those of the regulators. In addition, regulatory authorities have relatively broad discretion to deny or revoke licenses for various reasons, including the violation of regulations. In some instances, we follow practices based on our interpretations of regulations or practices that we believe may be generally followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements,

20


 
 

TABLE OF CONTENTS

insurance regulatory authorities could prevent or temporarily suspend us from carrying on some or all of our business or otherwise penalize us. Any such outcome may have a material adverse effect on our ability to operate our business.

Finally, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities may have a material adverse effect on our ability to operate our business.

Maison Insurance is subject to minimum capital and surplus requirements, and our failure to meet these requirements could subject us to regulatory action.

Maison Insurance is subject to risk-based capital standards and other minimum capital and surplus requirements imposed under the laws of Louisiana (or other states where we may eventually conduct business). The risk-based capital standards, based upon the Risk-Based Capital Model Act adopted by the National Association of Insurance Commissioners, or NAIC, require Maison Insurance to report its results of risk-based capital calculations to state departments of insurance and the NAIC. These risk-based capital standards provide for different levels of regulatory attention depending upon the ratio of an insurance company’s total adjusted capital, as calculated in accordance with NAIC guidelines, to its authorized control level risk-based capital. Authorized control level risk-based capital is the number determined by applying the NAIC’s risk-based capital formula, which measures the minimum amount of capital that an insurance company needs to support its overall business operations.

In addition, Maison Insurance is required to maintain certain minimum capital and surplus and to limit its written premiums to specified multiples of its capital and surplus. Maison Insurance could exceed these ratios if its volume increases faster than anticipated or if its surplus declines due to catastrophe, non-catastrophic losses, excessive underwriting or operational expenses.

Any failure by Maison Insurance to meet the applicable risk-based capital or minimum statutory capital requirements or the writings ratio limitations imposed by the laws of Louisiana (or other states where we may eventually conduct business) could subject it to further examination or corrective action imposed by state regulators, including limitations on our writing of additional business, state supervision or liquidation.

Any changes in existing risk-based capital requirements, minimum statutory capital requirements or applicable writings ratios may require us to increase our statutory capital levels, which we may be unable to do.

Our status as an insurance holding company could adversely affect our ability to meet our obligations.

As an insurance holding company, we are dependent on dividends and other permitted payments from Maison Insurance to service debt and for our operating capital. The ability of Maison Insurance to pay dividends to us is subject to certain restrictions imposed under Louisiana insurance law, which is the state of domicile for Maison Insurance, as well as pursuant to a consent agreement entered into with the Louisiana Department of Insurance as a condition of licensure.

We may be unable to attract and retain qualified employees.

We depend on our ability to attract and retain experienced underwriting talent and other skilled employees who are knowledgeable about our business. If the quality of our underwriters and other personnel decreases, we may be unable to maintain our current competitive position in the specialized markets in which we operate and be unable to expand our operations, which could adversely affect our results. Because we began operations in December 2012 and have relatively few employees, the loss of, or failure to attract, key personnel could also significantly impede the financial plans, growth, marketing and other objectives of Maison Insurance. Its success depends to a substantial extent on the ability and experience of its senior management. Maison Insurance believes that its future success will depend in large part on its ability to attract and retain additional skilled and qualified personnel and to expand, train and manage its employees. Maison Insurance may not be successful in doing so, because the competition for experienced personnel in the insurance industry is intense. Many of the companies with which we and Maison Insurance compete for experienced personnel have greater resources than we have. We cannot be certain of our ability to identify, hire and retain adequately qualified personnel. Maison Insurance does not have employment agreements with

21


 
 

TABLE OF CONTENTS

its key personnel. Failure to identify, hire and retain necessary key personnel could have a material adverse effect on our business, financial condition and results of operations, specifically, our Chief Executive Officer, Douglas Raucy.

Risks Relating to our Separation from KFSI

As long as KFSI has a substantial interest in us, your ability to influence matters requiring stockholder approval may be limited.

KFSI currently indirectly owns 100% of our issued and outstanding common stock. Immediately following the closing of this Offering, KFSI will continue to indirectly own approximately     % (or     % if the underwriters exercise their over-allotment option in full) of our issued and outstanding common stock. As long as KFSI holds a substantial portion of our outstanding common stock, other investors’ voting power may be limited. KFSI may have considerable influence over certain matters, including:

the composition of our board of directors and, through our board of directors, any determination with respect to our business plans and policies, including the appointment and removal of our officers;
any determinations with respect to acquisitions, mergers and other business combinations;
our acquisition or disposition of assets;
our financing activities;
the payment of dividends on our common stock; and
the number of shares of our common stock available for issuance under equity plans, if any.

KFSI’s voting power may discourage transactions involving a change of control, including transactions in which you as a holder of our common stock might otherwise receive a premium for your shares over the then-current market price. KFSI is not prohibited from selling its interest in us to a third party and may do so without your approval and without providing for a purchase of your common stock. Accordingly, your shares of our common stock may be worth less than they would be if KFSI did not have a controlling interest in us.

This voting power on matters relating to our business and operations could also limit the possibility of stockholders changing management in the event that stockholders did not agree with the conduct of officers and directors. Additionally, stockholders would potentially not be able to obtain the necessary stockholder vote to affect any change in the course of our business. This could further prevent the stockholders from removing any of our directors who they believe are not managing us with sufficient skill to make it profitable, which could cause investors to lose all or part of their investment.

We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from KFSI.

As a stand-alone, independent public company, we believe that our business will benefit from, among other things, access to capital markets, which will allow our management to design and implement corporate policies and strategies that are based primarily on the characteristics of our business, and allow us to focus our financial resources wholly on our own operations and implement and maintain a capital structure designed to meet our own specific needs. However, by separating from KFSI, there is a risk that we may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of KFSI. We may not be able to achieve some or all of the benefits that we expect to achieve as a stand-alone, independent insurance holding company or such benefits may be delayed or may not occur at all. There can be no assurance that analysts and investors will place a greater value on us as a stand-alone insurance holding company than on our business as a part of KFSI.

We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company, and we may experience increased costs after the separation or as a result of the separation.

Following the completion of our separation, KFSI (or an affiliate or subsidiary thereof) and 1347 Advisors will be contractually obligated to provide to us only those services specified in the Transition Services

22


 
 

TABLE OF CONTENTS

Agreement and certain other permanent services provided under an “evergreen” Management Services Agreement, unless cancelled by mutual consent or as otherwise provided therein. The Transition Services Agreement, which will be effective upon the completion of this Offering, will provide for services to be provided for various time frames of limited length. We may be unable to replace the services or other benefits that KFSI previously provided to us that are not specified in the Transition Services Agreement and the other agreements in a timely manner or on comparable terms. Also, upon the expiration of the terms of the required services under the Transition Services Agreement and other agreements, such services will be provided internally or by unaffiliated third parties, and in some instances we will incur higher costs to obtain such services than we incurred under the terms of such agreements. In addition, if KFSI (or an affiliate or subsidiary thereof) does not continue to perform effectively the transition services and the other services that are called for under the Transition Services Agreement and other agreements, we may not be able to operate our business effectively and our operating results could be adversely affected. Furthermore, after the expiration of the terms of the required services under Transition Services Agreement and the other agreements, we may be unable to replace in a timely manner or on comparable terms the services specified in such agreements.

Prior to our separation, we have utilized the executive management team and administrative resources of KFSI. Some daily functions have been performed by KFSI, including those related to SEC filings, auditing and review by accountants of required financial statements, which will become our responsibility after the separation. In addition, there will be a time period during which such new personnel will have to learn the required systems for these functions. The lack of these relationships and resources may harm our operating results, financial condition and our ability to raise any required debt or equity funding.

Our historical and pro forma financial information is not necessarily representative of the results we would have achieved as a separate publicly traded company and may not be a reliable indicator of our future results.

The historical financial and pro forma financial information we have included in this prospectus may not reflect what our results of operations, financial position and cash flows would have been had we been an independent publicly traded company during the periods presented or what our results of operations, financial position and cash flows will be in the future when we are an independent company. This is primarily because:

our historical and financial information reflects allocation for services historically provided to us by KFSI, which allocations may not reflect the costs we will incur for similar services in the future as an independent company; and
our historical and financial information does not reflect changes that we expect to incur in the future as a result of our separation from KFSI, including changes in the cost structure, personnel needs, financing and operations of the business as a result of the separation from KFSI and from reduced economies of scale.

Following the separation, we also will be responsible for the additional costs associated with being an independent public company, including costs related to corporate governance and listed and registered securities. Therefore, our financial statements may not be indicative of our future performance as an independent company. For additional information about our past financial performance and the basis of presentation of our financial statements, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the notes thereto included in this prospectus.

We may have received better terms from unaffiliated third parties than the terms we received in our agreements with KFSI.

The agreements related to our separation from KFSI were negotiated in the context of our separation from KFSI while we were still part of KFSI and, accordingly, may not reflect terms that would have resulted from arm’s-length negotiations among unaffiliated third parties. We may have received better terms from third parties because third parties may have competed with each other to win our business. Some of our board members are also members of the KFSI board or senior management. See “ Certain Relationships and Related Party Transactions .”

23


 
 

TABLE OF CONTENTS

Any disputes that arise between us and KFSI with respect to our past and ongoing relationships could harm our business operations.

Disputes may arise between KFSI and us in a number of areas relating to our past and ongoing relationships, including:

employee retention and recruiting;
the nature, quality and pricing of transitional services KFSI has agreed to provide us; and
business opportunities that may be attractive to both KFSI and us.

We may not be able to satisfactorily resolve any potential conflicts, and any resolution may be less favorable than it would be if we were dealing with an unaffiliated third party.

Risks Related to this Offering

There is currently no established public trading market for our securities and your investment may be illiquid for an indefinite amount of time.

Prior to this Offering, there has been no public market for our securities. There can be no assurance that an active, public trading market will ever develop even if we are successful with this Offering. In addition, there can be no assurance that our securities will be accepted for listing or trading on The NASDAQ Capital Market. The initial public offering price of our common stock has been determined by negotiations between our company and the underwriters and may not be indicative of the market price for the securities after this Offering. The market price of the securities is subject to significant fluctuation in response to variations in quarterly and annual operating results, general trends in our company’s industry, actions taken by competitors, the overall performance of the stock market and other factors.

Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market or the perception that these sales might occur, could significantly reduce the market price of our common stock and impair our ability to raise adequate capital through the sale of additional equity securities.

Upon the closing of this Offering, we will have a total of     shares of common stock outstanding, assuming no exercise of the underwriters’ over-allotment option. Of these shares, only the shares of common stock sold in this Offering by us, plus any shares sold upon exercise of the underwriters’ over-allotment option, will be freely tradable without restriction in the public market immediately following this Offering. Aegis Capital Corp however, may, in its sole discretion, permit our officers, directors and other stockholders who are subject to lock-up agreements to sell shares prior to the expiration of the lock-up agreements.

We expect that the lock-up agreements pertaining to this Offering will expire 180 days from the date of this prospectus. After the lock-up agreements expire, up to an additional    shares of common stock held by our directors, executive officers, Fund Management Group LLC and KFSI will be eligible for sale in the public market, and will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. In addition, shares of common stock that are reserved for future issuance under our employee benefit plans will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, the lock-up agreements and Rule 144 and Rule 701 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

This Offering may result in a dilution of your interests in our company.

Our Amended and Restated Certificate of Incorporation will authorize the issuance of     shares of stock, $    par value, and     shares of preferred stock, $     par value. After completion of this Offering, we will have a maximum of approximately     authorized but un-issued shares of common stock and     authorized but un-issued shares of preferred stock available for issuance to shareholders. Our Board of Directors, in a variety of circumstances, may, subject to applicable securities laws, decide to issue additional

24


 
 

TABLE OF CONTENTS

shares up to the amounts authorized in our Amended and Restated Certificate of Incorporation. Existing stockholders who are unwilling or ineligible to purchase subsequently offered shares may experience a dilution of their investment.

The initial public offering price per share of common stock may be substantially higher than our pro forma net tangible book value per share immediately after this Offering. As a result, you may pay a price per share of common stock that substantially exceeds the book value of our assets after subtracting our liabilities. At the initial public offering price of $     per share, you will incur immediate and substantial dilution in an amount of $     per share of common stock. We plan to implement an equity incentive plan that will allow us to issue restricted stock or other rights to acquire or receive payments in respect of common stock. For more information, see “ Management — Equity Incentive Plan — Summary of Plan Terms — Shares Subject to the Incentive Plan .” The issuance or measurement prices attributable to these awards may be below the initial public offering price per share of our common stock. To the extent that these actions are taken, you would experience further dilution. See “Dilution.”

Fund Management Group LLC, of which our Chairman of the board Gordon G. Pratt is Managing Member and controlling equity holder, intends to invest in Preferred Shares of the company prior to completion of the Offering, which may or may not be completed.

On January 23, 2014, Fund Management Group LLC, of which Gordon G. Pratt is Managing Member and controlling equity holder, invested $2 million in the company in exchange for 80,000 Preferred Shares of the company pursuant to the terms and conditions of the Preferred Shares Purchase Agreement, which is filed as an exhibit to this Registration Statement. We intend to use the proceeds from this investment to settle certain inter-company payables to our parent Kingsway America Inc. The Preferred Shares will be non-voting and will rank senior to all classes of capital stock of the company. The conversion of the Preferred Shares into shares of our common stock and the exercise of the warrants (granted upon such conversion) to purchase shares of our common stock, which can only take place after the closing of the Offering, will result in dilution to the holders of shares of our common stock at the time of conversion. For details of the terms of Preferred Shares issued to Fund Management Group LLC see “ Certain Relationships and Related Party Transactions —  Investment Prior to the Offering.

We have never paid dividends on our common stock and do not anticipate paying dividends on our common stock for the foreseeable future; therefore, returns on your investment may only be realized by the appreciation in value of our securities.

We have never paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future. We plan to retain any future earnings to finance future growth. Because of this, investors who purchase common stock may only realize a return on their investment if the value of our common stock appreciates. If we determine that we will pay dividends to the holders of our common stock, there is no assurance or guarantee that such dividends will be paid on a timely basis, if at all

In addition, the declaration and payment of dividends will be at the discretion of our Board of Directors and will be dependent upon our profits, financial requirements and other factors, including legal and regulatory restrictions on the payment of dividends, general business conditions and such other factors as our Board of Directors deems relevant.

Future issuances or sales, or the potential for future issuances or sales, of shares of our common stock may cause the trading price of our securities to decline and could impair our ability to raise capital through subsequent equity offerings.

Future sales of a substantial number of shares of our common stock or other securities in the public markets, or the perception that these sales may occur, could cause the market price of our common stock to decline, and could materially impair our ability to raise capital through the sale of additional securities. Actual sales, or the prospect of sales by our present stockholders, may have a negative effect on the market price of our common stock.

25


 
 

TABLE OF CONTENTS

If we are determined to be an investment company, we would become subject to burdensome regulatory requirements and our business activities would be restricted.

A company that does not actively trade in securities may nevertheless be an investment company as defined in the Investment Company Act of 1940, as amended, or the Investment Company Act, if it owns “investment securities” having a value exceeding 40% of the value of its total assets (excluding U.S. government securities and cash items). We do not believe that we will be an investment company pursuant to Rule 3a-1 under the Investment Company Act because we will “primarily control” and engage in business through Maison Insurance, which is not an investment company. After this offering, we expect that we will continue to structure our organizations and conduct our operations so that we will not be deemed an investment company under the Investment Company Act. A determination that our direct interest in Maison Insurance or Maison Managers is an investment security for purposes of the Investment Company Act and that we do not primarily control and engage in business through Maison Insurance could result in our being considered an investment company. If that were to happen, we could become subject to registration and other burdensome requirements of the Investment Company Act, including limitations on our capital structure, our ability to issue securities and our ability to enter into transactions with our affiliates. A need to comply with those requirements could make it impractical for us to continue our business as contemplated herein and could have a material adverse effect on our business, financial condition and results of operations.

Applicable law may discourage takeover attempts and may result in entrenchment of management.

Our amended and restated certificate of incorporation, our amended and restated bylaws and applicable Delaware and Louisiana law may contain provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our common stock. For example:

As Maison Insurance, a Louisiana domestic insurance company, is our wholly owned subsidiary, the provisions of the Louisiana “Insurance Holding Company System Regulatory Law” are applicable; therefore, any change of control of either Maison Insurance or our company must comply with the requirements of La. R.S. 22:691.4. For purposes of the statute, control shall be presumed to exist if any person, directly or indirectly, owns, controls, holds with the power to vote, or holds proxies representing, ten percent or more of the voting securities of the company. A potential takeover would require approval from Louisiana regulators since the LDOI will require the ultimate control person to obtain approval by the state prior to establishing control of our company.
Our amended and restated bylaws may be further amended by a majority of the stockholders entitled to vote thereon present at any stockholders’ meeting if notice of the proposed action was included in the notice of the meeting or is waived in writing by a majority of the stockholders entitled to vote thereon.

Our revenues, operating results and cash flows may fluctuate in future periods and we may fail to meet investor expectations, which may cause the price of our common stock to decline.

Variations in our quarterly and year-end operating results are difficult to predict and may fluctuate significantly from period to period. If our sales or operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. In addition to the other factors discussed under these “Risk Factors,” specific factors that may cause fluctuations in our operating results include:

Demand and pricing for our products;
Government policies;
Introduction of competing products; and
Our operating expenses which fluctuate due to growth of our business.

Our common stock may be thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

Prior to this Offering, you could not buy or sell our common stock publicly. We cannot predict the extent to which investors’ interests will lead to an active trading market for our common stock or whether the market

26


 
 

TABLE OF CONTENTS

price of our common stock will be volatile following this Offering. If an active trading market does not develop, investors may have difficulty selling any of our common stock that they buy. There may be limited market activity in our stock and we may be too small to attract the interest of many brokerage firms and analysts. We cannot give you any assurance that a public trading market for our common stock will develop or be sustained. The market price of our common stock could be subject to wide fluctuations in response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significant sales of our common stock, including “short” sales, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.

Once our common stock begins trading, the market price of our shares may fluctuate.

We cannot predict the prices at which our common stock may trade after this Offering. The market price of our common stock may fluctuate, depending upon many factors, some of which may be beyond our control, including, but not limited to:

A shift in our investor base;
Our quarterly or annual results of operations, or those of other companies in our industry;
Actual or anticipated fluctuations in our operating results due to factors related to our business;
Changes in accounting standards, policies, guidance, interpretations or principles;
The failure to maintain our listing or failure of securities analysts to cover our common stock;
Changes in earnings estimates by securities analysts or our ability to meet those estimates;
The operating and stock price performance of other comparable companies;
Overall market fluctuations; and
General economic conditions.

Stock markets in general have experienced volatility that has often been unrelated to the operating performance of a particular company. These broad market fluctuations may adversely affect the trading price of our common stock.

27


 
 

TABLE OF CONTENTS

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. In some cases you can identify these statements by forward-looking words such as “may,” “might,” “will,” “will likely result,” “should,” “anticipates,” “expects,” “intends,” “plans,” “seeks,” “estimates,” “potential,” “continue,” “believes” and similar expressions, although some forward-looking statements are expressed differently.

These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from any expected future results, performance, or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These risks and uncertainties include, but are not limited to:

the level of demand for our coverage and the incidence of catastrophic events related to our coverage;
our ability to grow and remain profitable in the competitive insurance industry;
our ability to access additional capital;
our ability to attract and retain qualified personnel;
changes in general economic, business and industry conditions;
legal, regulatory, and tax developments.

There is no assurance that our expectations will be realized. If one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated, or projected. Such risks and uncertainties also include those set forth under “Risk Factors” herein. Our forward-looking statements speak only as of the time that they are made and do not necessarily reflect our outlook at any other point in time. Except as required by law or regulation, we undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or for any other reason.

28


 
 

TABLE OF CONTENTS

OUR SEPARATION FROM KFSI

Our Relationship with KFSI

1347 Property Insurance Holdings, Inc. was incorporated as Maison Insurance Holdings Inc. on October 2, 2012 and has been and will be until the closing of this Offering a wholly-owned subsidiary of KFSI. We were incorporated by KFSI to create a homeowners’ insurance company.

Immediately following this Offering, KFSI will own approximately     % of our outstanding common stock (or    % if the underwriters exercise their over-allotment option in full) but will no longer be responsible for funding our operations following the closing of this Offering. KFSI is expected to be one of our largest stockholders after this Offering.

Two of our directors, Larry G. Swets, Jr. and Hassan R. Baqar, are currently executive officers of KFSI. Mr. Swets is the Chief Executive Officer of KFSI and Mr. Baqar is Vice President of Kingsway America Inc., a wholly owned subsidiary of KFSI.

For several reasons enumerated in “Benefits of Separation” below, KFSI has decided to separate its homeowners’ insurance business, and authorized us to raise capital in the public market through this Offering. Upon the completion of this Offering, we will enter into agreements with KFSI and certain affiliates and/or subsidiaries thereof that will govern the separation of our businesses from KFSI and various relationships with KFSI under a comprehensive set of transaction agreements, including the Transition Services Agreement with KFSI or an affiliate or subsidiary thereof, which will be executed upon completion of the Offering, and the Management Services Agreement with 1347 Advisors, which will be executed prior to the completion of the Offering. The Management Services Agreement establishes certain services that we will receive from 1347 Advisors, on a permanent basis, unless terminated under the terms thereof. The Transition Services Agreement and Management Services Agreement are subject to the approval of our management and the management of KFSI. See “ Certain Relationships and Related Transactions — Agreements with KFSI ” for a more detailed discussion of these agreements and for detailed discussion on risks related to separation from KFSI see “ Risk Factors — Risks Relating to Separation from KFSI.

Benefits of Separation

We believe that the business benefits that will occur as a result of this Offering include:

Market recognition of the value of our business.   As we will be a separate public company after this Offering, potential investors will be able to invest directly in our business. The disclosure requirements applicable to public companies will afford our stockholders with access to standardized and comparable information about us.
Focused management attention.   Our management will be better able to focus its attention on our business. As a company dedicated to the homeowners’ insurance industry, we expect to be in a better position to grow our business and to serve our customers more effectively through more efficient deployment of resources, increased operational flexibility and enhanced responsiveness to customers.
Improved access to capital.   As a separate public company, we will avoid conflicts in the allocation of capital between us and other KFSI businesses. We will have direct access to the capital markets to issue equity or debt securities, which we expect will improve our access to capital and increase our flexibility to invest in product development, and marketing, as well as to pursue strategic acquisitions.
Liquidity for Investors.   If our application for listing on The NASDAQ Capital Market is successful, our common stock will be publicly traded and have enhanced liquidity and transferability, which will benefit both our current and prospective investors.
Incentives for employees more directly linked to our performance.   We expect to enhance employee motivation and to strengthen our management’s focus on our business through incentive compensation programs specifically tied to the results of our business operations and the market performance of our common stock, including our proposed Equity Incentive Plan. We believe that these incentives will enhance our ability to attract and retain qualified personnel.

29


 
 

TABLE OF CONTENTS

USE OF PROCEEDS

We estimate we will receive net proceeds from this Offering of approximately $     (approximately $     if the underwriters exercise their over-allotment option in full), after deducting the underwriting discounts and commissions and estimated expenses of this Offering of approximately $     , assuming an initial public offering price of $     per share, which is the midpoint of the price range set forth on the cover page of this prospectus. See “Underwriting.”

The principal purposes of this offering are to obtain additional capital and to create a public market for our common stock. We expect to use the net proceeds of this Offering as follows: approximately $5.0 million to provide further capital to our existing insurance underwriting subsidiary Maison Insurance, approximately $2.0 million for other general corporate purposes, including settlement of payables, spending for business development, sales and marketing, and working capital, and the remainder used for the formation of a new subsidiary, which will allow for the expansion of our insurance products in new markets. We may also use a portion of the net proceeds from this offering to pursue acquisitions, or to capitalize an offshore reinsurance subsidiary that we intend to form; however, we have no commitments with respect to any such acquisition or investment, and we are not currently involved in any negotiations with respect to any such transaction. We cannot specify with certainty the particular uses of the net proceeds stated above, and these allocations may change depending on the success of our planned initiatives. We will have broad discretion in using these proceeds. Pending the use of proceeds from this Offering as described above, we plan to invest the net proceeds that we receive in this Offering in high quality, short- and long-term investments.

30


 
 

TABLE OF CONTENTS

DIVIDEND POLICY

We have never declared or paid cash dividends. We do not intend to pay cash dividends on our common stock for the foreseeable future and currently intend to retain any future earnings to fund the development and growth of our business. Moreover, our ability to pay dividends if and when our Board of Directors determines to do so may be restricted by regulatory limits on the amount of dividends which Maison Insurance is permitted to pay to us. Also, if we were to borrow against any credit facility that we may enter into, we may be prohibited from paying cash dividends. In addition to the above considerations, the payment of cash dividends, if any, on our common stock will depend, among other things, upon our earnings, capital requirements, financial condition, legal requirements, and other relevant factors as determined by our board of directors. There can be no assurance that we will continue to pay dividends if we commence the payment of dividends.

31


 
 

TABLE OF CONTENTS

CAPITALIZATION

The following table sets forth as of September 30, 2013:

our cash and cash equivalents and capitalization on an actual basis;
our cash and cash equivalents and capitalization on a pro forma as adjusted basis to give effect to the issuance of shares of our common stock at a public offering price of $     per share of common stock assuming no exercise of the over-allotment option by the underwriters; and
our cash and cash equivalents and capitalization on a pro forma as adjusted basis to give effect to the issuance of shares of our common stock at a public offering price of $     per share of common stock assuming full exercise of the over-allotment option by the underwriters.

You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this prospectus.

     
  Actual   Pro forma
Without Over-
Allotment
  Pro forma
With Over-
Allotment
Total long-term debt     0                    
Stockholders' equity
                       
Preferred Stock, $25.00 par value, 1,000,000 authorized shares, no shares issued and outstanding, actual; 80,000 shares issued and outstanding                        
Common stock, no par value, 1,000 authorized shares, 1,000 shares issued and outstanding, actual; $0.001 par value, 10,000,000 authorized shares,      shares issued and outstanding pro forma     0                    
Additional paid in capital     8,750                    
Retained Earnings     (1,557 )              
Total Stockholders' Equity     7,193              
Total Capitalization     7,193              

32


 
 

TABLE OF CONTENTS

DILUTION

Dilution represents the difference between the initial offering price and the net tangible book value per share immediately after completion of this Offering. Net tangible book value is the amount that results from subtracting total liabilities and intangible assets from total assets. Dilution of the value of the shares you purchase is a result of the lower book value of the shares held by our existing stockholder, KFSI.

At September 30, 2013, the net tangible book value of our shares of common stock was $7,193,000 or approximately $7.19 per share based upon 1,000 shares outstanding. After giving effect to our sale of      shares of common stock at an initial public offering price of      per share (assuming no exercise of the over-allotment option by underwriters), and after deducting underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of September 30, 2013 would have been $     , or $     per share. This represents an immediate increase in net tangible book value of $    per share to our existing stockholder, KFSI, and an immediate dilution in net tangible book value of $    per share to purchasers of securities in this Offering, as illustrated in the table below. After giving effect to our sale of      shares of common stock at an initial public offering price of $     per share (assuming full exercise of over-allotment option by the underwriters) and after deducting underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value as of September 30, 2013 would have been $     , or $     per share. This represents an immediate increase in net tangible book value of $     per share to our existing stockholder, KFSI, and an immediate dilution in net tangible book value of $     per share to purchasers of securities in this Offering, as illustrated in the following table.

   
  Without Over-
Allotment
  With Over-
Allotment
Initial public offering price per share                  
Pro forma net tangible book value per share as of September 30, 2013                  
Increase per share attributable to new investors                  
Pro forma net tangible book value per share after this Offering                  
Dilution per share to new investors                  

The information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this Offering determined at pricing.

The above discussion does not include the shares of common stock reserved for future issuance under our proposed Equity Incentive Plan.

33


 
 

TABLE OF CONTENTS

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis should be read in conjunction with our historical financial statements and the related notes included in this prospectus. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed in “Risk Factors” and elsewhere in this prospectus.

Overview

Our Business

We are a property and casualty insurance holding company incorporated in Delaware on October 2, 2012. In December 2012, we began providing property and casualty insurance to individuals in Louisiana through our wholly-owned subsidiary, Maison Insurance Company. Our insurance offerings currently include homeowners insurance, manufactured home insurance and dwelling fire insurance. We believe the Louisiana property and casualty insurance market has historically been underserved due to the unique weather-related risks in the region. We provide our policyholders with a selection of insurance products at competitive rates, while pursuing profitability using our selective underwriting criteria.

We currently derive all of our business from insuring properties located in Louisiana. Our focus on the Louisiana market is due, in part, to our management’s expertise and specialized knowledge of Louisiana’s homeowner insurance industry trends and demographics. We believe that our local market knowledge provides us with a competitive advantage in terms of marketing, underwriting, claims servicing and policyholder service. We also believe that there currently is a unique growth opportunity for smaller insurance companies like us in Louisiana. National insurers have been reducing and continue to reduce their exposures to personal property insurance in Louisiana, creating an opportunity for us to increase our market share in the full peril protection market and with respect to wind/hail-only exposures. Specifically, in recent years, some insurers in Louisiana have begun to write policies excluding the coverage of wind/hail, creating an opportunity for us to fill the gap for customers who need that coverage. Historically, Louisiana Citizens Property Insurance Company, or Citizens, which was created by the state of Louisiana has been the only option for wind/hail policies. We continue to build relationships with national carriers, so that agents of those national carriers consider us, instead of Citizens, when placing wind/hail policies. In addition, Citizens itself has been affording state-approved insurance companies, like Maison Insurance, the opportunity to assume full peril protection and wind/hail-only policies written by Citizens.

We have an experienced management team led by Douglas N. Raucy, our President and Chief Executive Officer. Mr. Raucy has served in his current position since our founding in October 2012 and has more than 33 years of experience in the insurance industry. As a group, our executive officers have, on average, more than 35 years of experience in the property and casualty insurance industry, as well as long-standing relationships with agents and insurance regulators in Louisiana. Our management team will focus on underwriting and claims management, which we believe will enable us to achieve loss ratios that outperform industry averages.

We currently distribute our insurance policies through a network of more than 130 independent agents. These agents typically represent several insurance companies in order to provide various insurance product lines to their clients. We refer to policies we write through independent agents as voluntary policies.

As of September 30, 2013, we had total assets of $16.9 million and stockholders’ equity of $7.2 million. Our net loss was $1.4 million for the nine months ended September 30, 2013. As of December 31, 2013, we had policies in-force of approximately 11,500 policies. Of the 11,500 policies in-force approximately 52% were obtained from take-out policies from Citizens and approximately 48% were voluntary policies obtained from our independent agency force.

34


 
 

TABLE OF CONTENTS

Relationship with KFSI

Prior to the completion of this Offering, we have been a wholly-owned subsidiary of KFSI. We were incorporated under the name Maison Insurance Holdings Inc. by KFSI to create a new homeowners’ insurance company. Immediately following this Offering, KFSI will own approximately    % of our outstanding common stock (or    % if the underwriters exercise their over-allotment option in full) but will no longer be responsible for funding our operations. KFSI is expected to be one of our largest stockholder after this Offering. Upon the completion of this Offering, we will enter into the Transition Services Agreement with KFSI or an affiliate or subsidiary thereof and prior to the completion of this Offering, we will enter into the Management Services Agreement with 1347 Advisors LLC, a wholly-owned subsidiary of KFSI.

Critical Accounting Policies and Estimates

General

We are required to make estimates and assumptions in certain circumstances that affect amounts reported in our consolidated financial statements and related footnotes. We evaluate these estimates and assumptions on an on-going basis based on historical developments, market conditions, industry trends and other information that we believe to be reasonable under the circumstances. There can be no assurance that actual results will conform to our estimates and assumptions, and that reported results of operation will not be materially adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. We believe the following policies are the most sensitive to estimates and judgments.

Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the exemption from complying with new or revised accounting standards provided in Section 7(a)(2)(B) of the Securities Act as long as we are an emerging growth company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of these benefits until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

Loss and Loss Adjustment Expense Reserves

Losses and loss adjustment expense reserves represent estimates for the ultimate cost of unpaid reported and unreported claims incurred and related expenses. The reserves are adjusted regularly based upon experience. We currently have no discounted reserves.

We perform a continuing review of our losses and loss adjustment expense reserves, including our reserving techniques and the amount of reinsurance we have. The reserves are also reviewed regularly by qualified actuaries. Since the reserves are based on estimates, the ultimate liability may be more or less than such reserves. The effects of changes in such estimated reserves are included in the results of income in the period in which the estimates are changed. Such changes in estimates could occur in a future period and may be material to our results of operations and financial position in such period.

The liability for losses and loss adjustment expense, or LAE, represents estimates of the ultimate unpaid cost of all losses incurred, including losses for claims that have not yet been reported to Maison Insurance. The amount of loss reserves for reported claims is based primarily upon a case-by-case evaluation of the kind of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss. The amounts of loss reserves for unreported losses and LAE are determined using historical information by line of insurance as adjusted to current conditions. Inflation is ordinarily implicitly provided for in the reserving function through analysis of costs, trends and reviews of historical reserving results over multiple years.

Reserves are closely monitored and recalculated periodically using the most recent information on reported claims and a variety of actuarial techniques. Specifically, on a monthly basis, management reviews existing reserves, new claims, changes to existing case reserves, and paid losses with respect to the current and prior year. As we develop historical data regarding paid and incurred losses, we use this data to develop expected ultimate loss and loss adjustment expense ratios. We then apply these expected loss and loss adjustment expense ratios to earned premiums to derive a reserve level for each line of business. In connection with the

35


 
 

TABLE OF CONTENTS

determination of these reserves, we will also consider other specific factors such as recent weather-related losses, trends in historical paid losses, and legal and judicial trends regarding liability. Since a substantial portion of our business was assumed from Citizens, we use the loss ratio method based on the expected loss ratio underlying Citizens’ rates, among other methods, to project an ultimate loss expectation, and then the related loss history must be regularly evaluated and loss expectations updated, with the possibility of variability from the initial estimate of ultimate losses.

When a claim is reported to us, our claims personnel establish a “case reserve” for the estimated amount of the ultimate payment. This estimate reflects an informed judgment based upon general insurance reserving practices and on the experience and knowledge of the estimator. The estimated reserve includes the nature and value of the specific claim, the severity of injury or damage, location, and the policy provisions relating to the type of loss. Case reserves are adjusted by us as more information becomes available. It is our policy to settle each claim as expeditiously as possible.

We maintain incurred but not reported, or IBNR, reserves to provide for already incurred claims that have not yet been reported and developments on reported claims. The IBNR reserve is determined by estimating our insurance company’s ultimate net liability for both reported and IBNR claims and then subtracting the case reserves and payments made to date for reported claims.

Loss Reserve Estimation Methods.   We, and our consulting actuary, apply the following general methods in projecting loss and LAE reserves:

Reported loss development;
Paid loss development;
Loss ratio method; and
Average outstanding and open claims.

Description of Ultimate Loss Estimation Methods.   The reported loss development method relies on the assumption that, at any given state of maturity, ultimate losses can be predicted by multiplying cumulative reported losses (paid losses plus case reserves) by a cumulative development factor. The validity of the results of this method depends on the stability of claim reporting and settlement rates, as well as the consistency of case reserve levels. Case reserves do not have to be adequately stated for this method to be effective; they only need to have a fairly consistent level of adequacy at all stages of maturity. We assume that our loss development patterns will be reasonably consistent with industry averages, and use industry-based factors to project the ultimate losses.

The paid loss development method is mechanically identical to the reported loss development method described above. The paid method does not rely on case reserves or claim reporting patterns in making projections.

The validity of the results from using a loss development approach can be affected by many conditions, such as internal claim department processing changes, a shift between single and multiple claim payments, legal changes, or variations in our mix of business from year to year. Also, since the percentage of losses paid for immature years is often low, development factors are volatile. A small variation in the number of claims paid can have a leveraging effect that can lead to significant changes in estimated ultimate values. Therefore, ultimate values for immature accident years are often based on alternative estimation techniques.

The loss ratio method uses the assumption that remaining unreported losses are a function of the total expected losses rather than a function of currently reported losses. The expected loss ratio is multiplied by earned premium to produce ultimate losses. Paid losses are then subtracted from this estimate to produce expected unreported losses.

The loss ratio method is most useful as an alternative to other models for immature accident years. For these immature years, the amounts reported or paid may be small and unstable, and therefore, not predictive of future development. Therefore, future development is assumed to follow an expected pattern that is supported by more stable historical data or by emerging trends. This method is also useful when changing reporting patterns or payment patterns distort the historical development of losses.

36


 
 

TABLE OF CONTENTS

Finally, we employ the average outstanding and open claims method. We segregate our claims according to when we assumed them from Citizens or wrote them in the voluntary market and conduct a detailed review in order to estimate average future development of open claims and average projected loss on IBNR claims. We combine this estimate with our open claims in order to derive an estimate of expected unreported losses. Paid losses are added to this estimate in order to derive an estimate of ultimate losses. This method is based on the assumption that future IBNR claims and the average severity of open claims and IBNR claims can be reasonably estimated from the experience available.

Currently, we calculate on a monthly basis our estimated ultimate liability using these principles and procedures applicable to the lines of business written. However, because the establishment of loss reserves is an inherently uncertain process, we cannot be certain that ultimate losses will not exceed the established loss reserves and have a material adverse effect on our results of operations and financial condition. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.

Reinsurance

Reinsurance recoverables recorded with respect to insurance losses ceded to reinsurers under reinsurance contracts are also subject to estimation error. Ceding ratios are determined using actuarial assumptions, and therefore, are subject to the same uncertainties as reserves for losses and LAE. Additionally, estimates of reinsurance recoverables may prove uncollectible if the reinsurer is unable or unwilling to perform under the contract. The ceding of insurance does not legally discharge the ceding company from its primary liability to the policyholder for the full amount of the policies, and the ceding company is required to pay the loss and bear collection risk if the reinsurer fails to meet its obligation under the reinsurance agreement. We evaluate the balances due from reinsurance companies for collectability, and when in management’s opinion issues of collectability exist, establish an allowance for doubtful accounts. For information about the risks of non-collectability of reinsurance, see the risk factor entitled “We face a risk of non-collectability of reinsurance, which could materially and adversely affect our business, results of operations and/or financial condition.”

Deferred Tax Assets and Liabilities

Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities. Deferred tax liabilities are recognized for temporary differences that will result in taxable amounts in future years. Deferred tax assets are recognized for deductible temporary differences and tax operating loss and tax credit carry forwards. The deferred tax assets and liabilities are measured by applying the enacted tax rates and laws in effect for the years in which such differences are expected to reverse. The components of our deferred tax asset are primarily net operating losses and unearned premium reserves.

Realization of deferred tax assets depends upon our generation of sufficient taxable income in the future to recover tax benefits that cannot be recovered from taxes paid in the carryback period, generally two years.

Liquidity and Capital Resources

Our primary sources of cash flow include dividends from our subsidiaries, management fee from Maison Managers, and any future capital raising transactions that we may execute. The ability of our subsidiaries to pay us dividends directly impacts the liquidity available to us for the purposes of meeting our expenses and paying dividends to our stockholders. The primary cash flow sources for Maison Insurance are premiums and investment income, and primary cash outflows are claims payments and operating expenses. In the insurance industry, cash collected for premiums from policies written is invested, interest and dividends are earned thereon, and loss and settlement expenses are paid out over a period of years.

This period of time varies by the circumstances surrounding each claim. Additional cash outflow occurs through payments of underwriting costs such as commissions, taxes, payroll, and general overhead expenses.

Net cash provided by operating activities from our inception through the period ended September 30, 2013, was approximately $4.5 million, which consisted primarily of cash received from net written premiums less cash disbursed for losses and losses adjustment expenses and operating expenses. Net cash provided from investing activities of $1.8 million was primarily from the sale of a preferred stock holding, which was

37


 
 

TABLE OF CONTENTS

originally contributed by our parent company, Kingsway America Inc. Net cash provided by financing activities totaled $6.9 million from the initial capitalization and subsequent additional paid in capital.

Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses and difficulties encountered by companies in their early stage of development, particularly companies in highly competitive markets. Such risks for us include, but are not limited to, the management of future growth. See the risk factor entitled “We have a limited operating history and it is difficult to predict our future growth and operating results.”

To address these risks, we must, among other things, target an appropriate base of insureds, implement and successfully execute our business and marketing strategy, continually develop and upgrade our risk-control procedures, respond to competitive pressures, meet the needs of our customers and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and result of operations. In addition, there can be no assurance that our business will not be affected by risks or market conditions that we do not currently foresee.

We have tailored our investment policy in an effort to minimize risk in the current financial market, particularly the debt securities market. Therefore, we currently invest our excess cash in money market accounts or in certificates of deposit that mature in no more than twenty-four months. After the closing of the Offering, and periodically thereafter, we will review our investment policy in light of our then-current circumstances and available investment opportunities.

We classify our investment portfolio as available for sale; therefore, all investments are reported at fair market value, with unrealized gains and losses, net of tax, being reported as a component of stockholders’ equity. In the future we may alter our investment policy to include investments such as federal, state and municipal obligations, corporate bonds, preferred and common equity securities and real estate mortgages, as permitted by applicable law.

Our insurance subsidiary, Maison Insurance, requires liquidity and adequate capital to meet ongoing obligations to policyholders and claimants and to fund operating expenses. Adequate levels of liquidity and surplus are maintained to manage the risks inherent with any differences between the duration of our liabilities and invested assets. We believe that we maintain sufficient liquidity to pay Maison Insurance’s claims and expenses, as well as satisfy commitments in the event of unforeseen events such as reinsurer insolvencies, inadequate premium rates, or reserve deficiencies.

We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard its financial position. To the extent that reinsurance costs cannot be passed on to our customers through our rates, our reinsurance program could have a negative impact on our liquidity.

Louisiana statutes provide that the ratio of net premium written to policyholders’ surplus for Maison Insurance should not exceed 4-to-1. The ratio of annual statutory net premium written by Maison Insurance to combined policyholders’ surplus was 1.2-to-1 as of September 30, 2013. Our current levels of policyholders’ surplus are adequate to support current premium writings based on this standard. We monitor premium and statutory surplus levels of Maison Insurance in an effort to ensure that the subsidiary maintains adequate premium to surplus ratios. Failure of Maison Insurance to maintain adequate levels of policyholders’ surplus could negatively impact our ability to write additional premiums.

In addition, regulators and rating agencies utilize a risk based capital, or RBC, test designed to measure the acceptable amount of surplus an insurer should maintain, based on specific inherent risks of each insurer. If we fail to meet the benchmark level, we may be subject to scrutiny by the LDOI which could potentially result in rehabilitation or liquidation. At September 30, 2013 the total adjusted capital of our insurance subsidiary exceeded the minimum level required under RBC. We continually monitor the RBC ratios and will implement strategies to maintain ratios above the regulatory minimums.

38


 
 

TABLE OF CONTENTS

Credit Risk

Credit risk is a major factor in operating our business. We have established policies and procedures to evaluate our exposure, particularly with regard to our investment holdings, and our receivable balances from insureds and reinsurers. We review credit risk from a variety of sources, including credit risk from financial institutions, investment risk, counter-party risk from reinsurers, premium receivables, notes receivable and long-term investment assets, loss sensitive underwriting accounts and key vendor relationships.

We use specific criteria to judge the credit quality and liquidity of our investments in addition to a variety of credit rating services to monitor these criteria. We currently limit our credit exposure related to financial instruments by investing our excess cash in money market funds or in bank deposits that mature in no more than thirteen months. After the closing of the Offering, and periodically thereafter, we will review our investment policy in light of our then-current circumstances and available investment opportunities.

We are also exposed to credit risk on losses recoverable from reinsurers and premiums receivable from insureds. Downturns in one sector or market can adversely impact other sectors and may result in higher credit exposure. We do not use credit default swaps to mitigate our credit exposure from either investments or counterparties.

Results of Operations

Inception to date

From our inception on October 2, 2012 through September 30, 2013, we generated revenues of $2.9 million, of which $2.8 million was a result of net premiums earned. We generated an additional $0.1 million from interest and other income.

From October 2, 2012 through September 30, 2013, we incurred a total of $5.2 million in losses and expenses for a net loss of $1.6 million. We expect that these expenses will continue to increase as we further expand our number of underwritten policies. We had a federal income tax benefit of $0.8 million.

A significant portion of our total losses and expenses was the $1.8 million of general and administrative expenses related to management costs, including salaries, taxes and licensing fees, which were 61% of our total revenue over that time period.

For fiscal year 2012

From our inception on October 2, 2012 through December 31, 2012, we generated revenues of $0.4 million, which was almost entirely a result of net premiums earned, and less than $0.1 million was generated from interest income for the period.

From October 2, 2012 through December 31, 2012, we incurred total losses and expenses of $0.5 million for a net loss of $0.1 million. The company had a federal income tax benefit of $0.1 million.

A significant portion of the total losses and expenses was the $0.5 million of general and administrative expenses related to management costs, including salaries, taxes and licensing fees, which were 132% of our total revenue over that time period.

For the nine months ended September 30, 2013

For the nine months ended September 30, 2013, we generated revenues of $2.5 million, of which $2.4 million was a result of net premiums earned, and $0.1 million was generated from interest and other income.

For the nine months ended September 30, 2013, we incurred total losses and expenses of $4.7 million for a net loss of $1.4 million. We had a federal income tax benefit of $0.7 million.

We experienced losses and loss adjustment expenses during the nine months ended September 30, 2013 of $2.6 million, net of a ceded loss recovery of $1.0 million. A significant portion of our total losses and expenses was the $1.3 million of general and administrative expenses related to management costs, including salaries, taxes and licensing fees, which were 51% of our total revenue.

39


 
 

TABLE OF CONTENTS

For the third quarter ended September 30, 2013

For the three months ended September 30, 2013, we generated revenues of $1.1 million, of which $0.8 million was a result of net premiums earned, and less than $0.1 million was generated from interest and other income.

We incurred total losses and expenses of $1.0 million for a net income of $0.1 million. We had a federal income tax expense of less than $0.1 million.

We experienced losses and loss adjustment expenses during this three month period of $0.2 million. A significant portion of our total losses and expenses was the $0.5 million of general and administrative expenses related to management costs, including salaries, taxes and licensing fees, which were 44% of our total revenue.

Off Balance Sheet

We have no off balance sheet items or issues.

Contractual Obligations

Our only contractual obligation, through Maison Insurance, is a single office space lease in Baton Rouge, Louisiana. This non-cancelable lease is for a period of five years expiring December 2017, with annual rent payments of approximately $65,000 which is payable in equal monthly installments.

40


 
 

TABLE OF CONTENTS

BUSINESS

We are a property and casualty insurance holding company incorporated in Delaware on October 2, 2012. In December 2012, we began providing property and casualty insurance to individuals in Louisiana through our wholly-owned subsidiary, Maison Insurance Company. Our insurance offerings currently include homeowners’ insurance, manufactured home insurance and dwelling fire insurance. We believe the Louisiana property and casualty insurance market has historically been underserved due to the unique weather-related risks in the region. We provide our policyholders with a selection of insurance products at competitive rates, while pursuing profitability using our selective underwriting criteria.

We currently derive all of our business from insuring properties located in Louisiana. Our focus on the Louisiana market is due, in part, to our management’s expertise and specialized knowledge of Louisiana’s homeowner insurance industry trends and demographics. We believe that our local market knowledge provides us with a competitive advantage in terms of marketing, underwriting, claims servicing and policyholder service. We also believe the existence of a state-created insurer, Louisiana Citizens Property Insurance Corporation, or Citizens, combined with the dynamic of large national insurers pulling back from the Louisiana property and casualty insurance market, has created a unique growth opportunity for smaller insurance companies in Louisiana.

We have an experienced management team led by Douglas N. Raucy, our President and Chief Executive Officer. Mr. Raucy has served in his current position since October 2012 and has more than 33 years of experience in the insurance industry. As a group, our executive officers have, on average, more than 35 years of experience in the property and casualty insurance industry, as well as long standing relationships with agents and insurance regulators in Louisiana.

We currently distribute our insurance policies through a network of more than 130 independent agents. We write insurance policies through the independent agents that are unrelated to the Citizens’ take-out program, which we refer to as voluntary policies. The Citizens’ take-out program is further explained below in Our Market . These agents typically represent several insurance companies in order to provide various insurance product lines to their clients.

National insurers have been reducing and continue to reduce their exposures to personal property business in Louisiana, creating an opportunity for us to increase our market share in the full peril protection market and with respect to wind/hail-only exposures. Specifically, in recent years, some insurers in Louisiana have begun to write policies excluding the coverage of wind/hail, creating such opportunity for us to fill the gap with customers who need that coverage. Also, we continue to build relationships with national carriers, so that agents of those national carriers consider us when placing wind/hail policies instead of Citizens, as Citizens has historically been the only market option for such wind/hail policies.

As of September 30, 2013, we had total assets of $16.9 million and stockholders’ equity of $7.2 million. Our net loss was $1.4 million for the nine months ended September 30, 2013. As of December 31, 2013, we had approximately 11,500 policies in-force, of which approximately 52% were obtained from take-out policies from Citizens and approximately 48% were voluntary policies obtained from our independent agency force. We believe that our focus on underwriting and claims management will enable us to achieve loss ratios that outperform industry averages.

41


 
 

TABLE OF CONTENTS

Our Corporate Structure

The chart below displays our corporate structure prior to the closing of this Offering:

[GRAPHIC MISSING]

Immediately following the closing of this Offering, KFSI will continue to indirectly own approximately      % of the shares of 1347 Property Insurance Holdings, Inc. (or     % if the underwriters exercise their over-allotment option in full).

1347 Property Insurance Holdings, Inc. was incorporated under the name Maison Insurance Holdings Inc. to hold all of the capital stock of our two subsidiaries: Maison Insurance and Maison Managers. We will also hold all of the capital stock of any offshore domiciled reinsurance subsidiary in the event such an entity is formed. As a holding company for these subsidiaries, we are subject to certain regulation by the Louisiana Department of Insurance, or LDOI.

Maison Insurance, our insurance subsidiary, is a Louisiana insurance company that provides property and casualty insurance to individuals in Louisiana. As an insurance company, Maison Insurance is subject to examination and comprehensive regulation by the LDOI.

Maison Managers serves as our management services subsidiary, known as a managing general agency. In its role as our management services subsidiary, Maison Managers is responsible for our marketing programs and other management services. It is this subsidiary that contracts with our independent agents for sales services and with our outsourced provider for policy administration services. As a managing general agency, Maison Managers is licensed by and subject to the regulatory oversight of the LDOI.

Reinsurance Subsidiary .  We are also considering the formation of a reinsurance subsidiary domiciled offshore to augment our current practice of placing reinsurance with unaffiliated reinsurers. If deemed appropriate by management, Maison Insurance may use this reinsurance subsidiary to meet certain of its reinsurance needs. In the event that Maison Insurance decides to purchase reinsurance from our reinsurance subsidiary, the reinsurance contracts entered into between these two subsidiaries will contain terms and rates that are substantially similar to the terms and rates found in the reinsurance contracts between Maison

42


 
 

TABLE OF CONTENTS

Insurance and other third party reinsurers. Any reinsurance contracts entered into between these two subsidiaries will be subject to review by the LDOI.

We believe that our holding company structure will give us greater flexibility to expand our operations and the products and services we offer in the event we choose to expand, although presently there are no definitive plans or arrangements to do so. We will be able to diversify our business through existing or newly formed subsidiaries, the issuance of capital stock to make acquisitions or obtaining additional financing in the future.

Investment Prior to the Offering

On January 23, 2014, Fund Management Group LLC, an entity of which our Chairman of the board, Gordon G. Pratt, is Managing Member and controlling equity holder, invested $2 million in the company in exchange for 80,000 Preferred Shares of the company pursuant to the terms and conditions of the Preferred Shares Purchase Agreement, which is filed as an exhibit to this Registration Statement. The Preferred Shares will be non-voting and will rank senior to all classes of capital stock of the company. The Preferred Shares will not pay any dividends. When converted, the Preferred Shares will convert into i)      common shares of the company, which is equal to $2 million of our common stock at 80% of the offering price per share of our common stock issued in this Offering, subject to certain adjustments, and ii) one warrant per each common share issued as a result of the conversion. The conversion into shares of our common stock and warrants will be deemed to have occured immediately prior to the closing of this Offering. Each warrant will entitle the holder to purchase one share of our common stock at a price equal to 120% of the offering price per share of our common stock issued in this Offering, subject to certain adjustments under the Warrant Agreement. The warrants will have an expiry date of 5 years from the date of issuance and will be immediately exercisable after issuance in accordance with the exercise procedure under the Warrant Agreement. The warrants will be redeemable by us at a price of $0.01 per warrant during any period in which the closing price of our common shares is at or above 175% of the price of shares of our common stock issued in this Offering for 20 consecutive trading days. The warrant holder will be entitled to a 30 day notice prior to the date of such redemption. If the Offering is not completed within one year from the date of issuance, we will redeem the Preferred Shares at a value equal to original investment plus a 12% premium. The common stock issuable to Fund Management Group LLC upon conversion of the Preferred Shares will have piggyback registration rights for future registrations of the Company’s common stock under the Securities Act (other than certain excluded registrations) and, upon the two-year anniversary of the Offering, Fund Management LLC will also have a one-time demand registration right for such common stock, subject to certain restrictions. If all the Preferred Shares are converted and all the warrants are exercised immediately following the Offering, Fund Management Group LLC will own approximately      % of our outstanding common stock immediately after the Offering. We intend to use the proceeds from this investment to settle intercompany payables to our immediate parent, Kingsway America Inc. This intercompany payable amount originates from payments made by Kingsway America Inc. on our behalf to various third-party vendors and does not represent a payable for any services provided by Kingsway America Inc. to us. For a complete description of the terms of this investment and the rights and preferences of the Preferred Shares (and the common stock and warrants underlying such Preferred Shares), please refer to the Preferred Shares Purchase Agreement, the Warrant Agreement and the Certificate of Designation of Preferred Shares filed as an exhibit to this Registration Statement.

Our Market

Historically, the Louisiana property and casualty insurance market has been dominated by large national insurance companies, which began writing property and casualty insurance policies in Louisiana when rates were much lower than they are today. Following a period of unusual hurricane activity, it became apparent that the historical rates charged by these insurance companies were not adequate to cover the risks they assumed. In some cases, insurance companies were forced to liquidate. In other cases, insurance companies requested rate increases from the LDOI. The LDOI is typically reluctant to implement large rate increases over a short period in an effort to ensure that property and casualty rates do not become cost prohibitive for Louisiana homeowners. As a result, many insurers were unable to implement rate increases that they believed were sufficient to offset the risks being assumed in a timely manner. Consequently, many insurers began to decrease the number of property and casualty insurance policies they wrote in Louisiana.

43


 
 

TABLE OF CONTENTS

As these large national insurance companies decreased their property and casualty insurance policies in Louisiana, Louisiana property owners experienced increasing difficulty in procuring insurance policies from private insurance companies. This issue was alleviated in part by the creation in 2004 of Citizens, a Louisiana state-created and state-regulated insurer that provides property insurance for Louisiana property owners who are unable to obtain insurance from private insurance companies. Citizens is an “insurer of last resort,” writing approximately 8% of Louisiana’s homeowners’ policies. Citizens is required by statute to charge rates 10% higher than the rest of the private insurance market.

Because Citizens is a state-created insurer and because the State of Louisiana has not historically been in the business of serving as an insurer, an insurance “take-out” program was implemented to reduce the number of properties insured by Citizens. Under this take-out program, state-approved insurance companies, like Maison Insurance, have the opportunity to assume insurance policies written by Citizens as it did in December 2012 and 2013 and plans to do so in the future. As of December 31, 2013, the Company had approximately 6,000 net taken-out policies from Citizens, all of which cover wind and hail only, and of which approximately 3,500 were from the latest take-out of December 1, 2013 and approximately 2,500 remain in-force as of December 31, 2013 from the December 1, 2012 take-out. Opportunities for insurance companies to take-out Citizens policies have historically occurred annually on each December 1 st .

We believe that the decrease in the number of Louisiana property and casualty insurance policies written by various large national insurance companies, coupled with the Citizens take-out program, has provided smaller, domestic insurance companies, such as Maison Insurance, with greater access to and a unique opportunity for growth in the Louisiana property and casualty insurance market. According to the LDOI, the market for homeowners’ insurance, manufactured homes insurance, and dwelling fire insurance (i.e., the insurance products offered by Maison Insurance) in Louisiana represents annual premiums of approximately $2.5 billion. Citizens currently writes approximately 8% of these policies and large national insurance companies account for approximately 76% of these policies.

Although the Louisiana property and casualty insurance market is particularly susceptible to risks due to hurricanes, the statistical likelihood of experiencing catastrophic hurricane-related losses is not as great as recent storm activity might suggest. Each year, forecasters predict the number of storms for the year and the number of storms likely to hit the United States. These forecasts refer to all manner of storms ranging from tropical storms to category 5 hurricanes. Moreover, these predictions do not attempt to anticipate the number of storms which will impact a particular state, such as Louisiana.

The Saffir/Simpson Hurricane Wind Scale classifies hurricanes into five categories according to intensity of sustained winds, central barometric pressure and storm surge. The scale is used primarily to measure the potential damage and flooding a hurricane will cause upon landfall. The U.S. National Hurricane Center classifies hurricanes of category 3 and above as “major hurricanes.” Tropical storms and the lowest two categories, category 1 and category 2 hurricanes, have wind speeds of less than 110 mph and do not present a significant risk of loss. According to the National Hurricane Center, category 1 storms do not cause significant damage to building structures, other than unanchored mobile homes. According to the same source, category 2 storms may cause damage to roofing material, poorly constructed doors and windows and mobile homes. Consequently, we believe only category 2 storms (for manufactured houses) and category 3 and above hurricanes present a significant risk of property damage to our insureds.

The National Weather Service — National Hurricane Center published the National Oceanic and Atmospheric Administration Technical Memorandum in August 2011, listing the 30 most costly mainland United States tropical cyclones from 1900 through 2010, nine of which impacted Louisiana.

Since 1969, there have been four landfalls of major hurricanes (category 3 or greater) in Louisiana, with the last being Hurricane Katrina in 2005. The strongest hurricane was Camille in 1969, with winds of 185 miles per hour, which directly hit the Mississippi coast with the effects being felt in Louisiana as well. The most recent hurricane to hit Louisiana was Isaac in 2011, a category 1 hurricane that directly hit New Orleans.

44


 
 

TABLE OF CONTENTS

Our Products

As of December 31, 2013, approximately 52% of our policies are comprised of wind/hail only dwelling policies obtained from the Citizens take-out program and the remaining 48% are obtained through our independent agents, approximately 31% of which are home-owner multi-peril, approximately 16% are manufactured home policies, and approximately 1% are dwelling fire policies.

Homeowners Insurance

Our homeowners insurance policy is written on an owner occupied dwelling which protects from all perils, except for those specifically excluded from coverage by the policy. The homeowners insurance policy also provides coverage for personal property, but only for specific types of coverage. It also provides replacement cost coverage on the home and other structures and will provide optional coverage for replacement cost on personal property in the home. It also offers the option of specifically scheduling individual personal property items for coverage. Additionally, coverage for loss of use of the home until it can be repaired is provided. Personal liability and medical payment coverage to others is included, as well.

Manufactured Home Insurance

Our manufactured home insurance policy is written on a manufactured or mobile home and is similar to both the homeowners insurance policy and the dwelling fire policy. The policy can provide for coverage on the manufactured home, the insured’s personal property in the home and liability and medical payments can be included. It can be written on owner occupied or non-owner occupied units. Property coverage can be written on a replacement cost, actual cash value or stated amount basis. There are several optional coverages that can be included and residential and commercial-use rental units can be written along with seasonal use mobile homes or homes that are used for part of the year.

Dwelling Fire Insurance

Our dwelling fire policy can be issued on an owner occupied or non-owner (tenant) occupied dwelling property. It will also provide coverage against all types of loss unless the peril causing the loss is specifically excluded in the policy. Losses from vandalism and malicious mischief are also included in the coverage. All claims and losses on a dwelling are covered on a replacement cost basis and additional coverage for personal property (contents) can also be added. Personal liability and medical payments to others may be included on an optional basis.

Our policy counts by type as of December 31, 2013 are as follows:

     
Source of Policies   Type   Policy
Counts
  % of
Policies
Citizens Take-out     Wind/Hail Only       6,021       52.3 %  
2012 Take-out     Wind/Hail Only       2,505       21.8 %  
                             
2013 Take-out     Wind/Hail Only       3,516       30.5 %  
Independent Agents:              5,485       47.7 %  
       Homeowners       3,580       31.1 %  
       Manufactured Home       1,786       15.6 %  
       Dwelling Fire       119       1.0 %  
Total in-force policies as of December 31, 2013              11,506       100.0 %  

45


 
 

TABLE OF CONTENTS

Competitive Strengths

Since we began operations in December of 2012, our growth has been due to our competitive strengths, which include:

Our knowledge of insurance products .  Our underwriting and marketing operations are managed and staffed by qualified and experienced team members with specific expertise in the product lines being offered.
Our local market expertise .  Through our management team and key employees, we have developed an understanding of the Louisiana insurance market in which we operate, which we believe provides us with competitive advantages in terms of marketing, underwriting, claims servicing and policyholder service in Louisiana.
Our ability to attract independent agents .  Our management team’s extensive industry experience and network of contacts facilitates our ability to attract a network of independent agents that we believe will direct potential policyholders to our company to fulfill their homeowners insurance needs.
Our outsourced policy administration system .  Rather than keeping our policy administration function in-house, we have outsourced all of our policy administration services, which allows this function of our business to operate as a variable cost. As our premium volumes grow, such costs increase, but in times of premium contraction, such costs will decrease. Further, outsourcing our policy administration services provides us with access to better processes and systems than we would likely have had we chosen to operate such policy administration function in-house. We find that partnering with a policy administration provider will provide us and our agents a better, more robust platform than we could likely build and service on our own.
Our strategy to accept dwelling wind and hail-only policies through Citizens .  We assumed approximately 3,000 wind and hail-only policies from Citizens through their Round 6 Depopulation Program in December 2012 and approximately 3,800 wind/hail-only policies in the December 2013 takeout, of which approximately 2,500 and 3,500 policies are still in-force as of December 31, 2013, respectively. We believe our relationship with Citizens will also allow us to participate in future depopulation programs in Louisiana.
Our underwriting eligibility criteria and underwriting approach .  Unlike some competitors, we offer full coverage, all peril products throughout our area of operations. Our underwriting experience provides a unique perspective that we believe allows superior risk selection on overall risk eligibility, preferred and non-preferred geographical locations of risk and specific risk characteristics.

Competition

We operate in a highly competitive market and face competition from national and regional insurance companies, many of whom are larger and have greater financial and other resources and offer more diversified insurance coverage. Our competitors include companies which market their products through independent agents, as well as companies with captive agents. Large national companies may have certain competitive advantages over regional companies, including increased name recognition, increased loyalty of their customer base and reduced policy acquisition costs.

We may also face competition from new entrants in our niche markets. In some cases, these companies may price their products below ours due to their interest in quickly growing their business in Louisiana. Although our pricing is inevitably influenced to some degree by that of our competitors, we believe that it is generally not in our best interest to compete solely on price. We also compete on the basis of underwriting criteria, our distribution network and superior policy, underwriting and claims service to our agents and insureds.

National and regional companies which compete with us in the homeowners’ market include Lighthouse Property Insurance Corporation, ASI Lloyds, Louisiana Farm Bureau Insurance, Centauri Specialty Insurance Company, Allstate Insurance Company and State Farm Insurance Company. We also compete with other Louisiana domestic property and casualty companies such as Americas Insurance Company, Imperial F&C Insurance Company, and Access Home Insurance Company.

46


 
 

TABLE OF CONTENTS

Our Strategies

Our primary goal is to continue to expand our property and casualty writings in Louisiana through:

Increasing our number of voluntary policies .  In recent years, large national insurance companies have significantly reduced their writings of homeowners’ policies in Louisiana. We believe this trend presents an opportunity to acquire a number of homeowners’ policies from these national insurers. We will focus on expanding our relationship with our network of agents in an effort to secure new voluntary business from such agents. When required, we will also seek the approval of their affiliated insurance companies to become an alternative insurance source for their agents and policyholders in Louisiana.
Increasing our assumption of policies held by Citizens .  Approximately 8% of Louisiana’s homeowners’ policies are currently written by Citizens. We intend to continue selecting and assuming existing insurance policies from the large pool of policies held by Citizens that meet our underwriting criteria. We also will continue to develop our network of independent agents and, when necessary, obtain approval of their affiliated insurance companies in order to increase the number of policies that we are eligible to assume from Citizens.
Strategic acquisitions .  We intend to explore growth opportunities through strategic acquisitions, although we are not currently involved in any active negotiations to execute this strategy.
Attracting and retaining high-quality agents .  We intend to focus our marketing efforts on maintaining and improving our relationships with highly productive independent agents in our current network, as well as on attracting new high-quality agents in areas with a substantial potential for growth. We believe that these agents will play a key role in our efforts to increase the number of voluntary policies written by our insurance subsidiary.
Reducing our ratio of expenses to net premiums earned and using technology to increase our operating efficiency .  We are committed to improving our profitability by reducing expenses through enhanced technologies and by increasing the number of policies written through the strategic deployment of our capital. We consolidate all processing and administration of our policies to achieve quality control, operating synergies and tighter expense control. We use technology to automate much of our underwriting activities and to efficiently and cost-effectively facilitate policyholder communications.
Evaluating appropriate levels of reinsurance and potentially utilizing a reinsurance subsidiary .  We will continue evaluating the appropriate amount of reinsurance that we believe will limit our loss exposure on individual property and casualty risks in the most cost-effective manner. We are also considering the formation of a new offshore reinsurance subsidiary through which we can meet certain of our insurance subsidiary’s reinsurance needs.

In addition to the goals and strategies described above, in the future we may diversify our business by offering additional insurance products while maintaining our selective underwriting standards. We may also expand our business outside the State of Louisiana through the organic growth of our company or through strategic acquisitions. We are currently assessing strategic opportunities with regard to product line diversification and geographic expansion outside the Louisiana.

Underwriting

Based on a dynamic set of selective criteria, our underwriters evaluate and select those risks that they believe will enable our insurance subsidiary to achieve an underwriting profit. In order to achieve underwriting profitability on a consistent basis, we focus on (1) the suitability of the risk to be assumed, (2) the adequacy of the premium with regard to the risk to be assumed, and (3) the geographic distribution of existing policies within Louisiana. When considering the suitability of the risk to be assumed and the adequacy of the premium with regard to the risk to be assumed, our underwriters may consider factors such as the age, location, value and construction of the home, as well as the premiums to be received from insuring the home.

When considering the geographic distribution of existing policies, our underwriters may consider the number of other homes insured by the company within the same region, parish, city and/or zip code.

47


 
 

TABLE OF CONTENTS

Our underwriters:

assess and select quality standard and preferred risks through a sophisticated catastrophe scoring system;
adhere to disciplined underwriting guidelines; and
utilize various types of risk management and loss control services including inspection, property evaluation and claim and credit history.

The factors, or underwriting criteria, that we consider evolve as we assume more policies. Specifically, our standards have become more geographically precise. Our underwriting criteria will continue to evolve as our business grows and expands.

Maison Insurance also reviews its existing policies and accounts to determine whether those risks continue to meet its underwriting guidelines. If a given policy or account no longer meets those underwriting guidelines, Maison Insurance will take appropriate action regarding that policy or account, including raising premium rates or not renewing the policy to the extent permitted by applicable law, provided that we can cancel policies assumed from Citizens.

We intend to expand into Texas, Hawaii and/or Florida during 2014. We intend to seek licensure by the insurance departments of these states as well as building the appropriate information technology infrastructure to address policy administration, marketing and claim functions. We are in the process of developing a strategy for these expansions, but do not have, at present, concrete plans underlying such strategies.

Claims Administration

Claims administration and adjusting involves the handling of routine “non-catastrophic” claims as well as catastrophic, including those that are wind/hail-related, claims. In the event of a hurricane, our claims volume would increase significantly due to hurricane-related damage. Rather than increase the size of our staff in anticipation of such an event, we believe that outsourcing claims adjusting improves our operational efficiency because an appropriately selected third party will have resources to adjust the hurricane-related claims. Accordingly, we have outsourced our claims adjusting program to certain third party administrators with experience in Louisiana.

Under the terms of the service contract between Maison Insurance and Maison Managers, Maison Managers handles the actual claims administration for both catastrophic and non-catastrophic insurable events. In handling the claims administration, the examiner for Maison Managers reviews all claims and loss reports, and if warranted, investigates such claims and losses.

The field adjusting is outsourced to third-party service providers, who, subject to company guidance and oversight, either settle the claims or contest the claims. Approval for payment of a claim is given by Maison Managers after careful review of the field adjuster's report. We maintain a claims fund for the disbursement of payments to our customers after insurable events, and make deposits into the claims fund as claims are made. We pay adjusters based on a fee for the claim. Such fees could increase as a result of a catastrophic event. Although we are ultimately responsible for paying the claims made by our policyholders, we believe that outsourcing our claims handling program while maintaining an oversight function is an efficient mechanism for handling individual matters, and helps mitigate the animosity that can occur between insured and insurer.

Technology

Our business depends upon the use, development and implementation of integrated technology systems. These systems enable our insurance subsidiary to provide a high level of service to agents and policyholders by processing business in a timely and efficient manner, communicating and sharing data with agents, providing a variety of methods for the payment of premiums and allowing for the accumulation and analysis of information for the management of our insurance subsidiary. We believe the availability and use of these technology systems has resulted in improved service to agents and customers and increased efficiencies in processing the business of Maison Insurance and resulted in lower operating costs.

In addition to normal back-up methods, we also maintain backup copies of our data via offsite backup facilities which can be recovered at any location that has access to the Internet.

48


 
 

TABLE OF CONTENTS

Reinsurance

Maison Insurance follows the industry practice of reinsuring a portion of its risk. When an insurance company purchases reinsurance, it transfers or “cedes” all or a portion of its exposure on insurance underwritten by it to another insurer-the “reinsurer.” Although reinsurance is intended to reduce an insurance company’s risk, the ceding of insurance does not legally discharge the insurance company from its primary liability for the full amount of its policies. If the reinsurer fails to meet its obligations under the reinsurance agreement, the ceding company is still required to pay the insured for the loss. The reinsurance agreements entered into by our insurance subsidiary are designed to coincide with the seasonality of Louisiana’s hurricane season.

From year-to-year, both the availability of reinsurance and the costs associated with the acquisition of reinsurance will vary. These fluctuations are not subject to our control and may limit our insurance subsidiary’s ability to purchase adequate coverage.

Third Party Reinsurers

Maison Insurance uses several different reinsurers, all of which, consistent with the requirements of our insurance subsidiary, have an A.M. Best Rating of A- (Excellent) or better. The reinsurance companies are as follows:

Hannover Rueckversicherung
Everest RE
DaVinci Re
Renaissance Re
Odyssey Re
Gen Re

Lloyd’s of London participants are:

Amlin
Antares
AF Beazley and Others
Chaucer
Canopius
Barbican
Atrium

Maison Insurance and its reinsurance broker are selective in choosing reinsurers and they consider various factors, including, but not limited to, the financial stability of the reinsurers, the reinsurers’ history of responding to claims, and their overall reputations in making such determinations.

For any storm occurring from June 1, 2013 through May 31, 2014, Maison Insurance has obtained ceded reinsurance protection. For each event occurring within a 96 hour period, Maison Insurance receives reinsurance recoveries up to $9.5 million in excess of $1.5 million per event. This $1.5 million retention is the amount Maison Insurance retains in loss from each storm before the reinsurance protection is available. Maison Insurance also has another layer of reinsurance protection that can be used for the first event for losses above $11 million per event, in an amount up to $13 million. If any of this $13 million coverage is not used from the first event, the remaining portion is available for additional events. This $13 million second layer coverage applies in total for all events occuring during the reinsurance period. For the second event of the season, the earlier described $9.5 million in excess of $1.5 million is available since Maison Insurance has purchased a prepaid reinstatement premium protection for this coverage. The maximum Maison Insurance can pay from June 1, 2013 to May 31, 2014 is $3 million in retention for any number of events as long as the

49


 
 

TABLE OF CONTENTS

total losses from all events do not exceed the reinsurance limits of all protection layers including the reinstatement of first protection layer, and no single event generates losses greater than $24 million.

Reinsurance Through Reinsurance Subsidiary

We intend to form a third subsidiary-a reinsurance subsidiary domiciled offshore. In the future, this reinsurance subsidiary may be used to meet certain of our insurance subsidiary’s reinsurance needs. For instance, Maison Insurance may determine that it no longer wishes to retain the risk for the first $1.5 million in losses in the event of a catastrophic event and may therefore cede that risk or portions of that risk to our reinsurance subsidiary. Although the terms and rates of any such reinsurance treaty are subject to approval by the LDOI and would be substantially similar to the terms and rates found in our third party reinsurance treaties, any reinsurance premiums retained by our reinsurance subsidiary (i.e., not paid out due to a catastrophic event) would be recognized as a profit by that subsidiary, rather than by a third party reinsurer. To the extent claims stemming from a catastrophic event exceeded such reinsurance premiums, our reinsurance subsidiary may experience underwriting losses. We will need to capitalize our reinsurance subsidiary based on the regulatory requirements of its offshore domicile, which requirements are generally less stringent as compared to domestic regulatory requirements.

Investments

We have tailored our investment policy to minimize risk in the current financial market. Although applicable laws and regulations permit investments (within specified limits and subject to certain qualifications) in federal, state and municipal obligations, corporate bonds, preferred and common equity securities and real estate mortgages, our current investment policy is aimed at avoiding the risk inherent in some of these markets by requiring that all of our cash balances are to be held in high quality fixed income instruments. After the closing of the Offering, and periodically thereafter, we will review our investment policy in light of our then-current circumstances and available investment opportunities.

The cash balances of our subsidiaries may be invested in other types of securities subject to domiciliary state regulations, but those investments are subject to pre-approval by our investment committee and the performance of such investments must be reported to our Board of Directors quarterly. Our investment policy is approved by our investment committee and is reviewed on a regular basis in order to ensure that our investment policy evolves in response to changes in the financial market. Our investment policy is designed to maximize investment income within specified guidelines, with a strong emphasis on protection of principal.

Regulation

We are subject to the laws and regulations in Louisiana, and will be subject to the regulations of any other states in which we may seek to conduct business in the future. The regulations cover all aspects of our business and are generally designed to protect the interests of insurance policyholders, as opposed to the interests of insurance companies.

Regulations relate to authorized lines of business, capital and surplus requirements, allowable rates and policy forms, investment parameters, underwriting limitations, transactions with affiliates, dividend limitations, changes in control, market conduct, maximum amount allowable for premium financing service charges and a variety of other financial and non-financial components of our business. Our failure to comply with certain provisions of applicable insurance laws and regulations could have a material adverse effect on our business, results of operations or financial condition. In addition, any changes in such laws and regulations, including the adoption of consumer initiatives regarding rates charged for coverage, could materially and adversely affect our operations or our ability to expand.

Many states, including Louisiana, have also enacted laws which restrict an insurer’s underwriting discretion, such as the ability to terminate policies, terminate agents or reject insurance coverage applications, and many state regulators have the power to reduce, or to disallow increases, in premium rates. These laws may adversely affect the ability of an insurer to earn a profit on its underwriting operations.

Certain states have recently adopted laws or are considering proposed legislation which, among other things, limit the ability of insurance companies to effect rate increases or to cancel, reduce or non-renew insurance

50


 
 

TABLE OF CONTENTS

coverage with respect to existing policies. Also, the Louisiana legislature may adopt similar or more restrictive additional laws in the future, which may adversely affect our business.

Most states, including Louisiana, require licensure and regulatory approval prior to the marketing of new insurance products. Typically, licensure review is comprehensive and includes a review of a company’s business plan, solvency, reinsurance, character of its officers and directors, rates, forms and other financial and non-financial aspects of a company.

The regulatory authorities may not allow entry into a new market by not granting a license or by withholding approval. In addition, regulatory authorities may preclude or delay our entry into markets by disapproving or withholding approval of our product filings. As a newer insurance company, we may also be subject to examination more frequently during our early years of operation.

All insurance companies must file quarterly and annual statements with certain regulatory agencies and are subject to regular and special examinations by those agencies. In accordance with NAIC, the LDOI intends to comply with recent initiatives recommending that all insurance companies under the same insurance holding company registration statement be subjected to concurrent triennial examinations.

States routinely require deposits of assets for the protection of policyholders either in those states or for all policyholders. As of September 30, 2013, Maison Insurance held investment securities with a fair value of approximately $100,000 as a deposit with the LDOI.

Restrictions on Payments of Dividends by Domestic Insurance Companies

Under the agreement by which Maison Insurance became authorized to transact insurance business in Louisiana, Maison Insurance is precluded from paying dividends without prior notice to the LDOI. Such preclusion notwithstanding, under Louisiana law, no domestic insurer shall pay any extraordinary dividend or make any other extraordinary distribution to its stockholders until 30 days after the commissioner has received notice of the declaration thereof and has not within that period disapproved the payment, or until the commissioner has approved the payment within the 30-day period. An extraordinary dividend or distribution includes any dividend or distribution of cash or other property, whose fair market value together with that of other dividends or distributions made within the preceding twelve months exceeds the lesser of the following: (a) 10% of the insurer’s surplus as regards policyholders as of the 31 st day of December next preceding or (b) the net income, not including realized capital gains, for the twelve-month period ending the 31 st day of December next preceding, but not including pro rata distributions of any class of the insurer’s own securities. In determining whether a dividend or distribution is extraordinary, an insurer may carry forward net income from the previous two calendar years that has not already been paid out as dividends. This carry forward shall be computed by taking the net income from the second and third preceding calendar years, not including realized capital gains, less dividends paid in the second and immediate preceding calendar years. Notwithstanding any other provision of law, an insurer may declare an extraordinary dividend or distribution which is conditional upon the commissioner’s approval, and the declaration shall confer no rights upon stockholders until either the commissioner has approved the payment of the dividend or distribution, or, the commissioner has not disapproved payment within the 30-day period referred to above.

Maison Insurance has not paid any dividends. We believe that amounts required to meet our financial and operating obligations will be available from sources other than dividends from Maison Insurance, though there can be no assurance in this regard.

Regulatory considerations, such as the impact of dividends on capital and surplus, which could impact an insurer’s competitive position, the amount of premiums that can be written and the ability to pay future dividends. Further, state insurance laws and regulations require that the statutory capital and surplus of an insurance company following any dividend or distribution by it be reasonable in relation to its outstanding liabilities and adequate for its financial needs.

While non-insurance company subsidiaries are not subject directly to the dividend and other distribution limitations that Maison Insurance is, insurance holding company regulations similarly govern the amount that any affiliate within the holding company system may charge any of the insurance companies for service (e.g., management fees and commissions).

51


 
 

TABLE OF CONTENTS

NAIC Risk Based Capital Requirements

In order to enhance the regulation of insurer solvency, the NAIC established risk-based capital requirements for insurance companies that are designed to assess capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. These requirements measure three major areas of risk facing property and casualty insurers: (i) underwriting risks, which encompass the risk of adverse loss developments and inadequate pricing; (ii) declines in asset values arising from credit risk; and (iii) other business risks from investments. Insurers having less statutory surplus than required will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. The LDOI, which follows these requirements, could require Maison Insurance to cease operations in the event it fails to maintain the required statutory capital.

Based upon the 2012 statutory financial statements for Maison Insurance, its statutory surplus exceeded all regulatory action levels established by the NAIC’s risk-based capital requirements.

Based on Risk Based Capital requirements, the extent of regulatory intervention and action increases as the ratio of an insurer’s statutory surplus to its Authorized Control Level, or ACL, as calculated under the NAIC’s requirements, decreases. The first action level, the Company Action Level, requires an insurer to submit a plan of corrective actions to the insurance regulators if statutory surplus falls below 200% of the ACL amount. The second action level, the Regulatory Action Level, requires an insurer to submit a plan containing corrective actions and permits the insurance regulators to perform an examination or other analysis and issue a corrective order if statutory surplus falls below 150% of the ACL amount. The third action level, ACL, allows the regulators to rehabilitate or liquidate an insurer in addition to the aforementioned actions if statutory surplus falls below the ACL amount. The fourth action level is the Mandatory Control Level, which requires the regulators to rehabilitate or liquidate the insurer if statutory surplus falls below 70.0% of the ACL amount.

NAIC Insurance Regulatory Information Systems Ratios

The NAIC has also developed Insurance Regulatory Information Systems (“IRIS”) ratios to assist state insurance departments in identifying companies which may be developing performance or solvency problems, as signaled by significant changes in the companies’ operations. Such changes may not necessarily result from any problems with an insurance company, but may merely indicate changes in certain ratios outside the ranges defined as normal by the NAIC. When an insurance company has four or more ratios falling outside “usual ranges,” state regulators may investigate to determine the reasons for the variance and whether corrective action is warranted. The LDOI is able to calculate and review some IRIS ratios based on the annual statement of Maison Insurance following its first year of operation. However, some of the IRIS ratios are based on year-to-year comparisons, meaning that the LDOI will not be able to calculate those IRIS ratios for Maison Insurance until after its second full year of operation. Due in part to the limited operating history and financial results, the LDOI typically conducts a financial examination of each new insurer following each of its first three years of operation.

Insurance Holding Company Regulation

We are subject to laws governing insurance holding companies in Louisiana where Maison Insurance is domiciled. These laws, among other things, (i) require us to file periodic information with the LDOI, including information concerning our capital structure, ownership, financial condition and general business operations, (ii) regulate certain transactions between us and our affiliates, including the amount of dividends and other distributions and the terms of surplus notes and (iii) restrict the ability of any one person to acquire certain levels of our voting securities without prior regulatory approval. Any purchaser of 10% or more of the outstanding shares of our common stock will be deemed to have acquired a controlling interest in Maison Insurance and will be required to file an acquisition statement with the LDOI for review and regulatory approval. Any purchaser of 5% or more of the outstanding shares of our common stock will be required to notify the LDOI of the acquisition; any such acquiring party then will be required to file an acquisition statement with the LDOI unless the purchaser acquires less than 10% of the outstanding shares of our common stock and files a statement disclaiming control of our insurance subsidiary in a format promulgated by the LDOI.

52


 
 

TABLE OF CONTENTS

Legislation

From time to time, new regulations and legislation are proposed to bring the industry under regulation by the federal government, to control premiums, policy terminations and other policy terms and to impose new taxes and assessments. It is not possible to predict whether, in what form or in what jurisdictions, any of these proposals might be adopted, or the effect, if any, on us.

Employees

As of September 30, 2013 we had 6 employees, all of whom are full time employees. We are not a party to any collective bargaining agreement and have not experienced any work stoppages or strikes as a result of labor disputes. We consider relations with our employees to be satisfactory.

Facilities

Maison Insurance leases approximately 3,500 square feet of office space in Baton Rouge, Louisiana. The lease for the office space expires in December, 2017. The annual rent for the office space is approximately $65,000, which is payable in equal monthly installments.

Legal Proceedings

We are subject to routine legal proceedings in the ordinary course of business. However, we are not aware of any such legal proceedings against us at the present time.

Risks Associated With Our Business

In evaluating our business, the following items should be taken into consideration:

We have a limited operating history on which to base an evaluation of our business and prospects. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stages of development.

In the Louisiana property and casualty insurance market, we compete with large, well-established insurance companies, as well as other specialty insurers. Most of these competitors possess greater financial resources, larger agency networks and greater name recognition than we do.
We write insurance policies that cover homeowners, manufactured homes and tenants for losses that result from, among other things, catastrophes. We are, therefore, subject to claims arising out of catastrophes that may have a significant effect on our business, results of operations, and financial condition.
Catastrophes can be caused by various events, including hurricanes, windstorms, hailstorms, explosions, power outages, fires and man-made events.
The insurance industry is highly regulated and supervised. Maison Insurance is subject to the supervision and regulation of Louisiana. These regulations are administered by the State of Louisiana and relate to, among other things: approval of policy forms and premium rates; licensing of insurers and their products; restrictions on the nature, quality and concentration of investments; restrictions on the ability of our insurance subsidiary to pay dividends to us; restrictions on transactions between insurance company subsidiaries and their affiliates; and standards of solvency, including risk-based capital measurements.
We lack geographic diversification of our policyholders, who are concentrated in Louisiana.
A majority of our in-force policies were acquired through the Citizens take-out program and all of such assumed policies cover losses arising only from wind and hail, which creates large concentration of our business in wind and hail only coverage and limits our ability to implement our restrictive underwriting guidelines.

53


 
 

TABLE OF CONTENTS

Investment Prior to the Offering

On January 23, 2014, Fund Management Group LLC, an entity of which our Chairman of the board, Gordon G. Pratt, is Managing Member and controlling equity holder, invested $2 million in the company in exchange for 80,000 Preferred Shares of the company pursuant to the terms and conditions of the Preferred Shares Purchase Agreement, which is filed as an exhibit to this Registration Statement. The Preferred Shares will be non-voting and will rank senior to all classes of capital stock of the company. The Preferred Shares will not pay any dividends. When converted, the Preferred Shares will convert into i)      common shares of the company, which is equal to $2 million of our common stock at 80% of the offering price per share of our common stock issued in this Offering, subject to certain adjustments, and ii) one warrant per each common share issued as a result of the conversion. The conversion into shares of our common stock and warrants will be deemed to have occured immediately prior to the closing of this Offering. Each warrant will entitle the holder to purchase one share of our common stock at a price equal to 120% of the offering price per share of our common stock issued in this Offering, subject to certain adjustments under the Warrant Agreement. The warrants will have an expiry date of 5 years from the date of issuance and will be immediately exercisable after issuance in accordance with the exercise procedure under the Warrant Agreement. The warrants will be redeemable by us at a price of $0.01 per warrant during any period in which the closing price of our common shares is at or above 175% of the price of shares of our common stock issued in this Offering for 20 consecutive trading days. The warrant holder will be entitled to a 30 day notice prior to the date of such redemption. If the Offering is not completed within one year from the date of issuance, we will redeem the Preferred Shares at a value equal to original investment plus a 12% premium. The common stock issued to Fund Management Group LLC upon conversion of the Preferred Shares will have piggyback registration rights for future registrations of the company’s common stock under the Securities Act (other than certain excluded registrations) and, upon the two-year anniversary of the Offering, Fund Management Group LLC will also have a one-time demand registration right on such common stock, subject to certain restrictions. If all the Preferred Shares are converted and all the warrants are exercised immediately following the Offering, Fund Management Group LLC will own approximately      % of our outstanding common stock immediately after the Offering. We intend to use the proceeds from this investment to settle intercompany payables to our immediate parent, Kingsway America Inc. This intercompany payable amount originates from payments made by Kingsway America Inc. on our behalf to various third-party vendors and does not represent a payable for any services provided by Kingsway America Inc. to us. For a complete description of the terms of this investment and the rights and preferences of the Preferred Shares (and the common stock and warrants underlying such Preferred Shares), please refer to the Preferred Shares Purchase Agreement, the Warrant Agreement and the Certificate of Designation of Preferred Shares filed as an exhibit to this Registration Statement.

54


 
 

TABLE OF CONTENTS

MANAGEMENT

Our Directors and Executive Officers Following the Separation

The following table sets forth the names, ages and positions of our directors and executive officers.

   
Name   Age   Position(s)
Douglas N. Raucy   57   President and Chief Executive Officer and Director
John S. Hill   57   Vice President and Chief Financial Officer
Dean Stroud   62   Vice President of Operations and Chief Underwriting Officer of Maison Insurance
Gordon G. Pratt   51   Chairman of the Board of Directors
Hassan R. Baqar   36   Director
Leo Christopher Saenger III   46   Director
Larry G. Swets, Jr.   39   Director

Douglas N. Raucy has served as our President and Chief Executive Officer and as a member of our board of directors since its inception in October 2012. He has served in the same positions at Maison Insurance Company and at Maison Managers Inc. since their inception in October 2012. Prior to joining our company, Mr. Raucy served as the Chief Executive Officer and President and as a member of the board of directors of Access Home Holdings LLC, Access Home Insurance Company and Access Home Managers LLC from August 2011 to October 2012. He also served as the Chief Executive Officer and President and as a member of the board of directors of Prepared Holdings LLC, Prepared Insurance Company and Prepared Managers LLC. From January 2001 to August 2008, he served as the Chief Operating Officer of the Institute of Business and Home Safety (IBHS), a property mitigation firm that focuses on disaster-resistance property research and education. Mr. Raucy’s prior executive experience also includes positions held during his 20 year tenure at Allstate Insurance Company, including his role as the Director and Founder of the National Catastrophe Team and National Catastrophe Center from 1995 through 2001, where he led the Allstate Insurance Company efforts for every major national catastrophe. He previously served as a member of the advisory board for Marshall Swift/Boech and a consultant to the Ocean Research & Resources Advisory Panel, a U.S. federal advisory committee studying the effects of the ocean on global weather patterns. Mr. Raucy obtained a bachelor’s degree from Utah State University. We believe Mr. Raucy’s qualifications to serve on our board of directors include his extensive experience serving as the President and Chief Executive Officer and as a member of the board of directors of several companies within the insurance industry.

John S. Hill, CPA, has served as our Vice President and Chief Financial Officer since July 2013. He has served as the Vice President, Chief Financial Officer and Treasurer of Maison Insurance Company and of Maison Managers Inc. since July 2013. Prior to joining our company, Mr. Hill served as an Accounting Manager at AmeriLife Group, LLC 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. He is currently a member of the board of directors of Carlyle Homeowners Association. 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 is a certified public accountant and 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. He is a member of the American Institute of CPAs.

Dean Stroud has served as our Vice President of Operations and Chief Underwriting Officer and has been a member of the board of directors of Maison Insurance since October 2012. Prior to joining Maison Insurance, he was the Chief Underwriting Officer and a member of the board of directors of Access Home Insurance Company in Baton Rouge, Louisiana from September 2011 to October 2012, where he managed and supervised company underwriting operations. Mr. Stroud served as the Senior Underwriting Consultant of Americas Insurance Company from January 2011 to September 2011 and prior to that, served as their

55


 
 

TABLE OF CONTENTS

Chief Underwriting Officer from April 2010 to January 2011. From October 2003 to May 2009, he was the Vice President of MacNeill Group, Inc., where he directed Louisiana underwriting and claims operations as a service provider for Citizens. Mr. Stroud’s prior executive experience also includes several positions held at Audubon Insurance Company, which he joined in 1971. At Audubon Insurance Company, he served in various commercial lines underwriting, underwriting management and other management positions and subsequently was responsible for companywide standard personal and commercial lines underwriting operations in Louisiana and supervised company marketing operations. Mr. Stroud was later named Audubon Insurance Company’s Vice President and was responsible for all standard personal and commercial lines underwriting in a six state region. He was subsequently appointed Senior Vice President of Audubon Insurance Company with responsibility for companywide standard lines underwriting operations and all company branch offices. Following those positions, Mr. Stroud became President and Chief Operating Officer of Audubon Insurance Group and President of Audubon Insurance Company and Audubon Indemnity Company. He also was a director of Audubon Insurance Company and Audubon Indemnity Company. Mr. Stroud has held positions on advisory committees to the Professional Insurance Agents of Louisiana and has served on the board of directors of the Property Insurance Association of Louisiana. He earned a Bachelor of Arts degree from Louisiana State University in 1974. Additionally, he has completed The Management Program at the College of Insurance in Princeton, New Jersey and the American International Group’s Strategic Leadership in the Marketplace program in New York.

Gordon G. Pratt has served as the Chairman of our board of directors since November 2013. Since March 2004, Mr. Pratt has been Managing Member of Fund Management Group LLC. From June 2004 to April 2006, he served as the Senior Vice President, Corporate Development of the Willis Group in New York and London, prior to which he was an equity holder and Managing Director of Hales Capital Advisors LLC and the Managing Partner of Distribution Partners Investment Capital L.P., a private equity fund focused on the insurance industry. Mr. Pratt currently serves as Chairman of the board of directors (and on the audit and compensation committees) of Atlas Financial Holdings, Inc. (NASDAQ: AFH). He previously served as Vice Chairman of the board of United Insurance Holdings Corp. (NASDAQ: UIHC) and as Vice Chairman of the board of privately-held Avalon Risk Management Insurance Agency LLC. Mr. Pratt also served as a member of the board of directors of United Property & Casualty Insurance Company and as Chairman of the boards of directors for FMG Acquisition Corp. (OTC: FMGQ) and of privately-held Risk Enterprise Management Limited. Before joining Hales, Mr. Pratt was a Senior Vice President and a member of the management committee of Conning & Company, where he helped to raise and invest capital for three Conning Private Equity funds. He began his career at The Chase Manhattan Bank, N.A. in New York. Mr. Pratt obtained a bachelor’s degree from Cornell University and a Master of Management degree from Northwestern University. We believe Mr. Pratt’s qualifications to serve on our board of directors include more than 25 years’ experience in insurance company financial statement analysis and assessment and his experience serving as chairman or vice chairman on the boards of directors of other publicly-traded and privately held insurance enterprises.

Hassan R. Baqar has served as a member of our board of directors since October 2012 and has been a member of the board of directors of Maison Insurance and Maison Managers since October 2012. Since January 2011, Mr. Baqar has served as the Vice President of Kingsway America Inc., which is a subsidiary of KFSI. By virtue of a management services agreement between 1347 Advisors LLC, a wholly owned subsidiary of KFSI, and United Insurance Management, L.C., he has also served as the Chief Financial Officer of United Insurance Holdings Corp, a publicly-held property and casualty insurance holding company. Before joining Kingsway America Inc., Mr. Baqar served as the Director of Finance of Itasca Financial LLC, an advisory and investment firm specializing in the insurance industry, from April 2008 to December 2009. His previous experience includes positions held at Kemper Insurance Companies, a diversified mutual property-casualty insurance provider, from June 2000 to April 2008, where he most recently served as a senior analyst. Mr. Baqar obtained a bachelor’s degree from Monmouth College and a Master of Business Administration from Northeastern Illinois University. He also holds a Certified Public Accountant designation. We believe Mr. Baqar’s qualifications to serve on our board of directors include his approximately five years of experience as a finance executive in the insurance industry.

56


 
 

TABLE OF CONTENTS

Leo Christopher Saenger III has served as a member of our board of directors since November 2013. Since February 2005, Mr. Saenger has served as President of Reliant Star Capital, Inc., which he founded in 2005 to focus on small and middle market private equity transactions. Based in New York, Reliant Star Capital, Inc. has consummated investments in industries ranging from computer peripherals to healthcare products and energy distribution. Prior to starting Reliant Star Capital, Inc., Mr. Saenger was a Partner at One Equity Partners, or OEP, a $5 billion private equity fund of J.P. Morgan, where he led investments in a variety of industries including healthcare, business services, aviation services and specialty insurance and completed dozens of acquisitions and add-on acquisitions for portfolio companies. During his approximately 10 years with OEP, Mr. Saenger took a leave of absence from April 2000 to February 2001 to work directly under Jamie Dimon, who was the newly-appointed CEO of Bank One, prior to its acquisition by JP Morgan Chase. At Bank One, Mr. Saenger led a five person “skunk works” team that worked on a variety of high-level banking strategic initiatives including technology reviews of various departments, competitive benchmarking, acquisition target analysis, and market research. Mr. Saenger started his career with Continental Illinois Venture Corp., the private equity branch of Continental Bank. He currently serves as a member of the board of directors (and on the audit committee) of Aphena Pharma Holdings and as a member of the board of directors of the Scarsdale Golf Club, which is a non-profit organization. Mr. Saenger is also a Trustee on the board of trustees of the St. Pius X Church, which is a non-profit organization. Mr. Saenger obtained a bachelor’s degree in finance and economics from the University of Notre Dame where he graduated cum laude and a Master of Business Administration with a double major in finance and entrepreneurial management from the University of Pennsylvania Wharton School of Business. We believe Mr. Saenger’s qualifications to serve on our board of directors include his approximately 20 years of management and investment experience leading Reliant Star Capital, Inc. and his experience serving on other boards and board committees across a broad range of industries.

Larry G. Swets, Jr. has served as a member of our board of directors since November 2013. Since July 2010, Mr. Swets has served as the President and Chief Executive Officer of KFSI, our Parent company, and prior to that, served as Executive Vice President of Corporate Development for that entity from January 2010 to July 2010. Before joining KFSI, in 2005, Mr. Swets founded Itasca Financial LLC, an advisory and investment firm specializing in the insurance industry. Prior to his work at Itasca Financial LLC, Mr. Swets served as an insurance company executive and advisor, including the role of Director of Investments and Fixed Income Portfolio Manager for Kemper Insurance. 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 Kingsway Financial Services Inc. and Atlas Financial Holdings, Inc. He is currently a member of the Young Presidents’ Organization. Mr. Swets previously served as a member of the board of directors of United Insurance Holdings Corp. from 2008 to March 2012 and Risk Enterprise Management Ltd from November 2007 and May 2012. Mr. Swets obtained a bachelor’s degree from Valparaiso University and a Master’s degree in finance from DePaul University. He also holds the Chartered Financial Analyst designation. We believe Mr. Swet’s qualifications to serve on our board of directors includes his more than ten years of executive management and leadership experience in the insurance industry.

There are no family relationships between any of our executive officers and directors. The business address of each of our executive officers and directors is 9100 Bluebonnet Centre Blvd., Suite 502, Baton Rouge, LA 70809.

The Board of Directors Following the Separation

Our business and affairs are managed under the direction of our Board of Directors. We currently have five directors, two of whom are considered independent under the independence requirements of The NASDAQ Capital Market. Our directors will have discretion to increase or decrease the size of the board of directors. Our board of directors will be divided into three classes with staggered terms, which means that directors in one of the classes will be elected each for a new three-year term. Class I directors will have an initial term expiring in 2015, Class II directors will have an initial term expiring in 2016 and Class III directors will have an initial term expiring in 2017.

57


 
 

TABLE OF CONTENTS

Upon completion of this offering, Hassan R. Baqar and Douglas N. Raucy will become Class I directors, Gordon G. Pratt and Leo Christopher Saenger III will become Class II directors and Larry G. Swets, Jr. will become a Class III director.

Director Independence

Messrs. Pratt and Saenger meet NASDAQ’s listing standards for independence. The NASDAQ listing rules require that the board be comprised of a majority of independent directors. We intend to rely on the phase-in-periods provided by the NASDAQ rules and Rule 10A-3(b)(iv)(A) of the Exchange Act, which provide for phase-in compliance where the issuer has not previously been required to file public company reports under Section 13(a) or 15(d) of the Exchange Act. Accordingly, we plan to have a Board of Directors comprised of a majority of independent directors and an audit committee, compensation and management resources committee and nominating and corporate governance committee comprised solely of independent directors within one year of our listing.

There are no family relationships among any of the individuals who are expected to serve as members of our Board of Directors and as our executive officers.

Board Committees

Prior to the consummation of this Offering, our Board of Directors will have an audit committee, a compensation and management resources committee and a nominating and corporate governance committee.

The table below provides committee assignments for each of the committees of our Board of Directors:

     
Name   Audit Committee   Compensation and Management Resources Committee   Nominating and Corporate Governance Committee
Hassan R. Baqar   ü          
Gordon G. Pratt   ü          
Douglas N. Raucy               
Leo Christopher Saenger III   ü *   ü   ü
Larry G. Swets, Jr.        ü *   ü *

* Indicates committee chair.

Audit Committee

The members of the audit committee are Messrs. Baqar, Pratt and Saenger, with Mr. Saenger serving as chair. We are permitted to phase in our compliance with the independent audit committee requirements set forth in NASDAQ rules and relevant Exchange Act rules as follows: (1) one independent member at the time of listing, (2) a majority of independent members within 90 days of listing and (3) all independent members within one year of listing. Our board of directors has determined that Mssrs. Pratt and Saenger are independent director under NASDAQ rules and Exchange Act rules. We expect that, within one year of our listing on NASDAQ, Mr. Baqar will have resigned from our audit committee and any additional new director or directors added to the audit committee will be independent under NASDAQ rules and Exchange Act rules. Our board of directors has determined that Messrs. Baqar, Pratt and Saenger each qualify as an “audit committee financial expert” as defined in the federal securities laws and regulations.

The audit committee will be responsible for reviewing and discussing with management our policies with respect to risk assessment and risk management, as well as monitoring the integrity of the financial statements, the independent auditors' qualifications, independence and performance, the performance of our internal audit function and compliance by our company with certain legal and regulatory requirements. The Board of Directors and the audit committee will discuss matters relating to risks that arise or may arise. Investors will be able to view our audit committee charter on the corporate governance section of our investor relations website at www.maisonins.com .

Compensation and Management Resources Committee

The members of the compensation and management resources committee are Messrs. Saenger, and Swets, with Mr. Swets serving as chair. We are permitted to phase in our compliance with the independent

58


 
 

TABLE OF CONTENTS

compensation committee requirements set forth in NASDAQ rules and relevant Exchange Act rules as follows: (1) one independent member at the time of listing, (2) a majority of independent members within 90 days of listing and (3) all independent members within one year of listing. Our board of directors has determined that Mr., Saenger is an independent director under NASDAQ rules and Exchange Act rules. We expect that, within 90 days of our listing on The NASDAQ Capital Market, Mr. Swets will have resigned from our compensation and management resources committee and any additional new director or directors added to the compensation and management resources committee will be independent under NASDAQ rules and Exchange Act rules.

Our compensation and management resources committee will have responsibility for, among other things, all compensation arrangements for executive officers and awards under our equity compensation plans. Investors will be able to view our compensation and management resources committee charter on the corporate governance section of our investor relations website at www.maisonins.com .

Nominating and Corporate Governance Committee

The members of the nominating and corporate governance committee are Mssrs. Saenger and Swets, with Mr., Swets serving as chair. The NASDAQ Capital Market requires all director nominees to be selected or recommended for selection by our Board of Directors by a committee composed only of independent directors or, if no such committee exists, by independent directors constituting a majority of the independent directors of our Board of Directors in a vote in which only the independent directors participate.

The nominating and corporate governance committee will identify individuals qualified to become board members and recommend to our board of directors the director nominees for each annual meeting of stockholders. It also will review the qualifications and independence of the members of our board of directors and its various committees on a regular basis and make any recommendations the committee members may deem appropriate from time to time concerning any changes in the composition of our board of directors and its committees. The nominating and governance committee also will recommend to our board of directors the corporate governance guidelines and standards regarding the independence of outside directors applicable to our company and review such guidelines and standards and the provisions of the nominating and governance committee charter on a regular basis to confirm that such guidelines, standards and charter remain consistent with sound corporate governance practices and with any legal or regulatory requirements, if applicable. Investors will be able to view our nominating and corporate governance committee charter on the corporate governance section of our investor relations website at www.maisonins.com .

Board Leadership Structure and the Board’s Role in Risk Oversight

Our management is primarily responsible for managing risk and informing the Board of Directors of the material risks confronting our company. The Board of Directors has oversight responsibility of the processes established to monitor and manage such risks. The Board of Directors believes that such oversight function is the responsibility of the entire Board of Directors through frequent reports and discussions at regularly scheduled meetings of the Board of Directors. In addition, the Board of Directors has delegated specific risk management oversight responsibility to the audit committee. In particular, the audit committee oversees the management of risks related to accounting, auditing and financial reporting and maintaining effective internal controls for financial reporting. The independent members of the Board of Directors oversee risk management related to our corporate governance practices and our executive compensation plans and arrangements. These specific risk categories and our risk management practices are regularly reviewed by the entire Board of Directors in the ordinary course of regular meetings of the Board of Directors.

Code of Business Conduct and Ethics

Effective upon completion of this Offering, our Board of Directors will adopt a written Code of Business Conduct and Ethics applicable to our directors, chief executive officer, chief financial officer and all other officers and employees of our company and our subsidiaries. Copies of the Code of Business Conduct and Ethics will be available without charge on the investor relations portion of our website upon completion of this Offering.

59


 
 

TABLE OF CONTENTS

Compensation and Management Resources Committee Interlocks and Insider Participation

None of the members of our compensation and management resources committee is an officer or employee of our company. Mr. Swets currently serves as a member of the Board of Directors of KFSI.

For 2013, the company’s Named Executive Officers consist of our Chief Executive Officer, our Chief Financial Officer and our Chief Underwriting Officer.

The following individuals, holding the respective positions set forth opposite their names, are the Named Executive Officers for 2013:

 
Name   Title
Douglas N. Raucy   President, Chief Executive Officer and Director
John Hill   Chief Financial Officer
Dean Stroud   Vice President of Operations and Chief Underwriting Officer of Maison Insurance

2013 Summary Compensation Table

The following table provides information regarding the compensation earned during the last two completed fiscal years by the Named Executive Officers.

                 
Name and
Principal Position
  Year (4)   Salary
($)
  Bonus
($)
  Stock
Awards
($)
  Option
Awards
($)
  Non-Equity
Incentive Plan
Compensation
  Nonqualified
Deferred
Compensation
Earnings
($)
  All Other
Compensation (3)
($)
  Total
($)
Douglas N. Raucy President, CEO and Director     2013       280,000       50,000 (1)                               3,733       333,733  
    2012       71,077       20,000 (1)                                     91,077  
John Hill
Chief Financial Officer
    2013       71,410 (2)                                           71,410  
    2012                                                  
Dean Stroud
Vice President of Operations and Chief Underwriting Officer
    2013       175,000                                     2,479       177,479  
    2012       37,692                                           37,692  

Notes:

(1) These amounts represents cash bonuses paid to Mr. Raucy as part of his offer to join us.
(2) Mr. Hill joined us on July 15, 2013.
(3) Amounts reported in this column include contributions to our 401(k) retirement plan.
(4) Amounts are for full calendar year (12 months) through December 31, 2013.

Mr. Raucy is also eligible for an annual cash bonus of up to 150% of his annual salary, payable solely at the discretion of our Board of Directors. Messrs. Hill and Stroud are also eligible for an annual cash bonus of up to 75% of their annual salary, payable solely at the discretion of our Board of Directors.

Narrative Disclosure Regarding Post-Termination Arrangements

We will maintain a severance plan for the payment of certain benefits to certain classes of eligible employees of the company and its subsidiaries, including executive officers appointed or elected by the applicable board of directors. Benefits will be paid under this policy following a termination of employment other than for “cause” as defined in the severance policy in connection with a reduction in work force.

Mr. Raucy, as our President and Chief Executive Officer, receives severance benefits pursuant to the terms of his severance agreement. Under the terms of Mr. Raucy’s severance agreement, he is eligible to receive twelve months of base salary for a termination of employment by us other than for “cause,” or by Mr. Raucy for “good reason” (each as defined in the severance agreement).

60


 
 

TABLE OF CONTENTS

Director Compensation

Our director compensation program is designed to (i) attract and retain the most qualified people to serve on the Board and its committees; and (ii) provide appropriate compensation for the risks and responsibilities of being an effective director. Only non-employee directors of the Board are remunerated for serving as directors of the company. Under the non-employee director compensation program, non-employee directors will receive fees of $50,000 annually. The Chair of our audit committee receives an additional $15,000 fee annually. The Chairman of our board receives an additional $25,000 fee annually.

Securities Authorized For Issuance Under Equity Incentive Plan

We plan to have an equity incentive plan for directors, officers and certain key management employees whereby stock options equal to five percent (5%) of common shares outstanding at close of Offering may be available for award. Such stock options will have a five year expiration with a strike price equal to the Offering price of our common shares. The options available for grant to the directors shall not exceed two percent, and the remainder — three percent or more — will be available for grant to officers and key management employees. The options granted to employees will vest in five equal installments, with the first such installment vesting upon the date of grant. The options will vest pro-rata should the employee leave voluntarily, without cause, or leave employment due to a disability. The employee options will fully vest in the case of death. If the employee leaves voluntarily, without cause, due to a disability, or in case of death, the stock options will expire ninety days from the date the employment ends. Options awarded to directors will fully vest immediately on the grant date.

Stock options equal to an additional five percent (5%) of common shares outstanding at close of Offering will be available for future grants. The board has discretion to set the terms of these additional options, provided, however, that the strike price of the options will be at or above the then market price of our common shares, and in no case less than our tangible book value per share.

61


 
 

TABLE OF CONTENTS

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Transactions with Related Persons

After the completion of this Offering, transactions between us and our directors, executive officers and significant stockholders will be approved by our audit committee, which will be composed of independent members of our board of directors. Our audit committee charter authorizes the audit committee to hire financial advisors and other professionals to assist the committee in evaluating and approving any transaction between us and any related party.

Indemnification Agreements

We plan to enter into indemnification agreements with each of our directors and executive officers, the form of which is attached as an exhibit to the registration statement of which this prospectus is a part. These agreements provide that we will, among other things, indemnify and advance expenses to our directors and 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 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 officers.

Investment Prior to the Offering

On January 23, 2014, Fund Management Group LLC, an entity of which our Chairman of the board, Gordon G. Pratt, is Managing Member and controlling equity holder, invested $2 million in the company in exchange for 80,000 Preferred Shares of the company pursuant to the terms and conditions of the Preferred Shares Purchase Agreement, which is filed as an exhibit to this Registration Statement. The Preferred Shares will be non-voting and will rank senior to all classes of capital stock of the company. The Preferred Shares will not pay any dividends. When converted, the Preferred Shares will convert into i)      common shares of the company, which is equal to $2 million of our common stock at 80% of the offering price per share of our common stock issued in this Offering, subject to certain adjustments, and ii) one warrant per each common share issued as a result of the conversion. The conversion into shares of our common stock and warrants will be deemed to have occured immediately prior to the closing of this Offering. Each warrant will entitle the holder to purchase one share of our common stock at a price equal to 120% of the offering price per share of our common stock issued in this Offering, subject to certain adjustments under the Warrant Agreement. The warrants will have an expiry date of 5 years from the date of issuance and will be immediately exercisable after issuance in accordance with the exercise procedure under the Warrant Agreement. The warrants will be redeemable by us at a price of $0.01 per warrant during any period in which the closing price of our common shares is at or above 175% of the price of shares of our common stock issued in this Offering for 20 consecutive trading days. The warrant holder will be entitled to a 30 day notice prior to the date of such redemption. If the Offering is not completed within one year from the date of issuance, we will redeem the Preferred Shares at a value equal to original investment plus a 12% premium. The common stock issuable to Fund Management Group LLC upon conversion of the Preferred Shares will have piggyback registration rights for future registrations of the company’s common stock under the Securities Act (other than certain excluded registrations) and, upon the two-year anniversary of the Offering, Fund Management Group LLC will also have a one-time demand registration right on such common stock, subject to certain restrictions. If all the Preferred Shares are converted and all the warrants are exercised immediately following the Offering, Fund Management Group LLC will own approximately     % of our outstanding common stock immediately after the Offering. We intend to use the proceeds from this investment to settle intercompany payables to our immediate parent, Kingsway America Inc. This intercompany payable amount originates from payments made by Kingsway America Inc. on our behalf to various third-party vendors and does not represent a payable for any services provided by Kingsway America Inc. to us. For a complete description of the terms of this investment and the rights and preferences of the Preferred Shares (and the common stock and warrants underlying such Preferred Shares), please refer to the Preferred Shares Purchase Agreement, the Warrant Agreement and the Certificate of Designation of Preferred Shares filed as an exhibit to this Registration Statement.

62


 
 

TABLE OF CONTENTS

Investment by Management

In addition, upon the closing of this Offering, Mr. Raucy will contribute to us 288,000 units he owns in Prepared Holdings LLC (“Prepared Holdings”) (representing less than 3% of the total outstanding units of Proposed Holdings), which will be valued using tangible book value per share based on the September 30, 2013 GAAP financial statements of Prepared Holdings LLC, but in no event will such valuation exceed $350,000. In exchange, we will issue      common shares of our common stock (the “Exchanged Shares”) at the Offering price to Mr. Raucy equivalent in value to the units of Prepared Holdings LLC contributed. Concurrently, we will grant an additional      shares of our common stock (the “Matched Shares”) to Mr. Raucy at the Offering price as a one-for-one match against the Exchanged Shares. The Exchanged Shares and Matched Shares will be restricted and the Matched Shares will vest 100% upon the fifth anniversary of this Offering, subject to Mr. Raucy’s continued service as the President and Chief Executive Officer of the company until such vesting date. Any sales of Exchanged Shares prior to vesting will result in pro-rata forfeiture of Matched Shares, and termination of Mr. Raucy’s employment before the vesting date of the Matched Shares will result in total forfeiture of the Matched Shares. For a complete description of the terms of this transaction, please refer to the Investment Agreement between the Company and Mr. Raucy, which is filed as an exhibit to this Registration Statement.

Prepared Holdings is a holding company organized in Delaware which began operations in 2009. Prepared Holdings owns Prepared Insurance Company, a Florida homeowners insurance company, and Prepared Managers, LLC, a Florida managing general agency. Prepared Holdings currently conducts business only in the state of Florida and through its subsidiaries offers homeowners insurance products to its customers.

Our Relationship with KFSI

Prior to this Offering we have been a wholly-owned subsidiary of KFSI.

We were incorporated by KFSI to create a new homeowners’ insurance company. Prior to this Offering, KFSI has contributed approximately $9 million in capital, to our company. During and after this Offering we will continue to pursue our business of underwriting homeowners’ insurance.

Immediately following this Offering, KFSI will own approximately     % (or     % if the underwriters exercise over-allotment option in full) of our outstanding common stock, but will no longer be responsible to fund our operations following the closing of this Offering. KFSI is expected to be one of the largest stockholders of our company after the Offering.

Two of our directors, Larry G. Swets, Jr. and Hassan R. Baqar, are currently executive officers of KFSI. Mr. Swets is the Chief Executive Officer of KFSI and Mr. Baqar is Vice President of Kingsway America Inc., a wholly owned subsidiary of KFSI.

Agreements with KFSI

We intend to enter into agreements with KFSI and its affiliates that will govern the separation of our businesses from KFSI and various relationships with KFSI, including the Transition Services Agreement, which will be executed upon completion of the Offering, and the Management Services Agreement, which will be executed prior to the completion of the Offering. These agreements establish certain services that the company will receive from 1347 Advisors, on a permanent basis. These agreements will be subject to the approval of our management and the management of KFSI. The terms of these agreements may be more or less favorable to us than if they had been negotiated with unaffiliated third parties. The agreements described below are filed as exhibits to the registration statement, and the summaries of each of these agreements below set forth the terms of the agreements that we believe are material. These summaries are qualified in their entireties by reference to the full text of the applicable agreements, which are incorporated by reference into this prospectus.

The terms of the agreements described below that will be in effect following our separation have not yet been finalized; changes, some of which may be material, may be made prior to our separation from KFSI.

The Transition Services Agreement

The Transition Services Agreement, which will be effective upon the completion of this Offering, will provide for temporary access to necessary services and resources for which we are currently reliant on KFSI,

63


 
 

TABLE OF CONTENTS

including but not limited to resources and services related to accounting and reporting, accounts payable, cash management, taxes, compliance with the Sarbanes-Oxley Act of 2002, payroll processing and benefits administration, information technology systems and support, human resource function, and external audit. The Transition Services Agreement stipulates transition deadlines for all the services provided under it, by which time we are expected to establish its own independent functions for such services.

The charges for the transition services generally will be intended to allow KFSI to fully recover the costs directly associated with providing the services, plus all out-of-pocket costs and expenses. The charges of each of the transition services generally will be based on either a pre-determined flat fee or an allocation of the cost incurred by KFSI (or an affiliate or subsidiary thereof) for providing the service, including certain fees and expenses of third-party service providers. We will be provided with reasonable information that supports the charges for such transition service by KFSI.

We have been preparing for the transition of the services to be provided by KFSI under the Transition Services Agreement, or third-party providers on behalf of KFSI, to us. We anticipate that we will be in a position to complete the transition of those services on or before one year following the completion of the Offering.

The services intended to be provided under the Transition Services Agreement will terminate at various times specified in the agreement. We may terminate certain specified services by giving prior written notice to the provider of such services and paying any applicable termination charge.

The Transition Services Agreement also provides that neither party will be liable to the other of such service for any special, indirect, incidental or consequential damages, except to the extent such damages result from fraud, gross negligence or intentional misconduct.

The Management Services Agreement

We intend to enter into the Management Services Agreement prior to the completion of the Offering, which will provide for certain permanent services, unless terminated, that we will receive from 1347 Advisors, including forecasting, analysis of capital structure and reinsurance programs, consultation in future restructuring or capital raising transactions, and consultation in corporate development initiatives . For the services performed, 1347 Advisors will be paid a monthly fee equal to 1% of our gross written premiums, as defined in the form of Management Services Agreement. After the seventh year of the term of the Management Services Agreement, should the ownership of our shares by KFSI or an affiliate or subsidiary thereof fall below fifty percent (50%) of KFSI’s (or an affiliate or subsidiary thereof) ownership of our shares at the close of the Offering, the monthly fee shall be calculated by (a) dividing the existing shares owned by KFSI (or an affiliate or subsidiary thereof) by the number of original shares owned by KFSI (or an affiliate or subsidiary thereof) at the close of the Offering, and (b) multiplying by 1% of our gross written premiums, as defined in the form of Management Services Agreement. For illustrative purposes, if KFSI (or an affiliate or subsidiary thereof) owned ten shares at the close of the Offering, and in the eighth year, sold six shares, resulting in ownership of four shares, the fee would be four divided by ten multiplied by one percent, or 0.4% annualized.

The Management Services Agreement will only terminate by mutual consent of both parties, except in case of certain exceptions as stated in the form of the agreement. With respect to termination for any reason of the Management Services Agreement (other than due to gross negligence or willful misconduct of 1347 Advisors), we will be required to pay 1347 Advisors an amount equal to twenty times the consulting fee paid to 1347 Advisors in the most recent calendar year immediately preceding.

The liabilities of 1347 Advisors under the Management Services Agreement will generally be limited to the aggregate fees paid to 1347 Advisors pursuant to the agreement for the six months prior to the time the liability arose.

Trademark License Agreement

We intend to enter into a Trademark License Agreement with 1347 Advisors LLC, whereby we are given limited right to use “1347” in our name and current logo.

64


 
 

TABLE OF CONTENTS

Expenses

We shall pay, or reimburse KFSI to the extent it has paid such amounts, all third-party costs, fees and expenses relating to the Offering, the underwriting discounts and commissions, all of the reimbursable expenses of the underwriters pursuant to the underwriting agreement, all of the costs of producing, printing, mailing and otherwise distributing the prospectus, and all other third-party fees, costs and expenses paid or incurred in connection with our separation from KFSI.

65


 
 

TABLE OF CONTENTS

PRINCIPAL STOCKHOLDERS

The following table sets forth the anticipated information with respect to the beneficial ownership of our common stock, as of the closing date of the Offering, on a pre-offering basis and as adjusted to reflect the sale of our common stock offered by this prospectus, by:

Each of our directors;
Each of our executive officers;
All of our directors and executive officers as a group; and
Each person, or group of affiliated persons, who is known by us to beneficially own more than 5% of our common stock.

Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of common stock that may be acquired by an individual or group within 60 days of the closing date of the Offering, pursuant to the exercise of options or warrants, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Prior to this Offering, KFSI is the sole owner. Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. The address for each director and executive officer listed is: c/o 1347 Property Insurance Holdings, Inc., 9100 Bluebonnet Centre Blvd., Suite 502, Baton Rouge, LA 70809.

           
  Beneficially Owned
Before the Offering
  Beneficially Owned After the Offering
     Number of Shares   Percent   Assuming Minimum   Assuming Maximum
Name and Address of Beneficial Owners   Number of Shares   Percent   Number of Shares   Percent
5% Shareholders:
                                                     
KFSI     1,000       100 %                                      
Named Executive Officers and Directors:
                                                     
Gordon Pratt                    (2)                (2)           
Larry G. Swets, Jr.     1,000 (1)       100 %       (1)                (1)           
Chris Saenger                                                   
Douglas Raucy                                                   
Hassan Baqar                                                   
Dean Stroud                                                   
John Hill                                                   
All Executive Officers and Directors as a Group (7 people)     1,000       100 %                                      

(1) These shares represent one hundred percent of our shares of common stock held by KFSI.
(2) Fund Management Group LLC, of which Gordon G. Pratt is Managing Member and controlling equity holder, will hold 80,000 Preferred Shares. The common shares stated above represent common shares received upon conversion of Preferred Shares and full exercise of the warrants underlying such Preferred Shares by Fund Management Group LLC.

66


 
 

TABLE OF CONTENTS

DESCRIPTION OF SECURITIES

We have provided below a summary description of our capital stock as it will be in effect upon completion of this Offering. This description is not complete. You should read the full text of our amended and restated certificate of incorporation and amended and restated by-laws, which will be filed as exhibits to the registration statement of which this prospectus is a part, as well as the provisions of applicable Delaware law.

Distributions of Securities

Except for our issuance of the common stock upon formation to Kingsway America Inc. (“KAI”), our sole stockholder, in the past three years, we have not sold any securities, including sales of reacquired securities, new issues, securities issued in exchange for property, services, or other securities, and new securities resulting from the modification of outstanding securities, which were not registered under the Securities Act of 1933, as amended.

On January 23, 2014, Fund Management Group LLC, an entity of which our Chairman of the board Gordon G. Pratt is Managing Member and controlling equity holder, invested $2 million in the company in exchange for 80,000 Preferred Shares of the company pursuant to the terms and conditions of the Preferred Shares Purchase Agreement, which is filed as an exhibit to this Registration Statement. The Preferred Shares will be non-voting and will rank senior to all classes of capital stock of the company. The Preferred Shares will not pay any dividends. When converted, the Preferred Shares will convert into i)      common shares of the company, which is equal to $2 million of our common stock at 80% of the offering price per share of our common stock issued in this Offering, subject to certain adjustments and ii) one warrant per each common share issued as a result of the conversion. The conversion into shares of our common stock and warrants will be deemed to have occured immediately prior to the closing of this Offering. Each warrant will entitle the holder to purchase one share of our common stock at a price equal to 120% of the offering price per share of our common stock issued in this Offering, subject to certain adjustments under the Warrant Agreement. The warrants will have an expiry date of 5 years from the date of issuance and will be immediately exercisable after issuance in accordance with the exercise procedure under the Warrant Agreement. The warrants will be redeemable by us at a price of $0.01 per warrant during any period in which the closing price of our common shares is at or above 175% of the price of shares of our common stock issued in this Offering for 20 consecutive trading days. The warrant holder will be entitled to a 30 day notice prior to the date of such redemption. If the Offering is not completed within one year from the date of issuance, we will redeem the Preferred Shares at a value equal to original investment plus a 12% premium. The common stock issuable to Fund Management Group LLC upon conversion of the Preferred Shares will have piggyback registration rights for future registrations of the company’s common stock under the Securities Act (other than certain excluded registrations) and, upon the two-year anniversary of the Offering, Fund Management Group LLC will also have a one-time demand registration right for such common stock, subject to certain restrictions. If all the Preferred Shares are converted and all the warrants are exercised immediately following the Offering, Fund Management Group LLC will own approximately     % of our outstanding common stock immediately after the Offering (assuming the underwriters do not exercise their over-allotment option). We intend to use the proceeds from this investment to settle intercompany payables to our immediate parent, Kingsway America Inc. This intercompany payable amount originates from payments made by Kingsway America Inc. on our behalf to various third-party vendors and does not represent a payable for any services provided by Kingsway America Inc. to us. For a complete description of the terms of this investment and the rights and preferences of the Preferred Shares (and the common stock and warrants underlying such Preferred Shares), please refer to the Preferred Shares Purchase Agreement, the Warrant Agreement and the Certificate of Designation of Preferred Shares filed as an exhibit to this Registration Statement.

Authorized Capital Stock

Upon completion of this Offering, our authorized capital stock will consist of up to 10,000,000 shares of common stock, par value $0.001, and 1,000,000 shares of preferred stock, par value $25.00.

Common Stock

Shares Outstanding .  Upon completion of this Offering, we expect that approximately      shares of our common stock will be issued and outstanding (assuming the underwriters do not exercise their over-allotment option).

67


 
 

TABLE OF CONTENTS

Dividends .  Subject to prior dividend rights of the holders of any preferred stock, holders of shares of our common stock are entitled to receive dividends when, as and if declared by our board of directors out of funds legally available for that purpose. We do not anticipate paying any cash dividends on our common stock in the foreseeable future.

Voting Rights .  Each stockholder will be entitled to one vote for each share of common stock on all matters submitted to a vote of the stockholders.

Other Rights .  In the event of any liquidation, dissolution or winding up of our company, after the satisfaction in full of the liquidation preferences of holders of any preferred stock, holders of shares of our common stock are entitled to ratable distribution of the remaining assets available for distribution to stockholders. The shares of our common stock are not subject to redemption by operation of a sinking fund or otherwise. Holders of shares of our common stock are not currently entitled to pre-emptive rights.

Fully Paid .  The issued and outstanding shares of our common stock are fully paid and non-assessable. Any additional shares of common stock that we may issue in the future will also be fully paid and non-assessable.

Preferred Stock

Upon completion of this Offering and the planned placement of Preferred Shares prior to the Offering, we expect that approximately 80,000 shares of our preferred stock will be issued and outstanding. The Preferred Shares will be non-voting and will rank senior to all classes of capital stock of the company. The Preferred Shares will not pay a fixed dividend. When converted, the Preferred Shares will convert into i)      common shares of the company, which is equal to $2 million of our common stock at 80% of the offering price per share of our common stock issued in this Offering, and ii) one warrant per each common share issued as a result of the conversion. The conversion into shares of our common stock and warrants will occur immediately following the closing of this Offering. Each warrant will entitle the holder to purchase one share of our common stock at a price equal to 120% of the offering price per share of our common stock issued in this Offering. The warrants will have an expiry date of 5 years from the date of issuance and will be immediately exercisable after issuance. The warrants will be redeemable by us at a price of $0.01 per warrant if the closing price of our common shares is at or above 175% of the price of shares of our common stock issued in this Offering for 20 trading days in a 30-day period. The holder will be entitled to a 30 day notice prior to the date of redemption. If the Offering is not completed within one year from the date of issuance, we will redeem the Preferred Shares at a value equal to original investment plus a 12% premium. The Preferred Shares will not have any registration rights.

Our amended and restated certificate of incorporation permits us to issue up to 1,000,000 shares of preferred stock from time to time.

Representative's Warrants

We are registering the warrants (and the shares of common stock underlying such warrants) we have agreed to sell to Aegis Capital Corp (the representative of the underwriters in this Offering) and/or its designees to purchase up to a total of      shares of common stock (5% of the shares sold in this Offering). See “Underwriting-Representative's Warrants” beginning on page 80 of this prospectus for a description of these warrants.

Restrictions on Payment of Dividends

We are incorporated in Delaware and are governed by Delaware law. Delaware law allows a corporation to pay dividends only out of surplus, as determined under Delaware law.

One of our primary sources of liquidity is dividends from our subsidiaries Maison Insurance and Maison Managers. Maison Insurance is regulated under the insurance statutes of the State of Louisiana that impose certain restrictions in payment of dividends above a certain amount. Under the agreement by which Maison Insurance became authorized to transact insurance business in Louisiana, Maison Insurance is precluded from paying dividends without prior notice to the LDOI. Such preclusion notwithstanding, under Louisiana law, no domestic insurer shall pay any extraordinary dividend or make any other extraordinary distribution to its stockholders until 30 days after the commissioner has received notice of the declaration thereof and has not within that period disapproved the payment, or until the commissioner has approved the payment within the

68


 
 

TABLE OF CONTENTS

30-day period. An extraordinary dividend or distribution includes any dividend or distribution of cash or other property, whose fair market value together with that of other dividends or distributions made within the preceding twelve months exceeds the lesser of the following: (a) 10% of the insurer’s surplus as regards policyholders as of the 31 st day of December next preceding or (b) the net income, not including realized capital gains, for the twelve-month period ending the 31 st day of December next preceding, but not including pro rata distributions of any class of the insurer’s own securities. In determining whether a dividend or distribution is extraordinary, an insurer may carry forward net income from the previous two calendar years that has not already been paid out as dividends. This carry forward shall be computed by taking the net income from the second and third preceding calendar years, not including realized capital gains, less dividends paid in the second and immediate preceding calendar years. Notwithstanding any other provision of law, an insurer may declare an extraordinary dividend or distribution which is conditional upon the commissioner’s approval, and the declaration shall confer no rights upon stockholders until either the commissioner has approved the payment of the dividend or distribution, or, the commissioner has not disapproved payment within the 30-day period referred to above.

Maison Insurance has not paid any dividends. We believe that amounts required to meet our financial and operating obligations will be available from sources other than dividends from Maison Insurance, though there can be no assurance in this regard.

Regulatory considerations, such as the impact of dividends on capital surplus, which could impact an insurer’s competitive position, the amount of premiums that can be written and the ability to pay future dividends. Further, state insurance laws and regulations require that the statutory capital surplus of an insurance company following any dividend or distribution by it be reasonable in relation to its outstanding liabilities and adequate for its financial needs.

While Maison Managers is not subject directly to the dividend and other distribution limitations that Maison Insurance is, insurance holding company regulations similarly govern the amount that any affiliate within the holding company system may charge any of the insurance companies for service (e.g., management fees and commissions), which can also impact liquidity available to us for payment of dividend to our stockholders. For further discussion on liquidity and capital resources see Management’s Discussion and Analysis on Financial Condition and Results of Operations — Liquidity and Capital Resources.

Anti-Takeover Effects of Delaware Law

Upon the completion of this offering, we will be subject to Section 203 of the Delaware General Corporation Law, or DGCL, or Section 203. In general, Section 203 prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless:

prior to that date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder,
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares of voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned by persons who are directors and also officers and by excluding employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer, or
on or subsequent to that date, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.

In general, Section 203 defines an “interested stockholder” as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation or any entity or person affiliated or associated with the corporation and beneficially owned 15% or more of the outstanding voting stock of the corporation at any

69


 
 

TABLE OF CONTENTS

time within the three-year period immediately prior to the date on which it is sought to be determined whether such entity or person is an interest stockholder. Section 203 defines “business combination” to include: (i) any merger or consolidation involving the corporation or a majority-owned subsidiary of the corporation and the interested stockholder, (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 10% or more of the assets of the corporation or a majority-owned subsidiary of the corporation involving the interested stockholder, (iii) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation or a majority-owned subsidiary of the corporation of any stock of the corporation or such subsidiary to the interested stockholder, (iv) any transaction involving the corporation or a majority-owned subsidiary of the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation or such subsidiary beneficially owned by the interested stockholder, or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation or a majority-owned subsidiary of the corporation.

A Delaware corporation may opt out of Section 203 either by an express provision in its original certificate of incorporation or in an amendment to its certificate of incorporation or bylaws approved by its stockholders. We have not opted out, and do not currently intend to opt out, of this provision. The provisions of Section 203 may encourage companies interested in acquiring our company to negotiate in advance of such acquisition with our board of directors because the stockholder approval requirement referenced above would be avoided if our board of directors approves either the business combination or the transaction that results in the stockholder becoming an interested stockholder. These provisions could prohibit or delay mergers or other takeover or change of control attempts and may make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Anti-takeover Effects of Our Organizational Documents

Certain provisions of our certificate of incorporation and our bylaws may be considered to have an anti-takeover effect and may delay or prevent a tender offer or other corporate transaction that a stockholder might consider to be in its best interest, including those transactions that might result in payment of a premium over the market price for shares of our common stock. These provisions are designed to discourage certain types of transactions that may involve an actual or threatened change of control of us without prior approval of our board of directors. These provisions are meant to encourage persons interested in acquiring control of us to first consult with our board of directors to negotiate terms of a potential business combination or offer. We believe that these provisions protect us against an unsolicited proposal for a takeover of us that might affect the long-term value of our common stock or that may not be otherwise in the best interests of our stockholders. For example, our certificate of incorporation and our bylaws:

divide our board of directors into three classes with staggered three-year terms, which may delay or prevent a change of our management or a change in control,
authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares of capital stock, making a takeover more difficult and expensive,
do not permit cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates,
do not permit stockholders to take action by written consent,
provide that special meetings of the stockholders may be called only by or at the direction of the board of directors or at the request of 50% or more of the voting power of all of the outstanding shares of our capital stock entitled to vote on any issue contemplated to be considered at such proposed special meeting,
require advance notice be given by stockholders for any stockholder proposals or director nominations,
require the approval of 66 2/3% or more of the voting power of all of the outstanding shares of our capital stock entitled to vote to amend our certificate of incorporation, and

70


 
 

TABLE OF CONTENTS

allow our board of directors to make, alter or repeal our bylaws but only allow stockholders to amend our bylaws upon the approval of 66 2/3% or more of the voting power of all of the outstanding shares of our capital stock entitled to vote.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Vstock Transfer, LLC and its phone number is 212-828-8436.

NASDAQ Capital Market Listing

We have applied to list our shares of common stock on The NASDAQ Capital Market. We expect that our shares will trade under the ticker symbol “PIH.”

Limitation on Liability of Directors and Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law, or DGCL, provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, in which such person is made a party by reason of the fact that the person is or was a director, officer, employee or agent of the corporation (other than an action by or in the right of the corporation — a “derivative action”), if such person 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 and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys’ fees) incurred in connection with the defense or settlement of such action, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation’s by-laws, disinterested director vote, stockholder vote, agreement or otherwise.

Our amended and restated certificate of incorporation provides that no director shall be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation on liability is not permitted under the DGCL, as now in effect or as amended. Currently, Section 102(b)(7) of the DGCL requires that liability be imposed for the following:

Any breach of the director’s duty of loyalty to our company or our stockholders;
Any act or omission not in good faith or which involved intentional misconduct or a knowing violation of law;
Unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the DGCL; and
Any transaction from which the director derived an improper personal benefit.

Our amended and restated certificate of incorporation provides that, to the fullest extent authorized or permitted by the DGCL, as now in effect or as amended, we will indemnify any person who was or is made a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was our director, officer, employee or agent, or is or was serving, at our request, as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. We will indemnify such persons against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such action, suit or proceeding if such person acted in good faith and in a manner reasonably believed to be in or not opposed to our best interest and, with respect to any criminal proceeding, had no reasonable cause to believe such person’s conduct was unlawful. A similar standard is applicable in the case of derivative actions or suits, except that indemnification only extends to expenses (including attorneys’ fees) actually and reasonably incurred in connection with the defense or settlement of such action or suit, and court approval is required before there can be any indemnification where the person seeking indemnification has been adjudged to be liable to us. Any amendment of this provision will not reduce our indemnification obligations relating to actions taken before an amendment.

We intend to obtain policies that insure our directors and officers and those of our subsidiaries against certain liabilities they may incur in their capacity as directors and officers. Under these policies, the insurer, on our behalf, may also pay amounts for which we have granted indemnification to the directors or officers.

71


 
 

TABLE OF CONTENTS

SHARES AVAILABLE FOR FUTURE SALE

Immediately prior to this Offering, there was no public market for our common stock. Sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices of our common stock. Some shares of our common stock will not be available for sale for a certain period of time after this Offering because they are subject to contractual and legal restrictions on resale, some of which are described below. Sales of substantial amounts of common stock in the public market after these restrictions lapse, or the perception that these sales could occur, could adversely affect the prevailing market price and our ability to raise equity capital in the future.

Sales of Restricted Securities

After this Offering,      shares of our common stock will be outstanding. Of these shares, all of the shares sold in this Offering will be freely tradable without restriction under the Securities Act, unless purchased by our “affiliates,” as that term is defined in Rule 144 under the Securities Act. The remaining      shares of our common stock that will be outstanding after this Offering are “restricted securities” within the meaning of Rule 144 under the Securities Act. Restricted securities may be sold in the public market only if they are registered under the Securities Act or are sold pursuant to an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which are summarized below. Subject to the lock-up agreements described below, shares held by our affiliates that are not restricted securities or that have been owned for more than one year may be sold subject to compliance with Rule 144 of the Securities Act without regard to the prescribed one-year holding period under Rule 144.

Lock-Up Agreements

KFSI, Fund Management Group LLC, and all of our directors and executive officers have signed lock-up agreements under which they have agreed not to sell, transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock without the prior written consent of Aegis Capital Corp, for a period of 180 days, subject to possible extension under certain circumstances, after the date of this prospectus. The lock-up restrictions, specified exceptions and the circumstances under which the lock-up period may be extended are described in more detail under “Underwriting — Lock-Up Agreements.”

Rule 144

In general, under Rule 144, beginning 90 days after the date of this prospectus, a person who is not our affiliate and has not been our affiliate at any time during the preceding three months will be entitled to sell any shares of our common stock that such person has beneficially owned for at least six months, including the holding period of any prior owner other than one of our affiliates, without regard to volume limitations. Sales of our common stock by any such person would be subject to the availability of current public information about us if the shares to be sold were beneficially owned by such person for less than one year.

In addition, under Rule 144, a person may sell shares of our common stock acquired from us immediately upon the closing of this Offering, without regard to volume limitations or the availability of public information about us, if:

The person is not our affiliate and has not been our affiliate at any time during the preceding three months; and
The person has beneficially owned the shares to be sold for at least one year, including the holding period of any prior owner other than one of our affiliates.

No shares of our common stock that are not subject to the lock-up agreements described above will be eligible for sale under Rule 144 immediately upon the closing of this Offering.

72


 
 

TABLE OF CONTENTS

Beginning 90 days after the date of this prospectus, and subject to the lock up agreements described above, our affiliates who have beneficially owned shares of our common stock for at least six months, including the holding period of any prior owner other than one of our affiliates, will be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

1% of the number of shares of our common stock then outstanding, which will equal approximately      shares immediately after this Offering, assuming an initial public offering price of $     per share (which is the midpoint of the price range set forth on the cover page of this prospectus); and
the average weekly trading volume in our common stock on The NASDAQ Capital Market during the four calendar weeks preceding the date of filing of a Notice of Proposed Sale of Securities Pursuant to Rule 144 with respect to the sale.

Sales under Rule 144 by our affiliates are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

Any of our employees, officers or directors who acquired shares under a written compensatory plan or contract may be entitled to sell them in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling those shares. However, all shares issued under Rule 701 are subject to lock-up agreements and will only become eligible for sale when the 180-day lock-up agreements expire.

73


 
 

TABLE OF CONTENTS

MATERIAL U.S. TAX CONSIDERATIONS

The following discussion is a summary of the material U.S. federal income tax considerations generally applicable to beneficial owners of our common stock, or Stockholders, that acquire shares of our common stock pursuant to this Offering and that hold such shares as capital assets (generally, for investment). This summary is based on current provisions of the Internal Revenue Code of 1986, as amended, or the Code, existing and proposed U.S. Treasury regulations, judicial opinions and published positions of the IRS and other applicable authorities, all of which are subject to change, possibly with retroactive effect. This summary does not consider the U.S. federal estate or gift tax consequences of an investment in our common stock, except to the limited extent discussed below for Non-U.S. Holders (as defined below), or the state, local or non-U.S. tax consequences of an investment in our common stock. This summary does not address all of the U.S. federal income tax considerations that might be relevant to a Stockholder in light of its particular circumstances, or that might be relevant to Stockholders subject to special treatment under U.S. federal income tax laws, including, among others, partnerships or other pass-through entities, banks, insurance companies, dealers in securities, persons who hold our common stock as part of a “straddle,” “hedge,” “conversion transaction” or other risk-reduction or integrated transaction, controlled foreign corporations, passive foreign investment companies, foreign personal holding companies, companies that accumulate earnings to avoid U.S. federal income tax, U.S. Holders (as defined below) who do not have the U.S. dollar as their functional currency, tax-exempt organizations, former U.S. citizens or residents and persons who hold or receive our common stock as compensation.

For purposes of this summary, the term “U.S. Holder” means a holder of shares of our common stock that, for U.S. federal income tax purposes, is:

an individual who is a citizen or resident of the United States,
a corporation (or other entity taxable as a corporation) created in or organized under the laws of the United States, any state thereof or the District of Columbia,
an estate the income of which is subject to U.S. federal income taxation regardless of its source, or
a trust (x) if a court within the United States is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all substantial decisions of such trust or (y) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

The term “Non-U.S. Holder” means any Holder of shares of our common stock that is neither a U.S. Holder nor a partnership (including an entity that is treated as a partnership for U.S. federal income tax purposes).

This discussion does not address the tax consequences to partnerships or other pass-through entities or persons investing through such partnerships or entities. If a partnership holds shares of our common stock, the U.S. federal income tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Such a partner is encouraged to consult its own tax advisors as to the U.S. federal income tax consequences of being a partner in a partnership that acquires, holds or disposes of our common stock.

PROSPECTIVE INVESTORS CONSIDERING THE PURCHASE OF OUR COMMON STOCK ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION.

U.S. Holders

The following discussion summarizes the material U.S. federal income tax consequences of the ownership and disposition of our common stock applicable to U.S. Holders, subject to the limitations described above.

Distributions and Dividends

Generally, distributions paid to a U.S. Holder with respect to our common stock will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated

74


 
 

TABLE OF CONTENTS

earnings and profits, the excess will be treated as a tax-free return of the U.S. Holder’s investment, up to such U.S. Holder’s adjusted tax basis in our common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below under “-Sale, Exchange or Other Taxable Disposition of Our Common Stock.”

Dividends paid by us to corporate U.S. Holders will be eligible for the dividends-received deduction, provided that the corporate U.S. Holder receiving the dividend satisfies the holding period and other requirements for the dividends-received deduction. Dividends paid by us to certain non-corporate U.S. Holders (including individuals) with respect to taxable years beginning after December 31, 2012 generally will be eligible for U.S. federal income taxation at the rates generally applicable to long-term capital gains for individuals (currently at a maximum tax rate of 20%), provided that the non-corporate U.S. Holder receiving the dividend satisfies the applicable holding period and other requirements, and may also be subject to the Medicare tax described below under “— Medicare Tax.”

Sale, Exchange or Other Taxable Disposition of Our Common Stock

Upon a sale, exchange or other taxable disposition of shares of our common stock, a U.S. Holder generally will recognize capital gain or loss equal to the difference between the amount realized on the sale, exchange or other taxable disposition and the U.S. Holder’s adjusted tax basis in the shares of our common stock. Such capital gain or loss will be long-term capital gain or loss if the U.S. Holder has held the shares of our common stock for more than one year at the time of disposition. Long-term capital gains of certain non-corporate U.S. Holders (including individuals) recognized in taxable years beginning after December 31, 2012 are subject to U.S. federal income taxation at a maximum rate of 20% and possibly the Medicare tax described below under “— Medicare Tax.” The deductibility of capital losses is subject to limitations under the Code.

Medicare Tax

Section 1411 of the Code generally imposes a 3.8% tax on the net investment income of certain individuals with modified adjusted gross income exceeding certain thresholds and on certain income of certain estates and trusts. For these purposes, “net investment income” will generally include interest, dividends (including dividends paid with respect to our common stock), annuities, royalties, rents, net gain attributable to the disposition of property not held in a trade or business (including net gain from the sale, exchange or other taxable disposition of shares of our common stock) and certain other income, but will be reduced by any deductions properly allocable to such income or net gain.

Information Reporting and Backup Withholding

In general, dividends on our common stock and payments to a U.S. Holder of the proceeds of a sale, exchange or other disposition of our common stock are subject to information reporting and may be subject to backup withholding at a rate of 28% unless the U.S. Holder (i) is a corporation or other exempt recipient or (ii) provides an accurate taxpayer identification number and certifies that it is not subject to backup withholding.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a U.S. Holder will be refunded or credited against the U.S. Holder’s U.S. federal income tax liability, if any, provided that the required information is timely furnished to the IRS.

Non-U.S. Holders

The following discussion summarizes the material U.S. federal income tax consequences of the ownership and disposition of our common stock applicable to Non-U.S. Holders, subject to the limitations described above.

Distributions and Dividends

Generally, distributions paid to a Non-U.S. Holder with respect to our common stock will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the Non-U.S. Holder’s investment, up to

75


 
 

TABLE OF CONTENTS

such Non-U.S. Holder’s adjusted tax basis in our common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below under “— Sale, Exchange or Other Taxable Disposition of Our common Stock.”

Any dividend paid to a Non-U.S. Holder with respect to our common stock generally will be subject to withholding tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty). Generally, a Non-U.S. Holder must certify as to its eligibility for reduced withholding under an applicable income tax treaty on a properly completed IRS Form W-8BEN in order to obtain the benefits of such treaty. Non-U.S. Holders that do not timely provide us with the required certification, but which qualify for a reduced treaty rate, may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Non-U.S. Holders are encouraged to consult their tax advisors regarding possible entitlement to benefits under a tax treaty.

If, however, the Non-U.S. Holder provides an IRS Form W-8ECI, certifying that the dividend is effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States, and otherwise complies with applicable certification requirements, the dividend will not be subject to such withholding. Instead, such dividend will be subject to U.S. federal income tax in the manner described below under “ — Effectively Connected Income.”

Sale, Exchange or Other Taxable Disposition of Our Common Stock

Except as otherwise discussed below, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain realized upon the sale, exchange or other taxable disposition of our common stock unless (i) such gain is effectively connected with the Non-U.S. Holder’s conduct of a U.S. trade or business (or, if an income tax treaty applies, the gain is attributable to a U.S. permanent establishment or fixed base maintained by such Non-U.S. Holder in the United States), (ii) the Non-U.S. Holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which such sale, exchange or other taxable disposition occurs and certain other conditions are met, or (iii) we are or become a “United States real property holding corporation,” or USRPHC, for U.S. federal income tax purposes, at any time within the shorter of the five-year period preceding the disposition or the Non-U.S. Holder's holding period for our common stock. We do not believe that we are or will become a USRPHC. Even if we become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, such common stock will be treated as a U.S. real property interest only if the Non-U.S. Holder held (actually or constructively) more than 5% of our common stock at any time during the shorter of the five-year period preceding the disposition or the Non-U.S. Holder’s holding period for our common stock.

Gain described in clause (i) of the paragraph above will be subject to U.S. federal income tax in the manner described below under “ — Effectively Connected Income.” A Non-U.S. Holder described in clause (ii) of the paragraph above will be subject to U.S. federal income tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) on the net gain derived from the sale, exchange or other taxable disposition, which may be offset by U.S.-source capital losses of the Non-U.S. Holder.

Effectively Connected Income

Any dividend with respect to, or gain realized upon the sale or other disposition of, our common stock that is effectively connected with a trade or business carried on by a Non-U.S. Holder within the United States (or, if an income tax treaty applies, that is attributable to a permanent establishment or fixed base maintained by such Non-U.S. Holder in the United States) will be subject to U.S. federal income tax, based on the Non-U.S. Holder’s net income, in the same manner as if the Non-U.S. Holder were a U.S. person for U.S. federal income tax purposes. If a dividend or gain is effectively connected with a U.S. trade or business of a Non-U.S. Holder that is a corporation, such corporate Non-U.S. Holder may be subject to an additional “branch profits tax” at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty), subject to certain adjustments. Non-U.S. Holders should consult their tax advisors regarding any applicable tax treaties that may provide for different rules.

76


 
 

TABLE OF CONTENTS

Information Reporting and Backup Withholding

Annual reporting to the IRS and to each Non-U.S. Holder will be required as to the amount of dividends paid to such Non-U.S. Holder and the amount, if any, of tax withheld with respect to such dividends, unless the Non-U.S. Holder is an exempt recipient or otherwise establishes an exemption from such requirements. This information may also be made available to the tax authorities in the Non-U.S. Holder’s country of residence. Dividends generally are not subject to “backup withholding” if the Non-U.S. Holder properly certifies as to its non-U.S. status (usually by completing an IRS Form W-8BEN, including any claim to reduced withholding under an applicable income tax treaty).

The payment of the proceeds of the sale, exchange or other disposition of our common stock to or through the U.S. office of a broker is subject to both backup withholding and information reporting unless the Non-U.S. Holder, or beneficial owner thereof, as applicable, certifies its non-U.S. status on IRS Form W-8BEN, or otherwise establishes an exemption. Information reporting requirements, but not backup withholding, will also generally apply to payments of the proceeds of a sale, exchange or other disposition of our common stock by foreign offices of U.S. brokers or foreign brokers with certain types of relationships to the United States unless the Non-U.S. Holder establishes an exemption.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from payments made to a Non-U.S. Holder may be refunded or credited against such Non-U.S. Holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the IRS.

Estate Tax

A non-resident alien individual should note that shares of our common stock held by (i) such individual or (ii) an entity created by such individual and included in such individual’s gross estate for U.S. federal estate tax purposes (for example, a trust funded by such individual and with respect to which the individual has retained certain interests or powers), will be, absent an applicable treaty, treated as U.S. situs property subject to U.S. federal estate tax. Accordingly, Non-U.S. Holders who are non-resident alien individuals may be subject to U.S. federal estate tax on all or a portion of the value of our common stock owned at the time of their death. Prospective individual Stockholders who are non-U.S. persons are encouraged to consult their tax advisors concerning the potential U.S. federal estate tax consequences with respect to our common stock.

Recently Enacted Legislation

Section 1471 of the Code generally imposes a 30% withholding tax on dividends paid with respect to our common stock and the gross proceeds from a disposition of shares of our common stock, in each case paid to (i) a foreign financial institution (as defined in Section 1471(d)(4) of the Code) unless the foreign financial institution enters into an agreement with the U.S. Treasury Department to collect and disclose information regarding its U.S. account holders (including certain account holders that are foreign entities that have U.S. owners) and satisfies certain other requirements, and (ii) certain other non-financial foreign entities unless the entity provides the payor with certain information regarding certain direct and indirect U.S. owners of the entity, or certifies that it has no such U.S. owners, and complies with certain other requirements (although, under regulations described below, the non-financial foreign entity may be exempt from such withholding even if it does not provide such certification or comply with such other requirements). An intergovernmental agreement between the United States and an applicable non-U.S. country may modify such requirements. Under current Treasury regulations (as modified by recent guidance released by the IRS on July 12, 2013), such withholding tax will only apply to dividends paid with respect to our common stock after June 30, 2014, and to proceeds from the sale, exchange or other taxable disposition of such stock occurring after December 31, 2016. Under certain circumstances, a Non-U.S. Holder of shares of our common stock might be eligible for refunds or credits of the tax. You are encouraged to consult with your own tax advisor regarding the possible implications of this recently enacted legislation on your investment in shares of our common stock.

77


 
 

TABLE OF CONTENTS

UNDERWRITING

Aegis Capital Corp is acting as the sole book-running manager of the Offering and as representative of the underwriters, or the Representative. We have entered into an underwriting agreement, dated            , 2014, with the Representative. Subject to the terms and conditions set forth in the underwriting agreement, we have agreed to sell to each underwriter named below, and each underwriter has severally and not jointly agreed to purchase from us, at the public offering price per share less the underwriting discounts set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table.

 
Underwriters   Number of Shares
Aegis Capital Corp         
EarlyBirdCapital, Inc.         
Total                 

The underwriters are committed to purchase all the shares of common stock offered by us other than those covered by the option to purchase additional shares described below, if they purchase any shares. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters’ obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers’ certificates and legal opinions.

The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Over-Allotment Option

We have granted to the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of      additional shares (15% of the shares sold in this Offering) from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the public offering price per share that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to the public will be $      and the total net proceeds, before expenses, to us will be $     .

Discounts and Commissions

The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their option to purchase additional shares.

     
  Per Share   Total Without Over-Allotment Option   Total With Over-Allotment Option
Public offering price   $          $          $       
Underwriting discounts and commissions (7%)   $     $     $  
Non-accountable expense allowance (1%) (1)   $     $     $  
Proceeds, before expenses, to us   $     $     $  

(1) We have agreed to pay a non-accountable expense allowance to the Representative equal to 1% of the gross proceeds received in this Offering; provided, however, the expense allowance of 1% is not payable with respect to the shares sold upon exercise of the underwriters’ over-allotment option.

The underwriters propose to offer the shares to the public at the public offering price per share set forth on the cover page of this prospectus. In addition, the underwriters may offer some of the shares to other securities

78


 
 

TABLE OF CONTENTS

dealers at such price less a concession of $      per share. If all of the shares offered by us are not sold at the public offering price per share, the underwriters may change the offering price per share and other selling terms by means of a supplement to this prospectus.

We have paid an expense deposit of $50,000 to the Representative, which will be applied against accountable expenses (in compliance with FINRA Rule 5110(f)(2)(C)) that will be paid by us to the Representative in connection with this Offering. We have also agreed to pay the Representative’s expenses relating to the Offering, including (a) all fees, expenses and disbursements relating to background checks of our officers and directors in an amount not to exceed $5,000 per individual; (b) all filing fees incurred in clearing this Offering with FINRA; (c) all fees, expenses and disbursements relating to the registration, qualification or exemption of securities offered under the securities laws of foreign jurisdictions designated by the Representative; (d) the costs associated with bound volumes of the public offering materials as well as commemorative mementos and Lucite tombstones; (e) the fees and expenses of the Representative's legal counsel not to exceed $25,000; (f) the $21,775 cost associated with the use of Ipreo’s book-building, prospectus tracking and compliance software for this Offering; and (g) up to $20,000 of the Representative’s actual accountable road show expenses for the Offering.

We estimate that the total expenses payable by us in connection with this Offering, other than the underwriting discounts and commissions referred to above, will be approximately $     .

Discretionary Accounts

The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.

Lock-Up Agreements

Pursuant to certain “lock-up” agreements, we have agreed not to, without the prior written consent of the Representative, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock, (ii) file or cause to be filed any registration statement with the Securities and Exchange Commission relating to the offering of any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock or (iii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our capital stock, in each case for a period of 180 days from the date of effectiveness of the offering, which we refer to as the Lock-Up Period. The restrictions described above do not apply to (1) the shares of common stock to be sold to the underwriters pursuant to the underwriting agreement, (2) the issuance of shares of common stock upon the exercise of a stock option or warrant or the conversion of a security outstanding on the date of this prospectus, of which the Representative has been advised in writing, (3) the issuance of stock options or shares of our capital stock under any of our equity compensation plans, or (4) the filing by us of any registration statement on Form S-8 relating to shares of our common stock granted under any equity compensation plan; provided that, prior to the issuance of any such stock options or shares of capital stock that vest within the Lock-Up Period, each recipient thereof shall sign and deliver a lock-up agreement substantially similar to the lock-up agreements executed by our executive officers, directors and stockholders.

Each of KFSI, Fund Management Group LLC and our executive officers and directors have agreed not to, without the prior written consent of the Representative, (i) offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of shares of our common stock, whether any such transaction described in clause (i) or (ii) is to be settled by delivery of common stock, in cash or otherwise, (iii) make any demand for or exercise any right with respect to the registration of any shares of our common stock or (iv) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any shares of our common stock, in each case during the Lock-Up Period. The restrictions described above do not apply to (1) transactions relating to shares of common stock acquired in open market transactions after the completion of this offering, subject to certain limitations, (2) transfers of common stock

79


 
 

TABLE OF CONTENTS

as a bona fide gift, by will or intestacy, to a family member or trust or other estate planning vehicle for the direct or indirect benefit of the security holder or a family member, (3) transfers of common stock to a charity or educational institution or (4) any transfers of common stock to (A) any shareholder, partner or member of, or owner of similar equity interests in, the security holder, (B) the security holder’s affiliates or (C) any investment fund or other entity controlled or managed by the security holder, subject to certain limitations; provided that in the case of any transfer pursuant to the foregoing clauses (2), (3) or (4), any such transfer shall not involve a disposition for value, and each transferee shall sign and deliver to the Representative a lock-up agreement substantially in the form of the lock-up agreement executed by our officers, directors and stockholders. Furthermore, the restrictions described above do not restrict or prohibit (a) the exercise, exchange or conversion of any securities exercisable or exchangeable for or convertible into shares of common stock, provided that the security holder does not transfer the shares of common stock acquired on such exercise, exchange or conversion during the Lock-Up Period or (b) the establishment or modification of a 10b5-1 trading plan under the Exchange Act by a security holder for the sale of shares of common stock, provided that such plan does not provide for the transfer of common stock during the Lock-Up Period.

Representative’s Warrants

We have agreed to issue to the Representative and/or its designees warrants to purchase up to a total of      shares of common stock (5% of the shares of common stock sold in this Offering, but excluding the over-allotment option). The warrants will be exercisable at any time, and from time to time, in whole or in part, during the four-year period commencing one year from the effective date of the Offering, which period shall not extend further than five years from the effective date of the Offering in compliance with FINRA Rule 5110(f)(2)(H)(i). The warrants are exercisable at a per share price equal to $      per share, or 125% of the public offering price per share in the Offering. The warrants have been deemed compensation by FINRA and are therefore subject to a 180 day lock-up pursuant to Rule 5110(g)(1) of FINRA. The Representative (or permitted assignees under Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the date of effectiveness. In addition, the warrants provide for registration rights upon request, in certain cases. The demand registration right provided will not be greater than five years from the effective date of the Offering in compliance with FINRA Rule 5110(f)(2)(H)(iv). The piggyback registration right provided will not be greater than seven years from the effective date of the Offering in compliance with FINRA Rule 5110(f)(2)(H)(v). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.

Right of First Refusal

Subject to certain limited exceptions, until 12 months after the date of effectiveness of this Offering, the Representative has a right of first refusal to act as to act as lead or managing underwriter, sole book-running manager, exclusive placement agent, exclusive financial advisor or in any other similar capacity, on the Representative’s customary terms and conditions, in the event the company or any successor to or any subsidiary of the company retains or otherwise uses (or seeks to retain or use) the services of an investment bank or similar financial advisor to pursue any future public or private equity or public debt offerings during such 12-month period.

Indemnification

We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.

NASDAQ Capital Market Listing

We have applied to list our common stock on The NASDAQ Capital Market under the symbol “PIH”. No assurance can be given that such listing will be approved.

80


 
 

TABLE OF CONTENTS

Electronic Offer, Sale and Distribution of Shares.

A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this Offering and one or more of the underwriters participating in this Offering may distribute prospectuses electronically. The Representative may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.

Determination of the Initial Public Offering Price

Prior to this Offering, there has been no public market for our common stock. The initial public offering price was determined through negotiations between us and the Representative. In addition to prevailing market conditions, the factors considered in determining the initial public offering price included the following:

the information included in this prospectus and otherwise available to the Representative;
the valuation multiples of publicly traded companies that the Representative believes to be comparable to us;
our financial information;
our prospects and the history and the prospectus of the industry in which we compete;
an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues;
the present state of our development; and
the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.

An active trading market for our common stock may not develop. It is also possible that, after the Offering, the shares will not trade in the public market at or above the initial public offering price.

Stabilization

In connection with this Offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.

Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while the Offering is in progress.
Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market.
Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which they may purchase shares through exercise of the over-allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the

81


 
 

TABLE OF CONTENTS

position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in the Offering.
Penalty bids permit the Representative to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our shares or common stock or preventing or retarding a decline in the market price of our shares or common stock. As a result, the price of our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be effected on The NASDAQ Capital Market, in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.

Passive market making .  In connection with this Offering, underwriters and selling group members may engage in passive market making transactions in our common stock on The NASDAQ Capital Market in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded.

Other Relationships .  Certain of the underwriters and their affiliates may in the future provide various investment banking, commercial banking and other financial services for us and our affiliates for which they may in the future receive customary fees. However, except as disclosed in this prospectus, we have no present arrangements with any of the underwriters for any further services.

Offer restrictions outside the United States

Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the Offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.

Australia

This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer for the offeree under this prospectus.

82


 
 

TABLE OF CONTENTS

China

The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”

European Economic Area — Belgium, Germany, Luxembourg and Netherlands

The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (“Prospectus Directive”), as implemented in Member States of the European Economic Area (each, a “Relevant Member State”), from the requirement to produce a prospectus for offers of securities.

An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:

(a) to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
(b) to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements);
(c) to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of the company or any underwriter for any such offer; or
(d) in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by the company of a prospectus pursuant to Article 3 of the Prospectus Directive.

France

This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.

This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.

Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.

Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.

83


 
 

TABLE OF CONTENTS

Ireland

The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.

Israel

The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority, or the ISA, nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the Offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.

Italy

The Offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societ-$$-Aga e la Borsa, “CONSOB” pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:

to Italian qualified investors, as defined in Article 100 of Decree no. 58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”) as amended (“Qualified Investors”); and
in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended.

Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:

made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No. 58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and
in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws.

Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.

Japan

The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”) pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder).

84


 
 

TABLE OF CONTENTS

Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.

Portugal

This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.

Sweden

This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.

Switzerland

The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority.

This document is personal to the recipient only and not for general circulation in Switzerland.

United Arab Emirates

Neither this document nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor has the company received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab Emirates.

This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by the company.

No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.

85


 
 

TABLE OF CONTENTS

United Kingdom

Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA.

This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.

Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to us.

In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (“FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.

86


 
 

TABLE OF CONTENTS

LEGAL MATTERS

The validity of the shares of common stock offered by this prospectus and certain legal matters in connection with this Offering will be passed upon for us by McDermott Will & Emery LLP. Certain legal matters in connection with this Offering will be passed upon for the underwriters by Greenberg Traurig, LLP.

EXPERTS

The financial statements as of September 30, 2013 and December 31, 2012 and for the nine-month period ended September 30, 2013 and the period from inception October 2, 2012 to December 31, 2012 included in this Prospectus and in the Registration Statement have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere herein and in the Registration Statement, given on the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock offered by this prospectus. This prospectus, filed as part of the registration statement, does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and shares of our common stock, we refer you to the registration statement and to its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and in each instance we refer you to the copy of such contract, agreement or document filed as an exhibit to the registration statement. Anyone may inspect the registration statement and its exhibits and schedules without charge at the public reference facilities the SEC maintains at 100 F Street, N.E., Washington, D.C. 20549. You may obtain copies of all or any part of these materials from the SEC upon the payment of certain fees prescribed by the SEC. You may obtain further information about the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. You may also inspect these reports and other information without charge at a website maintained by the SEC. The address of this site is http://www.sec.gov .

Upon completion of this Offering, we will become subject to the informational requirements of the Exchange Act and will be required to file reports and other information with the SEC. You will be able to inspect and copy these reports and other information at the public reference facilities maintained by the SEC at the address noted above. You also will be able to obtain copies of this material from the Public Reference Room of the SEC as described above, or inspect them without charge at the SEC’s website. We intend to make available to our Class A common stockholders annual reports containing consolidated financial statements (or consolidated financial statements with respect to historical periods) audited by an independent registered public accounting firm.

87


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
INDEX TO FINANCIAL STATEMENTS

 
 
Report of Independent Registered Public Accounting Firm     F-2  
Consolidated Financial Statements
        
Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012     F-3 - F-4  
Consolidated Statements of Operations and Comprehensive Loss for the Nine Months Ended September 30, 2013 and the Period From October 2, 2012 Through December 31, 2012     F-5  
Consolidated Statements of Changes in Shareholder’s Equity for the Nine Months Ended September 30, 2013 and the Period From October 2, 2012 Through December 31, 2012     F-6  
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and the Period From October 2, 2012 Through December 31, 2012     F-7  
Notes to Consolidated Financial Statements      F-8 - F-19   

F-1


 
 

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm

Board of Directors
1347 Property Insurance Holdings, Inc.
Baton Rouge, Louisiana

We have audited the accompanying consolidated balance sheets of 1347 Property Insurance Holdings, Inc. as of September 30, 2013 and December 31, 2012 and the related consolidated statements of operations and comprehensive loss, changes in shareholder’s equity, and cash flows for the nine-month period ended September 30, 2013 and the period from inception October 2, 2012 to December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 1347 Property Insurance Holdings, Inc. at September 30, 2013 and December 31, 2012, and the results of its operations and its cash flows for the nine-month period ended September 30, 2013 and the period from inception October 2, 2012 to December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.

 
/s/ BDO USA, LLP

December 6, 2013
Grand Rapids, Michigan
                  

F-2


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Consolidated Balance Sheets
(in thousands)

   
  September 30,
2013
  December 31,
2012
Assets
                 
Cash and invested assets
                 
Cash   $ 13,161     $ 5,525  
Short-term investments pledged, at cost     100       100  
Preferred stock, at fair value           1,875  
Total cash and invested assets     13,261       7,500  
Premiums receivable     839       2,091  
Deferred policy acquisition costs     1,090       346  
Net deferred federal income taxes     897       159  
Ceded unearned premiums     754       63  
Other assets     72       39  
Total Assets   $ 16,913     $ 10,198  

See accompanying notes to consolidated financial statements.

F-3


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Consolidated Balance Sheets
(in thousands)

   
  September 30,
2013
  December 31,
2012
Liabilities and Shareholder's Equity
                 
Liabilities
                 
Loss and loss adjustment expense reserves   $ 229     $ 9  
Unearned premium reserves     6,358       2,131  
Due to affiliated companies     2,002       407  
Ceded reinsurance premiums payable     1       75  
Current federal income taxes payable     97       97  
Accrued expenses and other liabilities     1,033       49  
Total Liabilities     9,720       2,768  
Shareholder's Equity
                 
Common stock, $0.00 par value; authorized 1,000 shares; issued and outstanding 1,000 shares            
Additional paid-in capital     8,750       7,550  
Retained deficit     (1,557 )       (120 )  
Total Shareholder's Equity     7,193       7,430  
Total Liabilities and Shareholder's Equity   $ 16,913     $ 10,198  

See accompanying notes to consolidated financial statements.

F-4


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)

   
  Nine Months
Ended
September 30,
2013
  Period From
October 2, 2012
Through
December 31,
2012
Revenues
                 
Premiums   $ 2,438       346  
Net investment income     47       13  
Other income     44        
Total revenues     2,529       359  
Expenses
                 
Net losses and loss adjustment expenses     2,639       9  
Amortization of deferred policy acquisition costs     786       58  
General and administrative expenses     1,279       474  
Total expenses     4,704       541  
Loss before income tax benefit     (2,175 )       (182 )  
Income tax benefit     (738 )       (62 )  
Net Loss   $ (1,437 )     $ (120 )  
Comprehensive Loss and its Components Consist of the Following
                 
Net loss   $ (1,437 )     $ (120 )  
Comprehensive Loss   $ (1,437 )     $ (120 )  
Loss per Share – Net Loss
                 
Basic   $ (1,436.61 )     $ (120.15 )  
Diluted   $ (1,436.61 )     $ (120.15 )  
Weighted Average Shares Outstanding
                 
Basic     1       1  
Diluted     1       1  

See accompanying notes to consolidated financial statements.

F-5


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Consolidated Statements of Changes in Shareholder’s Equity
(in thousands)

         
  Common
Stock
Shares
  Common
Stock
Amount
  Additional
Paid-in
Capital
  Accumulated
Deficit
  Total
Balance, October 2, 2012 (inception)       —     $   —     $     $     $  
Issuance of common stock     1             5,000             5,000  
Net loss                       (120 )       (120 )  
Capital contributions                 2,550             2,550  
Balance, December 31, 2012     1             7,550       (120 )       7,430  
Net loss                       (1,437 )       (1,437 )  
Capital contributions                 1,200             1,200  
Balance, September 30, 2013     1     $     $ 8,750     $ (1,557 )     $ 7,193  

See accompanying notes to consolidated financial statements.

F-6


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Consolidated Statements of Cash Flows
(in thousands)

   
  Nine Months
Ended
September 31,
2013
  Period From
October 2, 2012
Through
December 31,
2012
Cash Flows From (for) Operating Activities
                 
Net loss   $ (1,437 )     $ (120 )  
Adjustments to reconcile net loss to net cash from (for) operating activities:
                 
Premiums receivable     1,252       (2,091 )  
Additions to deferred policy acquisition costs     (1,530 )       (404 )  
Amortization of deferred policy acquisition costs     786       58  
Net deferred federal income taxes     (738 )       (159 )  
Ceded unearned premiums     (691 )       (63 )  
Loss and loss adjustment expense reserves     220       9  
Unearned premium reserves     4,227       2,131  
Due to affiliated companies     1,595       407  
Ceded reinsurance premiums payable     (74 )       75  
Current federal income taxes payable           97  
Accrued expenses and other liabilities     984       49  
Other assets     (33 )       (39 )  
Net Cash From (for) Operating Activities     4,561       (50 )  
Cash Flows From (for) Investing Activities
                 
Proceeds from sale of preferred stock     1,875        
Purchase of short-term investments           (100 )  
Net Cash From (for) Investing Activities     1,875       (100 )  
Cash Flows From Financing Activity
                 
Additional paid-in capital     1,200       5,675  
Net Increase in Cash     7,636       5,525  
Cash, beginning of period     5,525        
Cash, end of period   $ 13,161     $ 5,525  
Supplemental Disclosure of Cash Flow Information
                 
Income taxes paid   $     $  
Supplemental Disclosure of Non-Cash Information
                 
Additional paid-in capital of investment in preferred stock   $     $ 1,875  

See accompanying notes to consolidated financial statements.

F-7


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

1. Description of the Company and Summary of Significant Accounting Policies

Description of Company

1347 Property Insurance Holdings, Inc. (the Company) is a holding company and has no significant operations other than ownership of its subsidiaries. The Company is a wholly owned subsidiary of Kingsway America, Inc. (Parent). The Parent is ultimately a wholly owned subsidiary of Kingsway Financial Services, Inc., a publicly owned holding company based in Toronto, Ontario, Canada. The Company was incorporated on October 2, 2012 in the State of Delaware. The subsidiaries of the Company are Maison Insurance Company (MIC), a Louisiana-domiciled property and casualty insurance company incorporated on October 3, 2012, and Maison Managers, Inc. (MMI), incorporated in the State of Delaware on October 2, 2012. Subsequent to September 30, 2013, the Company changed its legal name from Maison Insurance Holdings Inc. to 1347 Property Insurance Holdings, Inc.

The accompanying consolidated financial statements include the Company and its two subsidiaries, collectively referred to as the Company. MIC is a property and casualty insurance company, which provides dwelling policies for wind and hail only, and dwelling, homeowner and mobile home/manufactured home policies for multi-peril property risks located in the State of Louisiana. MMI is a general agency providing underwriting, policy administration, claims administration, marketing, accounting and financial and other management services to MIC. MMI also contracts with independent agents for policy sales and services. MMI has entered into a contract with an independent third-party policy administration company for services.

The consolidated financial statements include the accounts of the Company and its subsidiaries and have been prepared on the basis of accounting principles generally accepted in the United States of America (GAAP). All significant intercompany transactions and accounts have been eliminated in consolidation.

Significant Accounting Policies

Cash and Invested Assets

Cash includes cash in various bank accounts.

Investments in preferred stock are classified as available-for-sale and reported at fair value. Short-term investments, which consist of securities with original maturities between 90 days and one year, are reported at cost, which approximates fair value.

Gains and losses from the sale of investments are calculated on a first-in, first-out basis. If a decline in fair value of an investment is deemed to be other-than-temporary, the carrying value in the investment is reduced to fair value through an adjustment to earnings. Dividends and interest income are included in net investment income. Investment income is recorded as it accrues.

Premiums Receivable

Premiums receivable include premium balances due and uncollected and installment premiums not yet due from agents and insureds. Premiums receivable are shown without any allowance for bad debt as of September 30, 2013 and December 31, 2012, respectively, as the Company, through its review and analysis, is not aware of any events or conditions that would necessitate such bad debt allowance.

Deferred Policy Acquisition Costs

The Company defers commissions, premium taxes and other underwriting and agency expenses that are directly related to successful efforts to acquire new or existing insurance policies to the extent they are considered recoverable. Costs deferred on property and casualty insurance products are amortized over the period in which premiums are earned. Costs associated with unsuccessful efforts or costs that cannot be tied directly to a successful policy acquisition are expensed as incurred, as opposed to being deferred and amortized as the premium is earned. The method followed in determining the deferred policy acquisition costs limits the deferral to its realizable value by giving consideration to estimated future loss and loss adjustment

F-8


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

1. Description of the Company and Summary of Significant Accounting Policies - (continued)

expenses to be incurred as revenues are earned. Changes in estimates, if any, are recorded in the accounting period in which they are determined. Anticipated investment income is included in determining the realizable value of the deferred policy acquisition costs.

Reinsurance

Reinsurance premiums, loss and loss adjustment expenses are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and claims ceded to other companies have been reported as a reduction of premiums revenue and incurred loss and loss adjustment expenses. Reinsurance recoverable is recorded for that portion of paid and unpaid losses and loss adjustment expenses that are ceded to other companies. Ceded unearned premiums represent the unexpired portion of premiums ceded to reinsurers.

Federal Income Taxes

Kingsway America II Inc. and its eligible U.S. subsidiaries, which include the Company, file a U.S. consolidated federal income tax return (KAI Tax Group). The method of allocating federal income taxes among the companies in the KAI Tax Group is subject to written agreement, approved by each company’s Board of Directors. The allocation is made primarily on a separate return basis, with current credit for any net operating losses or other items utilized in the consolidated federal income tax return.

The Company follows the asset and liability method of accounting for income taxes, whereby deferred income tax assets and liabilities are recognized for (i) the differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases and (ii) loss and tax credit carryforwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not and a valuation allowance is established for any portion of a deferred income tax asset that management believes will not be realized. Current federal income taxes are charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year.

Other Assets

Other assets include fixed assets, reported at depreciated costs, and prepaid assets. Prepaid assets are expenses paid in advance and security deposits. Depreciation of property and equipment has been provided by the straight-line method over the estimated useful lives of such assets. The useful lives range from seven to ten years for furniture, fixtures and equipment, three years for electronic data equipment hardware and software, and five years for leasehold improvements.

The Company periodically reviews all fixed assets that have finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Upon sale or retirement, the cost and related accumulated depreciation of the assets disposed of are removed from the accounts, and any resulting gain or loss is reflected in operations.

Loss and Loss Adjustment Expense Reserves

Loss and loss adjustment expense reserves represent estimates for the ultimate cost of unpaid reported and unreported claims incurred and related expenses. The Company performs a continuing review of its loss and loss adjustment expense reserves, including its reserving techniques and its reinsurance. The loss and loss adjustment expense reserves are also reviewed regularly by qualified actuaries. Since the loss and loss adjustment expense reserves are based on estimates, the ultimate liability may be more or less than such reserves. The effects of changes in such estimated reserves are included in the results of income in the period

F-9


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

1. Description of the Company and Summary of Significant Accounting Policies - (continued)

in which the estimates are changed. Such changes in estimates could occur in a future period and may be material to the Company’s results of operations and financial position in such period.

Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the year. Since there are no stock options which can be exercised and converted into common shares during the periods, the diluted net loss per share is the same calculation as the basic.

Revenue Recognition

Premiums and Unearned Premium Reserves

Premiums are recognized as revenue pro rata over the policy period. Unearned premium reserves represent the unexpired portion of policy premiums.

Service charges on installment premiums are recognized as income upon receipt of related installment payments and are reflected in other income. Revenue from policy fees is deferred and recognized over the terms of the respective policy period, with revenue reflected in other income.

Ceded premiums are charged to income over the applicable term of the various reinsurance contracts with third party reinsurers. Ceded reinsurance premiums represent the unexpired portion of premiums ceded to reinsurers and are reported as ceded unearned premiums.

Fair Values of Financial Instruments

The Company’s estimates of fair values for financial assets and liabilities are based on the framework established in the fair value accounting guidance. The fair value of the Company’s investments in preferred stocks is estimated using a fair value hierarchy to categorize the inputs it uses in valuation techniques. The fair value of the Company’s cash and short-term investments approximates the carrying values, because these amounts are liquid.

Estimates and Assumptions

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect application of policies and the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from these estimates. Estimates and their underlying assumptions are reviewed on an ongoing basis. Changes in estimates are recorded in the accounting period in which they are determined. The critical accounting estimates and assumptions in the accompanying consolidated financial statements include the reserves for loss and loss adjustment expense, valuation of preferred stocks, valuation of deferred income taxes, and deferred policy acquisition costs.

Recently Issued Accounting Standards

In February 2013, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (ASU 2013-02), which is intended to improve the reporting of reclassifications out of accumulated other comprehensive income. The ASU requires an entity to report, either on the face of the income statement or in the notes to the financial statements, the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in the income statement if the amount being reclassified is required to be reclassified in its entirety to net income. For other amounts that are not required to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other required disclosures that provide additional detail about those amounts. Effective January 1, 2013, the Company adopted ASU 2013-02. Except for the new disclosure requirements, the adoption of the standard did not have an impact on the consolidated financial statements.

F-10


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

1. Description of the Company and Summary of Significant Accounting Policies - (continued)

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (ASU 2013-11). ASU 2013-11 is effective for the first interim or annual period beginning on or after December 15, 2013 with early adoption permitted. ASU 2013-11 amends ASC Topic 740, Income Taxes, to provide guidance and reduce diversity in practice on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Except for the changes, if any, in the Company’s presentation, the initial application of the standard will not impact the Company.

2. Related Party Transactions

Related party transactions, including services provided to or received by the Company, are carried out in the normal course of operations and are measured in part by the amount of consideration paid or received as established and agreed by the parties. The Company believes that consideration paid for such services in each case approximates fair value. During 2013 and 2012, the Company was party to various service agreements with the Parent.

The Company has a payable balance of $2,002 and $407 at September 30, 2013 and December 31, 2012, respectively, with the Parent. This intercompany payable represents payments made by Kingsway America Inc. on our behalf to various third-party vendors and does not represent any services provided by Kingsway America Inc. to us.

The Parent contributed $1,200 and $50 during the nine months ended September 30, 2013, and the period from October 2, 2012 through December 31, 2012, respectively, as additional paid-in capital.

3. Investments

The amortized cost and estimated fair value of investments in preferred stocks as of December 31, 2012 are presented below:

       
December 31, 2012   Amortized Cost   Gross Unrealized Gains   Gross Unrealized Losses   Estimated
Fair Value
Preferred stock   $ 1,875     $     $     $ 1,875  
Total Investments in Preferred Stocks   $ 1,875     $     $     $ 1,875  

Fair values of preferred stock for which no active market exists are derived from the quoted price of similar financial instruments or valuation models with observable market-based inputs are used to estimate the fair value.

The establishment of an other-than-temporary impairment on an investment requires a number of judgments and estimates. The Company performs a quarterly analysis of the individual investments to determine if declines in fair value are other-than-temporary. The analysis includes some or all of the following procedures as deemed appropriate by the Company:

identifying all unrealized loss positions that have existed for at least six months;
identifying other circumstances which management believes may impact the recoverability of the unrealized loss positions;
obtaining a valuation analysis from third-party investment managers regarding the intrinsic value of these investments based on their knowledge and experience together with market-based valuation techniques;
reviewing the trading range of certain investments over the preceding calendar period;

F-11


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

3. Investments - (continued)

assessing if declines in market value are other-than-temporary for debt instruments based on the investment grade credit ratings from third-party rating agencies;
assessing if declines in market value are other-than-temporary for any debt instrument with a non-investment grade credit rating based on the continuity of its debt service record;
determining the necessary provision for declines in market value that are considered other-than-temporary based on the analyses performed; and
assessing the Company’s ability and intent to hold these investments at least until the investment impairment is recovered.

The risks and uncertainties inherent in the assessment methodology used to determine declines in market value that are other-than-temporary include, but may not be limited to, the following:

the opinions of professional investment managers could be incorrect;
the past trading patterns of individual investments may not reflect future valuation trends;
the credit ratings assigned by independent credit rating agencies may be incorrect due to unforeseen or unknown facts related to a company’s financial situation; and
the debt service pattern of non-investment grade instruments may not reflect future debt service capabilities and may not reflect a company’s unknown underlying financial problems.

Given these risks and uncertainties, the Company will monitor the investment holdings to determine whether future declines are other-than-temporary. Accordingly, there is no assurance that future declines in fair value will not occur and other-than-temporary impairment charges to earnings may be required in the foreseeable future.

As a result of the above analysis performed by the Company to determine declines in market value that are other-than-temporary, there were no write-downs for other-than-temporary impairment through the disposal date related to preferred stock for the nine months ended September 30, 2013, and the period from October 2, 2012 through December 31, 2012, respectively.

Net investment income for the nine months ended September 30, 2013 and the period from October 2, 2012 through December 31, 2012 is comprised of the following:

   
  2013   2012
Income
                 
Dividends on preferred stock   $ 47     $ 13  
Total investment income     47       13  
Less investment expenses            
Net Investment Income   $ 47     $ 13  

Certificates of deposit with a fair value of $100 at September 30, 2013 and December 31, 2012, respectively, were on deposit with a Louisiana regulatory authority.

F-12


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

4. Fair Value Measurements

Fair value amounts represent estimates of the consideration that would currently be agreed upon between knowledgeable, willing parties who are under no compulsion to act. Fair value is best evidenced by quoted bid or ask price, as appropriate, in an active market. Where bid or ask prices are not available, such as in an illiquid or inactive market, the closing price of the most recent transaction of that instrument subject to appropriate adjustments as required is used. Where quoted market prices are not available, the quoted price of similar financial instruments or valuation models with observable market-based inputs are used to estimate the fair value. These valuation models may use multiple observable market inputs, including observable interest rates, foreign exchange rates, index levels, credit spreads, equity prices, counterparty credit quality, corresponding market volatility levels and option volatilities. Minimal management judgment is required for fair values calculated using quoted market prices or observable market inputs for models. Greater subjectivity is required when making valuation adjustments for financial instruments in inactive markets or when using models where observable parameters do not exist.

Also, the calculation of estimated fair value is based on market conditions at a specific point in time and may not be reflective of future fair values.

The Company classifies its investments in preferred stocks as available-for-sale and reports these investments at fair value.

The Company employs a fair value hierarchy to categorize the inputs it uses in valuation techniques to measure the fair value. The extent of use of quoted market prices (Level 1), valuation models using observable market information (Level 2) and internal models without observable market information (Level 3) in the valuation of the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 was as follows:

       
  Assets and Liabilities at Fair Value
December 31, 2012   Level 1   Level 2   Level 3   Total
Preferred Stock         $ 1,875           $ 1,875  

5. Reinsurance

The Company’s consolidated financial statements reflect the effects of ceded reinsurance transactions. Ceded reinsurance involves transferring certain insurance risks (along with the related written and earned premiums) the Company has underwritten to other insurance companies who agree to share these risks. The primary purpose of ceded reinsurance is to protect the Company, at a cost, from losses in excess of the amount it is prepared to accept. Reinsurance is placed on an excess-of-loss basis. Ceded reinsurance arrangements do not discharge the Company as the primary insurer.

The Company utilizes general catastrophe reinsurance treaties with unaffiliated reinsurers to manage its exposure to losses resulting from catastrophes. The Company also utilizes an excess-of-loss treaty with an unaffiliated company to protect against non-catastrophe losses up to a certain threshold. Non-catastrophe losses are defined as events without a name associated with them.

The Company monitors the financial condition of its reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. Letters of credit are maintained for any unauthorized reinsurer to cover ceded unearned premium and ceded loss and loss adjustment expenses balances, if any.

F-13


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

5. Reinsurance - (continued)

Direct, ceded and net premiums written and earned, loss and loss adjustment expenses, and commissions as of and for the nine months ended September 30, 2013 and the period from October 2, 2012 through December 31, 2012 are summarized as follows:

   
  2013   2012
Direct premiums written   $ 8,023     $ 2,490  
Ceded premiums written     2,050       75  
Net premiums written     5,973       2,415  
Direct premiums earned     3,796       358  
Ceded premiums earned     1,358       12  
Net premiums earned     2,438       346  
Ceded loss and loss adjustment expense incurred     1,000        
Ceded loss and loss adjustment expense reserves            
Ceded unearned premiums     754       63  
Ceding commissions            

The maximum amount of return commission, which would have been due to reinsurers if they or the Company had canceled all of the Company’s reinsurance, with the return of the unearned premium, is $0 at both September 30, 2013 and December 31, 2012.

6. Deferred Policy Acquisition Costs

Policy acquisition costs consist primarily of commissions, premium taxes, and underwriting and agency expenses incurred related to successful efforts to acquire new or renewal insurance contracts. Acquisition costs deferred on property and casualty insurance products are amortized over the period in which premiums are earned. Costs associated with unsuccessful efforts or costs that cannot be tied directly to a successful policy acquisition are expensed as incurred, as opposed to being deferred and amortized as the premium is earned.

The components of deferred policy acquisition costs and the related amortization expense for the nine months ended September 30, 2013, and the period from October 2, 2012 through December 31, 2012, respectively, are comprised as follows:

   
  2013   2012
Balance at Beginning of Period, net   $ 346     $  
Additions     1,530       404  
Amortization     (786 )       (58 )  
Balance at End of Period, net   $ 1,090     $ 346  

7. Loss and Loss Adjustment Expenses

The establishment of the provision for loss and loss adjustment expense reserves is based on known facts and interpretation of circumstances and is, therefore, a complex and dynamic process influenced by a large variety of factors. These factors include the Company’s experience with similar cases and historical trends involving loss payment patterns, pending levels of loss and loss adjustment expenses, product mix or concentration, loss severity and loss frequency patterns.

Other factors include the continually evolving and changing regulatory and legal environment; actuarial studies; professional experience and expertise of the Company’s claims departments’ personnel and independent adjusters retained to handle individual claims; the quality of the data used for projection

F-14


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

7. Loss and Loss Adjustment Expenses - (continued)

purposes; existing claims management practices including claims-handling and settlement practices; the effect of inflationary trends on future loss settlement costs; court decisions; economic conditions; and public attitudes.

Consequently, the process of determining the provision necessarily involves risks that the actual results will deviate, perhaps materially, from the best estimates made.

The Company’s evaluation of the adequacy of loss and loss adjustment expense reserves includes a re-estimation of the liability for unpaid loss and loss adjustment expenses relating to each preceding financial year compared to the liability that was previously established.

Following is the activity for loss and loss adjustment expenses for the nine months ended September 30, 2013, and the period from October 2, 2012 through December 31, 2012:

   
  2013   2012
Balance, January 1   $ 9     $  
Less reinsurance recoverable on loss and loss adjustment expense reserves            
Net balance at January 1     9        
Incurred related to
                 
Current year     2,648       9  
Prior years     (9 )        
Total incurred     2,639       9  
Paid related to
                 
Current year     2,419        
Prior years            
Total paid     2,419        
Net balance at December 31     229       9  
Plus reinsurance recoverable on loss and loss adjustment expense reserves            
Balance, December 31   $ 229     $ 9  

The results for the nine months ended September 30, 2013, and for the period from October 2, 2012 through December 31, 2012, were not adversely affected by the evaluation of property and casualty unpaid loss and loss adjustment expenses related to prior years. Original estimates are increased or decreased as additional information becomes known regarding individual claims.

8. Income Taxes

Income tax benefit varies from the amount that would result by applying the applicable federal income tax rate of 34% to loss before income tax benefit. The tables summarize the differences and portions for the nine months ended September 30, 2013 and for the period from October 2, 2012 through December 31, 2012 as follows:

   
  2013   2012
Expected tax benefit   $ (740 )     $ (62 )  
Non-deductible expenses     2        
Total   $ (738 )     $ (62 )  

F-15


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

8. Income Taxes - (continued)

Income tax benefit consists of the following:

   
  2013   2012
Current tax expense   $     $ 97  
Deferred tax benefit     (738 )       (159 )  
Total   $ (738 )     $ (62 )  

The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented as follows:

   
  September 30, 2013   December 31, 2012
Deferred income tax assets
                 
Unearned premium reserves   $ 381     $ 141  
Net operating loss carryforwards     735       132  
Other     152       8  
Total gross deferred income tax assets before valuation allowance     1,268       281  
Valuation allowance            
Total gross deferred income tax assets     1,268       281  
Deferred income tax liabilities
                 
Deferred policy acquisition costs     (371 )       (118 )  
Other           (4 )  
Total gross deferred income tax liabilities     (371 )       (122 )  
Net Deferred Federal Income Tax Assets   $ 897     $ 159  

The Company carries a $897 net deferred federal income tax asset at September 30, 2013, all of which the Company believes is more likely than not to be fully realized.

Amounts, origination dates and expiration dates of the federal net operating loss carryforward are as follows:

   
Year of net operating loss   Expiration Date   Net Operating Loss
2012     2032     $ 140  
2013     2033       2,021  

As of September 30, 2013, the Company had no unrecognized tax benefits. The Company analyzed its tax positions in accordance with the provisions of ASC Topic 740, Income Taxes, and has determined that there are currently no uncertain tax positions. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in income tax benefit. The KAI tax group’s consolidated federal income tax return is not currently under examination by the Internal Revenue Service for any open tax years.

9. Statutory Information

MIC prepares statutory basis financial statements in accordance with accounting practices prescribed or permitted by the Louisiana Department of Insurance (LDI). “Prescribed” statutory accounting practices include state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (NAIC). “Permitted” statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, may differ from company to company within a state, and may change in the future. MIC has no differences between accounting practices set forth in the NAIC Practices and Procedures Manual and prescribed practices in the state of Louisiana.

F-16


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

9. Statutory Information - (continued)

A risk-based capital (RBC) formula is used by the NAIC to identify property and casualty insurance companies that may not be adequately capitalized. Most states, including the domiciliary states of the Company’s insurance subsidiary, have adopted the NAIC RBC requirements. In general, insurers reporting surplus as regards policyholders below 200% of the authorized control level, as defined by the NAIC, at December 31 are subject to varying levels of regulatory action, including discontinuation of operations. As of December 31, 2012, surplus as regards policyholders reported by MIC exceeded the 200% threshold. As of December 31, 2012 the surplus as regards policyholders was reported at $7,514, while the 200% of authorized control level risk based capital was at $449, hence MIC exceeded the 200% threshold by $7,065.

When MIC was issued its certificate of authority from the LDI, the consent order requires minimum capital and surplus of $5,000. Additionally, MIC is required to maintain a $100 certificate of deposit as a special restrictive deposit with the LDI. Statutory capital and surplus and statutory net loss for MIC as of and for the nine months ended September 30, 2013, and the period from October 2, 2012 through December 31, 2012 is as follows:

   
  2013   2012
Net loss, statutory basis     (2,646 )       (172 )  
Capital and surplus, statutory basis     7,546       7,514  

Dividends paid by insurance companies are restricted by regulatory requirements of the insurance departments in the subsidiaries’ state of domicile. The maximum amount of dividends that can be paid to stockholders by insurance companies without prior approval of the domiciliary state insurance commissioner is generally limited to the lesser of (i) 10% of a company’s statutory capital and surplus at the end of the previous year or (ii) 100% of a company’s net income, excluding realized gains, for the previous year, plus a carry-forward of the previous second and third year net income, excluding realized gains, less dividends paid in the second and immediate preceding year.

As MIC has negative unassigned funds, it cannot pay any dividends in 2013 without prior notice to LDI.

10. Commitments and Contingencies

The Company has a non-cancelable, five-year operating lease for office space that commenced January 2013 and expires December 2017. Office space lease expense for the nine months ended in 2013 was $49 and zero for 2012. Future minimum lease payments are $16 for the remainder of 2013, $65 in 2014, $65 in 2015, $65 in 2016 and $65 in 2017.

The Company’s insurance subsidiary is liable for guaranty fund assessments related to Louisiana domiciled unaffiliated insurance companies that have become insolvent. Additionally, the Company’s insurance subsidiary is liable for regular assessments related to Louisiana Citizens Property Insurance Corporation. MIC includes a provision for all known assessments, as well as an estimate of amounts that it believes will be assessed in the future. At September 30, 2013 and at December 31, 2012, MIC carried no liabilities for these assessments. No single assessment or aggregate of multiple assessments is expected to have a material impact on earnings or surplus of the Company.

In connection with its operations in the ordinary course of business, the Company may be named as defendants in various actions for damages and costs allegedly sustained by the plaintiffs. The Company is not aware of any such actions at this time.

F-17


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

11. Defined Contribution Plan

The Company participants in the Parent’s defined contribution 401(k) plan (the Plan) for all of its qualified employees. Qualifying employees can choose to voluntarily contribute up to 60% of their annual earnings subject to an overall limitation of $17,500 and $17,000 in 2013 and 2012, respectively. The Company matches an amount equal to 50% of each participant’s contribution, limited to contributions up to 5% of a participant’s earnings. The contributions to the Plan vest based on years of service with 20% earned each year and 100% vesting after five years of service. Expense to the Company as a result of matching contributions was $4 and $0 for the nine months ended September 30, 2013, and the period from October 2, 2012 through December 31, 2012, respectively.

The remainder of this page intentionally left blank.

F-18


 
 

TABLE OF CONTENTS

1347 Property Insurance Holdings, Inc.
 
Notes to Consolidated Financial Statements
(in thousands)

12. General and Administrative Expenses

The components of the Company’s general and administrative expenses were for the nine months ended September 30, 2013 and for the period from October 2, 2012 through December 31, 2012 are as follows:

   
For the nine months ended and period ended   2013   2012
Components of general and administrative expenses
                 
Salaries   $ 566     $ 139  
Professional outside service expenses     512       291  
Other     201       44  
Total General and Administrative Expenses   $ 1,279     $ 474  

13. Subsequent Events

The Company has evaluated subsequent events through December 6, 2013, the date these consolidated financial statements were available to be issued.

F-19


 
 

TABLE OF CONTENTS

 

 

 

 

      Shares
Common Stock

 
 
 
 

[GRAPHIC MISSING]

 
 
 
 



 

PROSPECTUS



 

 
 
 
 

 
Sole Book-Running Manager
Aegis Capital Corp
     Co-Manager
     EarlyBirdCapital, Inc.

 
 
 
 

           , 2014

 
 
 
 

Until            , 2014, all dealers that buy, sell or trade our common stock may be required to deliver a prospectus, regardless of whether they are participating in this Offering. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 


 
 

TABLE OF CONTENTS

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13. Other Expenses of Issuance

The following table sets forth the costs and expenses payable by us in connection with the sale of the securities being registered. All such costs and expenses shall be borne by us. All amounts are estimates except the fees payable to the SEC.

 
SEC Registration Fee   $ 4,685.10  
FINRA filing fee   $ 5,675.00  
NASDAQ filing fee   $ 50,000.00  
Printing Expenses   $ 20,000.00  
Accounting Fees and Expenses   $ 80,000.00  
Legal Fees and Expenses   $ 410,000.00  
Miscellaneous      
Total      

Item 14. Indemnification of Directors and Officers

Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation’s board of directors to grant, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act of 1933, as amended, or Securities Act.

As permitted by the Delaware General Corporation Law, the registrant’s amended and restated certificate of incorporation contains provisions that eliminate the personal liability of its directors for monetary damages for any breach of fiduciary duties as a director, except for liability:

For any breach of the director’s duty of loyalty to the registrant or its stockholders;
For acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;
Under Section 174 of the Delaware General Corporation Law (regarding unlawful dividends and stock purchases); or
For any transaction from which the director derived an improper personal benefit.

As permitted by the Delaware General Corporation Law, the registrant’s amended and restated certificate of incorporation and amended and restated by-laws provide that:

The registrant is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions;
The registrant may indemnify its other employees and agents as set forth in the Delaware General Corporation Law;
The registrant is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to very limited exceptions; and
The rights conferred in the amended and restated certificate of incorporation and the amended and restated bylaws are not exclusive.

The registrant has entered into indemnification agreements with each of its current directors and certain executive officers to provide these directors and executive officers additional contractual assurances regarding the scope of the indemnification set forth in the registrant’s amended and restated certificate of incorporation and amended and restated bylaws and to provide additional procedural protections. At present, there is no pending litigation or proceeding involving a director, executive officer or employee of the registrant regarding which indemnification is sought. Reference is also made to section seven of the Underwriting Agreement,

II-1


 
 

TABLE OF CONTENTS

which provides for the indemnification of executive officers, directors and controlling persons of the registrant against certain liabilities. The indemnification provisions in the registrant’s amended and restated certificate of incorporation and amended and restated bylaws and the indemnification agreements entered into or to be entered into between the registrant and each of its directors and executive officers may be sufficiently broad to permit indemnification of the registrant’s directors and executive officers for liabilities arising under the Securities Act.

The registrant has directors’ and officers’ liability insurance for securities matters.

Item 15. Recent Sales of Unregistered Securities

Registrant has not sold any securities, registered or otherwise, within the past three years, except for the shares issued upon formation to registrant’s sole stockholder, KFSI.

Item 16. Exhibits and Financial Statement Schedules

(a) Exhibits.

The exhibit index attached hereto is incorporated herein by reference.

Item 17. Undertakings

(f) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-2


 
 

TABLE OF CONTENTS

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Baton Rouge, State of Louisiana, on the 29th day of January, 2014.

1347 PROPERTY INSURANCE HOLDINGS, INC.

By: /s/ Douglas N. Raucy

Name: Douglas N. Raucy
Title: President and Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated on the 29th day of January, 2014.

 
Signature   Title
/s/ Douglas N. Raucy

Douglas N. Raucy
  President, Chief Executive Officer and Director (principal executive officer)
/s/ John S. Hill

John S. Hill
  Chief Financial Officer
(principal financial and accounting officer)
*
Hassan R. Baqar
  Director
*
Gordon G. Pratt
  Director
*
Leo Christopher Saenger III
  Director
*
Larry G. Swets, Jr.
  Director
*By /s/ Hassan R. Baqar
         Hassan R. Baqar
  Attorney-in-Fact

II-3


 
 

TABLE OF CONTENTS

EXHIBIT INDEX

 
 1.1*   Form of Underwriting Agreement
 3.1    Second Amended and Restated Certificate of Incorporation (including Certificate of Designations)
 3.2    Form of Third Amended and Restated Certificate of Incorporation
 3.3    Form of Amended and Restated Bylaws
 4.1    Form of common stock certificate
 4.2*   Form of Representative's Warrant
 5.1*   Opinion of McDermott Will & Emery LLP regarding validity of the shares of common stock registered
 10.1**   Form of Management Services Agreement by and between 1347 Advisors LLC, a Delaware limited liability company and 1347 Property Insurance Holdings, Inc.
 10.2**   Form of Transition Services Agreement by and between Kingsway Financial Services Inc. and 1347 Property Insurance Holdings, Inc.
 10.3     1347 Property Insurance Holdings, Inc. Equity Incentive Plan
 10.4     Form of Lock-up Agreement
 10.5**   Severance Agreement with Douglas N. Raucy, dated September 25, 2012
 10.6     Form of Indemnification Agreement
 10.7**   Form of Trademark License Agreement between 1347 Advisors LLC and 1347 Property Insurance Holdings, Inc.
 10.8     Investment Agreement between Douglas N. Raucy and 1347 Property Insurance Holdings, Inc.
 10.9     Series A Convertible Preferred Stock Purchase Agreement between Fund Management Group LLC and 1347 Property Insurance Holdings, Inc.
 10.10    Offer letter to Douglas N. Raucy, dated September 25, 2012
 21.1**   Subsidiaries of 1347 Property Insurance Holdings, Inc.
 23.1     Consent of BDO USA LLP
 23.2*    Consent of McDermott Will & Emery LLP (included as part of Exhibit 5.1)
 24.1**   Power of Attorney (included on signature page)

* To be filed by amendment.
** Filed previously

II-4


 

EXHIBIT 3.1

 

SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION

OF
1347 PROPERTY INSURANCE HOLDINGS, INC.

 

1347 Property Insurance Holdings, Inc., a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), DOES HEREBY CERTIFY AS FOLLOWS:

 

A.           The name of the Corporation is “1347 Property Insurance Holdings, Inc.” The Corporation was originally incorporated under the name “Maison Insurance Holdings Inc.” and the original certificate of incorporation was filed with the Secretary of State of the State of Delaware on October 2, 2012.

 

B.           This Second Amended and Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation (the “ Board ”) and the stockholders of the Corporation in accordance with Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, and restates, integrates and further amends the provisions of the Amended and Restated Certificate of Incorporation of the Corporation, which was filed with the Secretary of State of the State of Delaware on November 19, 2013 (the “ Amended and Restated Certificate ”).

 

C.           The text of the Amended and Restated Certificate is hereby amended and restated in its entirety as set forth in Exhibit A attached hereto.

 

IN WITNESS WHEREOF, 1347 Property Insurance Holdings, Inc. has caused this Second Amended and Restated Certificate of Incorporation to be executed by the undersigned officer, thereunto duly authorized, this 16th day of January 2014.

 

  1347 PROPERTY INSURANCE HOLDINGS, INC.,
  a Delaware corporation
   
  By: /s/ Douglas N. Raucy
    Name: Douglas N. Raucy
    Title: President and Chief Executive Officer

 

- 1 -
 

 

EXHIBIT A

 

1:            Corporate Name . The name of the corporation is 1347 Property Insurance Holdings, Inc. (the “ Corporation ”).

 

2:             Registered Office . The registered office of the Corporation is to be located at 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.

 

3:             Corporate Purpose . The purpose of the Corporation is to engage in any lawful business or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “ DGCL ”) and, in general, to possess and exercise all the powers and privileges granted by the DGCL or by any other law of the State of Delaware or by the Certificate of Incorporation, together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the Corporation.

 

4:             Capital Stock . The total number of shares which the Corporation is authorized to issue is 1,000 shares of common stock, par value $0.001 per share, of the Corporation, and 1,000,000 shares of preferred stock, par value $25.00 per share, of the Corporation (“ Preferred Stock ”). The Board of Directors of the Corporation is hereby expressly authorized to provide, out of the unissued shares of Preferred Stock, for one or more series of Preferred Stock and, with respect to each such series, to fix the number of shares constituting such series and the designation of such series, the voting powers, if any, of the shares of such series, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares of such series. The powers, preferences and relative, participating, optional and other special rights of each series of Preferred Stock, and the qualifications, limitations or restrictions thereof, if any, may differ from those of any and all other series at any time outstanding.

 

5:             By-laws . In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized to make, alter and repeal the by-laws of the Corporation, subject to the power of the stockholders of the Corporation to alter or repeal any by-law whether adopted by the stockholders or otherwise.

 

6:             Election of Directors . Unless and except to the extent that the by-laws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot.

 

- 2 -
 

 

7:             Liability of Directors . To the fullest extent permitted by the DGCL, as the same may be amended from time to time, 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. If the DGCL is hereafter amended to authorize, with or without the approval of a corporation’s stockholders, further reductions in the liability of the Corporation’s directors for breach of fiduciary duty, then a director of the Corporation shall not be liable for any such breach to the fullest extent permitted by the DGCL, as so amended. Any repeal or modification of this Article SEVENTH or the adoption of any provision of the Corporation’s Certificate of Incorporation inconsistent with this Article SEVENTH, shall only be prospective and shall not adversely affect the rights under this Article SEVENTH in effect at the time of the alleged occurrence of any action or omission to act giving rise to liability.

 

8:             Indemnification . To the Most extent permitted by applicable laws of the State of Delaware, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees, and other agents of the Corporation (and any other persons to which DGCL permits the Corporation to provide indemnification), through by-law provisions, agreements with any such director, officer, employee or other agent or other person, vote of stockholders or disinterested directors, or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the DGCL, subject only to limits created by the provisions of applicable DGCL (statutory or nonstatutory), with respect to actions for breach of duty to a corporation, its stockholders, and others. Any repeal or modification of any of the foregoing provisions of this Article EIGHTH, by amendment of this Article EIGHTH or by operation of law, shall not adversely affect any right or protection of a director, officer, employee or other agent or other person existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to such repeal or modification.

 

9:             Amendments . Except as provided in the last sentence of Article SEVENTH and Article EIGHTH, the Corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article.

 

 

- 3 -
 

 

CERTIFICATE OF DESIGNATION OF SERIES A CONVERTIBLE
PREFERRED SHARES OF 1347 PROPERTY INSURANCE HOLDINGS, INC.

 

Pursuant to Section 151 of the General Corporation Law of the State of Delaware, 1347 Property Insurance Holdings, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “ Corporation ”), in accordance with the provisions of Section 103 thereof, does hereby submit the following:

 

WHEREAS, the Second Amended and Restated Certificate of Incorporation of the Corporation (as may be further amended or amended and restated from time to time, the “ Certificate of Incorporation ”) authorizes the issuance of up to one million (1,000,000) shares of preferred stock, par value $25.00 per share, of the Corporation (“ Preferred Stock ”) in one or more series, and expressly authorizes the Board of Directors of the Corporation (the " Board "), subject to limitations prescribed by law, to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock, and, with respect to each such series, to establish and fix the number of shares to be included in any series of Preferred Stock and the designation, rights, preferences, powers, restrictions and limitations of the shares of such series; and

 

WHEREAS, it is the desire of the Board to establish and fix the number of shares to be included in a new series of Preferred Stock and the designation, rights, preferences and limitations of the shares of such new series.

 

NOW, THEREFORE, BE IT RESOLVED, that the Board does hereby provide for the issue of a series of Preferred Stock and does hereby in this Certificate of Designation (the “ Certificate of Designation ”) establish and fix and herein state and express the designation, rights, preferences, powers, restrictions and limitations of such series of Preferred Stock as follows:

 

1.      Designation . There shall be a series of Preferred Stock that shall be designated as “Series A Convertible Preferred Shares” (the “ Series A Preferred Shares ”) and the number of Shares constituting such series shall be 80,000. The rights, preferences, powers, restrictions and limitations of the Series A Preferred Shares shall be as set forth herein.

 

2.      Defined Terms . For purposes hereof, the following terms shall have the following meanings:

 

Board ” has the meaning set forth in the Recitals.

 

Certificate of Designation ” has the meaning set forth in the Recitals.

 

Certificate of Incorporation ” has the meaning set forth in the Recitals.

 

- 4 -
 

 

Change of Control ” means (a) any sale, lease or transfer or series of sales, leases or transfers of all or substantially all of the consolidated assets of the Corporation and its Subsidiaries; (b) any sale, transfer or issuance (or series of sales, transfers or issuances) of capital stock by the Corporation or the holders of Common Stock (or other voting stock of the Corporation) that results in the inability of the holders of Common Stock (or other voting stock of the Corporation) immediately prior to such sale, transfer or issuance to designate or elect a majority of the board of directors (or its equivalent) of the Corporation; or (c) any merger, consolidation, recapitalization or reorganization of the Corporation with or into another Person (whether or not the Corporation is the surviving corporation) that results in the inability of the holders of Common Stock (or other voting stock of the Corporation) immediately prior to such merger, consolidation, recapitalization or reorganization to designate or elect a majority of the board of directors (or its equivalent) of the resulting entity or its parent company.

 

Common Stock ” means the common stock, $0.001 par value per share, of the Corporation to be issued in connection with the Initial Public Offering.

 

Common Stock Deemed Outstanding ” means, at any given time, the sum of (a) the number of shares of Common Stock actually outstanding at such time, plus (b) the number of shares of Common Stock issuable upon exercise of Options actually outstanding at such time, plus (c) the number of shares of Common Stock issuable upon conversion or exchange of Convertible Securities actually outstanding at such time (treating as actually outstanding any Convertible Securities issuable upon exercise of Options actually outstanding at such time), in each case, regardless of whether the Options or Convertible Securities are actually exercisable at such time; provided , that Common Stock Deemed Outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any of its wholly owned Subsidiaries.

 

Convertible Securities ” means any securities (directly or indirectly) convertible into or exchangeable for Common Stock, but excluding Options.

 

Corporation ” has the meaning set forth in the Preamble.

 

Conversion Price ” has the meaning set forth in Section 8.1 .

 

Conversion Shares ” means the shares of Common Stock and Warrants then issuable upon conversion of the Series A Preferred Shares in accordance with the terms of Section 8 .

 

Date of Issuance ” means, for any Share, the Closing Date, as such term is defined in the Series A Preferred Shares Purchase Agreement.

 

5
 

 

" Excluded Issuances " means any issuance or sale by the Corporation after the Date of Issuance of: (a) shares of Common Stock issued on the conversion of the Series A Preferred Stock; (b) shares of Common Stock issued directly or upon the exercise of Options to directors, officers, employees, or consultants of the Corporation in connection with their service as directors of the Corporation, their employment by the Corporation or their retention as consultants by the Corporation, in each case authorized by the Board and issued pursuant to the Corporation's 2013 Equity Incentive Plan (including all such shares of Common Stock and Options outstanding prior to the Date of Issuance); or (c) shares of Common Stock issued upon the conversion or exercise of Options (other than Options covered by clause (b) above) or Convertible Securities issued prior to the Date of Issuance, provided that such securities are not amended after the date hereof to increase the number of shares of Common Stock issuable thereunder or to lower the exercise or conversion price thereof.

 

Initial Public Offering ” means the sale, in a firm commitment underwritten public offering led by a nationally recognized underwriting firm pursuant to an effective registration statement under the Securities Act, of Common Stock of the Corporation having an aggregate offering value (net of underwriters' discounts and selling commissions) of at least twenty million dollars ($20,000,000), following which at least thirty percent (30%) of the total Common Stock of the Corporation on a fully diluted, as-converted basis shall have been sold to the public and shall be listed on any national securities exchange registered with the Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended.

 

Junior Securities ” means, collectively, the Common Stock and any other class of securities that is specifically designated as junior to the Series A Preferred Shares.

 

Liquidation ” has the meaning set forth in Section 5.1 .

 

Liquidation Value ” means, with respect to any Share on any given date, $25.00.

 

Options ” means any warrants or other rights or options to subscribe for or purchase Common Stock or Convertible Securities.

 

Person ” means an individual, corporation, partnership, joint venture, limited liability company, governmental authority, unincorporated organization, trust, association or other entity.

 

Preferred Stock ” has the meaning set forth in the Recitals.

 

Securities Act ” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time.

 

Series A Preferred Shares ” has the meaning set forth in Section 1 .

 

6
 

 

Series A Preferred Shares Breach ” has the meaning set forth in Section 10.1 .

 

Series A Redemption ” has the meaning set forth in Section 7.1 .

 

Series A Redemption Date ” has the meaning set forth in Section 7.1 .

 

Series A Redemption Price ” has the meaning set forth in Section 7.1 .

 

Share ” means a share of Series A Preferred Shares.

 

Subsidiary ” means, with respect to any Person, any other Person of which a majority of the outstanding shares or other equity interests having the power to vote for directors or comparable managers are owned, directly or indirectly, by the first Person.

 

Warrant ” means a warrant exercisable for one share of Common Stock at an exercise price equal to 120% of the per share price offered to the public in the Initial Public Offering.

 

3.     Rank . With respect to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, all Shares of the Series A Preferred Shares shall rank senior to all Junior Securities, and the Corporation shall not issue any other series of Preferred Stock that ranks equal or senior to the Series A Preferred Shares while any Share is outstanding.

 

4.     Dividends .

 

4.1     Dividends on the Series A Preferred Shares . The Series A Preferred Shares will not be entitled to receive payment of any dividends, fixed or otherwise.

 

4.2     Restriction on Junior Securities Dividends and Repurchases . For so long as any Share of Series A Preferred Shares is outstanding, the Corporation shall not (i) declare or pay any dividend or make any distribution on Junior Securities, other than a dividend or distribution payable in shares of Common Stock or in Options or Convertible Securities for which there is an adjustment pursuant to Section 8.5(e) , or (ii) purchase, redeem or acquire any Junior Securities of the Corporation.

 

5.     Liquidation .

 

5.1     Liquidation . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a “ Liquidation ”), the holders of Shares of Series A Preferred Shares then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made to the holders of Junior Securities by reason of their ownership thereof, an amount in cash equal to the aggregate Liquidation Value of all Shares held by such holder, as adjusted, and will not be entitled to any further assets of the Corporation.

 

7
 

 

5.2     Insufficient Assets . If upon any Liquidation the remaining assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of the Shares of Series A Preferred Shares the Liquidation Value, (a) the holders of the Shares shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective full preferential amounts which would otherwise be payable in respect of the Series A Preferred Shares in the aggregate upon such Liquidation if all amounts payable on or with respect to such Shares were paid in full, and (b) the Corporation shall not make or agree to make any payments to the holders of Junior Securities.

 

5.3     Notice Requirement . In the event of any Liquidation, the Corporation shall, within ten (10) days following the date the Board approves such action, or no later than twenty (20) days following any stockholders' meeting called to approve such action, or within twenty (20) day of the commencement of any involuntary proceeding, whichever is earlier, give each holder of Shares written notice of the proposed action. Such written notice shall describe the material terms and conditions of such proposed action, including a description of the stock, cash and property to be received by the holders of Shares upon consummation of the proposed action and the date of delivery thereof. If any material change in the facts set forth in the initial notice shall occur, the Corporation shall promptly give written notice to each holder of Shares of such material change.

 

6.     Voting . The Shares of Series A Preferred Shares shall not be entitled to vote with respect to any matters presented to the stockholders of the Corporation for their action or consideration (whether at a meeting of stockholders of the Corporation, by written action of stockholders in lieu of a meeting or otherwise), except as provided by law, nor will the holders of the Series A Preferred Shares be given any notice of a meeting or vote by the Corporation, except as provided herein.

 

7.     Redemption of Series A Preferred Shares .

 

7.1     Mandatory Redemption . If the Initial Public Offering has not closed by the one-year anniversary of the Date of Issuance (the “ Series A Redemption Date ”), the then outstanding Shares of Series A Preferred Shares shall be redeemed by the Corporation (a “ Series A Redemption ”) for a price per Share equal to $28 per Share (the “ Series A Redemption Price ”). In exchange for the surrender to the Corporation by the respective holders of Shares of their certificate or certificates representing such Shares, the aggregate Series A Redemption Price for all Shares held by each holder of Shares shall be payable in cash in immediately available funds to the respective holders of the Series A Preferred Shares on the applicable Series A Redemption Date and the Corporation shall contribute all of its assets to the payment of the Series A Redemption Price, and to no other corporate purpose, except to the extent prohibited by applicable Delaware law.

 

8
 

 

7.2     Insufficient Funds; Remedies For Nonpayment .  If on the Series A Redemption Date, the assets of the Corporation legally available are insufficient to pay the full Series A Redemption Price for the total number of Shares required to be redeemed pursuant to Section 7.1 , the Corporation shall (i) take all appropriate action reasonably within its means to maximize the assets legally available for paying the Series A Redemption Price, (ii) redeem out of all such assets legally available therefor on the applicable Series A Redemption Date the maximum possible number of Shares that it can redeem on such date, pro rata among the holders of such Shares to be redeemed in proportion to the aggregate number of Shares elected to be redeemed by each such holder on the applicable Series A Redemption Date and (iii) following the applicable Series A Redemption Date, at any time and from time to time when additional assets of the Corporation become legally available to redeem the remaining Shares, the Corporation shall immediately use such assets to pay the remaining balance of the aggregate applicable Series A Redemption Price.

 

7.3     Rights Subsequent to Redemption . If on the Series A Redemption Date, the Series A Redemption Price is paid (or tendered for payment) for any of the Shares to be redeemed on such Series A Redemption Date, then on such date all rights of the holder in the Shares so redeemed and paid or tendered shall cease and such Shares shall no longer be deemed issued and outstanding.

 

8.     Conversion .

 

8.1     Automatic Conversion . Subject to the provisions of this Section 8 , in connection with, and on the closing of, the Initial Public Offering by the Corporation, all of the outstanding Shares (including any fraction of a Share) held by stockholders shall automatically convert into (A) an aggregate number of shares of Common Stock (rounded down to the nearest whole share) as is determined by (i) multiplying the number of Shares of Series A Preferred Shares (including any fraction of a Share) to be converted by the Liquidation Value thereof, and then (ii) dividing the result by the Conversion Price in effect immediately prior to such conversion and (B) an aggregate number of Warrants (rounded down to the nearest whole Warrant) equal to the number of shares of Common Stock issued as a result of the conversion (as determined in accordance with clause (A) of this Section 8.1 ); provided , however , that the aggregate amount of shares of Common Stock issued upon conversion hereunder shall not exceed 9.99% of the outstanding shares of Common Stock of the Corporation immediately prior to such Conversion, and any Shares not converted because of this provision, may, at the option of the stockholder, be (x) converted after the required regulatory approval or (y) redeemed at a price per Share equal to the Series A Redemption Price; and provided , further , that if regulatory approval is not obtained within six (6) months of the date of the closing of the Initial Public Offering, then all remaining Shares shall be redeemed in accordance with clause (y) above. The initial conversion price per Series A Preferred Share (the “ Conversion Price ”) shall be determined by multiplying 0.8 by the price per share of Common Stock offered to the public in the Initial Public Offering, subject to adjustment as applicable in accordance with Section 8.5 below. If the closing of the Initial Public Offering occurs, such automatic conversion of all of the outstanding Shares of Series A Preferred Shares shall be deemed to have occurred immediately prior to such closing.

 

9
 

 

8.2     Procedures for Conversion; Effect of Conversion

 

(a)     Procedures for Automatic Conversion . As of the closing of the Initial Public Offering all outstanding Shares of Series A Preferred Shares shall be converted to the number of shares of Common Stock and Warrants calculated pursuant to Section 8.1 without any further action by the relevant holder of such Shares or the Corporation. As promptly as practicable following such Initial Public Offering (but in any event within five (5) days thereafter), the Corporation shall send each holder of Shares of Series A Preferred Shares written notice of such event. Upon receipt of such notice, each holder shall surrender to the Corporation the certificate or certificates representing the Shares being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto) or, in the event the certificate or certificates are lost, stolen or missing, accompanied by an affidavit of loss executed by the holder. Upon the surrender of such certificate(s) and accompanying materials, the Corporation shall as promptly as practicable (but in any event within ten (10) days thereafter) deliver to the relevant holder a certificate in such holder's name (or the name of such holder's designee as stated in the written election) for the number of shares of Common Stock and the number of Warrants to which such holder shall be entitled upon conversion of the applicable Shares. All shares of Common Stock issued hereunder (or issued upon the exercise of Warrants issued hereunder in accordance with the terms thereof) by the Corporation shall be duly and validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof.

 

(b)     Effect of Conversion . All Shares of Series A Preferred Shares converted as provided in this Section 8.1 shall no longer be deemed outstanding as of the effective time of the applicable conversion and all rights with respect to such Shares shall immediately cease and terminate as of such time (including, without limitation, any right of redemption pursuant to Section 7 ), other than the right of the holder to receive shares of Common Stock and Warrants in exchange therefor pursuant to the terms of this Agreement.

 

8.3     Reservation of Stock . The Corporation shall at all times when any Share is outstanding reserve and keep available out of its authorized but unissued shares of capital stock, solely for the purpose of issuance upon the conversion of the Series A Preferred Shares, such number of shares of Common Stock issuable upon the conversion of all outstanding Series A Preferred Shares pursuant to this Section 8 , including all shares of Common Stock issuable upon exercise of the Warrants, taking into account any adjustment to such number of shares so issuable in accordance with Section 8.5 hereof. The Corporation shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not close its books against the transfer of any of its capital stock in any manner which would prevent the timely conversion of the Shares of Series A Preferred Shares.

 

10
 

 

8.4     No Charge or Payment . The issuance of certificates for shares of Common Stock upon conversion of Shares pursuant to Section 8.1 shall be made without payment of additional consideration by, or other charge, cost or tax to, the holder in respect thereof.

 

8.5     Adjustment to Conversion Price and Number of Conversion Shares . In order to prevent dilution of the conversion rights granted under this Section 8 , the Conversion Price and the number of Conversion Shares issuable on conversion of the Shares of Series A Preferred Shares shall be subject to adjustment from time to time as provided in this Section 8.5 .

 

(a)     Adjustment to Conversion Price upon Issuance of Common Stock . Except in the case of an event described in either Section 8.5(c) or Section 8.5(d) , if any Shares remain outstanding following the Initial Public Offering, and the Corporation shall, at any time or from time to time after the closing of the Initial Public Offering, issue or sell, or is deemed to have issued or sold, any shares of Common Stock without consideration or for consideration per share less than the Conversion Price in effect immediately prior to such issuance or sale (or deemed issuance or sale), then immediately upon such issuance or sale (or deemed issuance or sale), the Conversion Price in effect immediately prior to such issuance or sale (or deemed issuance or sale) shall be reduced (and in no event increased) to a Conversion Price equal to the quotient obtained by dividing:

 

(i) the sum of (A) the product obtained by multiplying the Common Stock Deemed Outstanding immediately prior to such issuance or sale (or deemed issuance or sale) by the Conversion Price then in effect plus (B) the aggregate consideration, if any, received by the Corporation upon such issuance or sale (or deemed issuance or sale); by

 

(ii) the sum of (A) the Common Stock Deemed Outstanding immediately prior to such issuance or sale (or deemed issuance or sale) plus (B) the aggregate number of shares of Common Stock issued or sold (or deemed issued or sold) by the Corporation in such issuance or sale (or deemed issuance or sale).

 

(b)    Adjustment to Number of Conversion Shares Upon Adjustment to Conversion Price . Upon any and each adjustment of the Conversion Price as provided in Section 8.5(a) , the number of Conversion Shares issuable upon the conversion of the Series A Preferred Shares immediately prior to any such adjustment shall be increased to a number of Conversion Shares equal to the quotient obtained by dividing:

 

11
 

 

(i) the product of (A) the Conversion Price in effect immediately prior to any such adjustment multiplied by (B) the number of Conversion Shares issuable upon conversion of the Series A Preferred Shares immediately prior to any such adjustment; by

 

(ii) the Conversion Price resulting from such adjustment.

 

(c)     Exceptions To Adjustment Upon Issuance of Common Stock . Anything herein to the contrary notwithstanding, there shall be no adjustment to the Conversion Price or the number of Conversion Shares issuable upon conversion of the Series A Preferred Stock with respect to any Excluded Issuance.

 

(d)     Effect of Certain Events on Adjustment to Conversion Price . For purposes of determining the adjusted Conversion Price under Section 8.5(a) hereof, the following shall be applicable:

 

(i) Issuance of Options . If any Shares remain outstanding after the Initial Public Offering, and the Corporation shall, following the closing of the Initial Public Offering, at any time or from time to time, in any manner grant or sell (whether directly or by assumption in a merger or otherwise) any Options, whether or not such Options or the right to convert or exchange any Convertible Securities issuable upon the exercise of such Options are immediately exercisable, and the price per share (determined as provided in this paragraph and in Section 8.5(d)(v) ) for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon the exercise of such Options is less than the Conversion Price in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued as of the date of granting or sale of such Options (and thereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price under Section 8.5(a) ), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable consideration received for purposes of Section 8.5(a) ) of (x) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of all such Options, plus (y) the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of all such Convertible Securities and the conversion or exchange of all such Convertible Securities, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of all such Options or upon the conversion or exchange of all Convertible Securities issuable upon the exercise of all such Options. Except as otherwise provided in Section 8.5(d)(iii) , no further adjustment of the Conversion Price shall be made upon the actual issuance of Common Stock or of Convertible Securities upon exercise of such Options or upon the actual issuance of Common Stock upon conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

12
 

 

(ii) Issuance of Convertible Securities . If the Corporation shall, at any time or from time to time after the Date of Issuance, in any manner grant or sell (whether directly or by assumption in a merger or otherwise) any Convertible Securities, whether or not the right to convert or exchange any such Convertible Securities is immediately exercisable, and the price per share (determined as provided in this paragraph and in Section 8.5(d)(v) ) for which Common Stock is issuable upon the conversion or exchange of such Convertible Securities is less than the Conversion Price in effect immediately prior to the time of the granting or sale of such Convertible Securities, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of the total maximum amount of such Convertible Securities shall be deemed to have been issued as of the date of granting or sale of such Convertible Securities (and thereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price pursuant to Section 8.5(a) ), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable consideration received for purposes of Section 8.5(a) ) of (x) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Convertible Securities, plus (y) the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange of all such Convertible Securities, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. Except as otherwise provided in Section 8.5(d)(iii) , (A) no further adjustment of the Conversion Price shall be made upon the actual issuance of Common Stock upon conversion or exchange of such Convertible Securities and (B) no further adjustment of the Conversion Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Conversion Price have been made pursuant to the other provisions of this Section 8.5(d) .

 

13
 

 

(iii) Change in Terms of Options or Convertible Securities . Upon any change in any of (A) the total amount received or receivable by the Corporation as consideration for the granting or sale of any Options or Convertible Securities referred to in Section 8.5(d)(i) or Section 8.5(d)(ii) hereof, (B) the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the exercise of any Options or upon the issuance, conversion or exchange of any Convertible Securities referred to in Section 8.5(d)(i) or Section 8.5(d)(ii) hereof, (C) the rate at which Convertible Securities referred to in Section 8.5(d)(i) or Section 8.5(d)(ii) hereof are convertible into or exchangeable for Common Stock, or (D) the maximum number of shares of Common Stock issuable in connection with any Options referred to in Section 8.5(d)(i) hereof or any Convertible Securities referred to in Section 8.5(d)(ii) hereof (in each case, other than in connection with an Excluded Issuance), then (whether or not the original issuance or sale of such Options or Convertible Securities resulted in an adjustment to the Conversion Price pursuant to this Section 8.5 ) the Conversion Price in effect at the time of such change shall be adjusted or readjusted, as applicable, to the Conversion Price which would have been in effect at such time pursuant to the provisions of this Section 8.5 had such Options or Convertible Securities still outstanding provided for such changed consideration, conversion rate or maximum number of shares, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment or readjustment the Conversion Price then in effect is reduced, and the number of Conversion Shares issuable upon the conversion of the Series A Preferred Stock immediately prior to any such adjustment or readjustment shall be correspondingly adjusted or readjusted pursuant to the provisions of Section 8.5(b) .

 

14
 

 

(iv) Treatment of Expired or Terminated Options or Convertible Securities . Upon the expiration or termination of any unexercised Option (or portion thereof) or any unconverted or unexchanged Convertible Security (or portion thereof) for which any adjustment (either upon its original issuance or upon a revision of its terms) was made pursuant to this Section 8.5 (including without limitation upon the redemption or purchase for consideration of all or any portion of such Option or Convertible Security by the Corporation), the Conversion Price then in effect hereunder shall forthwith be changed pursuant to the provisions of this Section 8.5 to the Conversion Price which would have been in effect at the time of such expiration or termination had such unexercised Option (or portion thereof) or unconverted or unexchanged Convertible Security (or portion thereof), to the extent outstanding immediately prior to such expiration or termination, never been issued.

 

(v) Calculation of Consideration Received . If the Corporation shall, at any time or from time to time after the Date of Issuance, issue or sell, or is deemed to have issued or sold in accordance with Section 8.5(d) , any shares of Common Stock, Options or Convertible Securities: (A) for cash, the consideration received therefor shall be deemed to be the net amount received by the Corporation therefor; (B) for consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Corporation shall be the market price (as reflected on any securities exchange, quotation system or association or similar pricing system covering such security) for such securities as of the end of business on the date of receipt of such securities; (C) for no specifically allocated consideration in connection with an issuance or sale of other securities of the Corporation, together comprising one integrated transaction, the amount of the consideration therefor shall be deemed to be the fair value of such portion of the aggregate consideration received by the Corporation in such transaction as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be, issued in such transaction; or (D) to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be, issued to such owners. The net amount of any cash consideration and the fair value of any consideration other than cash or marketable securities shall be determined in good faith by the Board.

 

15
 

 

(vi) Record Date . For purposes of any adjustment to the Conversion Price or the number of Conversion Shares in accordance with this Section 8.5 , in case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

(vii) Treasury Shares . The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof or the transfer of such shares among the Corporation and its wholly-owned subsidiaries) shall be considered an issue or sale of Common Stock for the purpose of this Section 8.5 .

 

(e)     Adjustment to Conversion Price and Conversion Shares Upon Stock Dividend, Subdivision or Combination of Common Stock . If any Shares remain outstanding following the Initial Public Offering, and the Corporation shall, at any time or from time to time after the closing of the Initial Public Offering, (i) pay a dividend or make any other distribution upon the Common Stock or any other capital stock of the Corporation payable in shares of Common Stock or in Options or Convertible Securities, or (ii) subdivide (by any stock split, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to any such subdivision shall be proportionately reduced and the number of Conversion Shares issuable upon conversion of the Series A Preferred Shares shall be proportionately increased. If any Shares remain outstanding following the Initial Public Offering, and the Corporation at any time thereafter combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased and the number of Conversion Shares issuable upon conversion of the Series A Preferred Shares shall be proportionately decreased. Any adjustment under this Section 8.5(c) shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.

 

16
 

 

(f)     Adjustment to Conversion Price and Conversion Shares Upon Reorganization, Reclassification, Consolidation or Merger . Following the Initial Public Offering, if any Shares remain outstanding, in the event of any (i) capital reorganization of the Corporation, (ii) reclassification of the stock of the Corporation (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), (iii) consolidation or merger of the Corporation with or into another Person, (iv) sale of all or substantially all of the Corporation's assets to another Person or (v) other similar transaction (other than any such transaction covered by Section 8.5(c) ), in each case which entitles the holders of Common Stock to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, each Share of Series A Preferred Shares shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Conversion Shares then convertible for such Share, be exercisable for the kind and number of shares of stock or other securities or assets of the Corporation or of the successor Person resulting from such transaction to which such Share would have been entitled upon such reorganization, reclassification, consolidation, merger, sale or similar transaction if the Share had been converted in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale or similar transaction and acquired the applicable number of Conversion Shares then issuable hereunder as a result of such conversion (without taking into account any limitations or restrictions on the convertibility of such Share, if any); and, in such case, appropriate adjustment shall be made with respect to such holder's rights under this Certificate of Designation to insure that the provisions of this Section 8 hereof shall thereafter be applicable, as nearly as possible, to the Series A Preferred Shares in relation to any shares of stock, securities or assets thereafter acquirable upon conversion of Series A Preferred Shares (including, in the case of any consolidation, merger, sale or similar transaction in which the successor or purchasing Person is other than the Corporation, an immediate adjustment in the Conversion Price to the value per share for the Common Stock reflected by the terms of such consolidation, merger, sale or similar transaction, and a corresponding immediate adjustment to the number of Conversion Shares acquirable upon conversion of the Series A Preferred Shares without regard to any limitations or restrictions on conversion, if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger, sale or similar transaction). The provisions of this Section 8.5(d) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or similar transactions. The Corporation shall not effect any such reorganization, reclassification, consolidation, merger, sale or similar transaction unless, prior to the consummation thereof, the successor Person (if other than the Corporation) resulting from such reorganization, reclassification, consolidation, merger, sale or similar transaction, shall assume, by written instrument substantially similar in form and substance to this Certificate of Designation, the obligation to deliver to the holders of Series A Preferred Shares such shares of stock, securities or assets which, in accordance with the foregoing provisions, such holders shall be entitled to receive upon conversion of the Series A Preferred Shares.

 

(g)     Certain Events . Following the Initial Public Offering, if any Shares remain outstanding, if any event of the type contemplated by the provisions of this Section 8.5 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features) occurs, then the Board shall make an appropriate adjustment in the Conversion Price and the number of Conversion Shares issuable upon conversion of Shares of Series A Preferred Shares so as to protect the rights of the holder of such Shares in a manner consistent with the provisions of this Section 8 ; provided , that no such adjustment pursuant to this Section 8.5 shall increase the Conversion Price or decrease the number of Conversion Shares issuable as otherwise determined pursuant to this Section 8 .

 

17
 

 

(h)     Certificate as to Adjustment . As promptly as reasonably practicable following any adjustment of the Conversion Price, but in any event not later than 20 days thereafter, the Corporation shall furnish to each holder of record of Series A Preferred Shares at the address specified for such holder in the books and records of the Corporation (or at such other address as may be provided to the Corporation in writing by such holder) a certificate of an executive officer setting forth in reasonable detail such adjustment and the facts upon which it is based and certifying the calculation thereof.

 

(i)      Notices . Following the Initial Public Offering, if any Shares remain outstanding, in the event:

 

(i) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, any consolidation or merger of the Corporation with or into another Person, or sale of all or substantially all of the Corporation's assets to another Person; or

 

(ii) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation;

 

then, and in each such case, the Corporation shall send or cause to be sent to each holder of record of Series A Preferred Shares at the address specified for such holder in the books and records of the Corporation (or at such other address as may be provided to the Corporation in writing by such holder) at least five (5) days prior to the applicable record date or the applicable expected effective date, as the case may be, for the event, a written notice specifying, as the case may be, (A) the record date for such dividend, distribution, meeting or consent or other right or action, and a description of such dividend, distribution or other right or action to be taken at such meeting or by written consent, or (B) the effective date on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up is proposed to take place, and the date, if any is to be fixed, as of which the books of the Corporation shall close or a record shall be taken with respect to which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon conversion of the Series A Preferred Shares) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series A Preferred Shares and the Conversion Shares.

 

18
 

 

9.     Warrants .

 

9.1     Underlying Warrant Terms .

 

(c)     Exercise . Each Warrant underlying the Series A Preferred Shares shall be immediately exercisable after issuance and will be exercisable into one share of Common Stock at an exercise price equal to 120% of the Initial Public Offering price per share of Common Stock. The Warrants will expire worthless on the five (5) year anniversary of the Date of Issuance.

 

(d)     Redemption . The Warrants will be redeemable by the Corporation at a price of $0.01 per Warrant during any period in which the closing price of the shares of Common Stock equals or exceeds 175% of the Initial Public Offering price per share of Common Stock for 20 consecutive trading days. Holders of the Warrants will be entitled to notice of such redemption 30 days prior to the date of redemption.

 

10.   Breach of Obligations .

 

10.1     Series A Preferred Shares Breach . A breach by the Corporation of the rights, preferences, powers, restrictions and limitations of the Series A Preferred Shares set forth herein shall mean the occurrence of one or more of any of the events and conditions set forth in this Section 10.1 (each such event or condition, a “ Series A Preferred Shares Breach ”), whether such event or condition occurs voluntarily or involuntarily, by operation of law or pursuant to any judgment, order, decree, rule or regulation and regardless of the reason or cause of such event or condition.

 

(a)     Nonpayment of Redemption or Liquidation Payments . The failure of the Corporation to make any (i) redemption payment when due pursuant to Section 7 or (ii) liquidation payment when due pursuant to Section 5 , in each case whether or not such payment is legally permissible or is otherwise prohibited.

 

(b)     Bankruptcy or Insolvency . The Corporation or any of its Subsidiaries (i) becomes insolvent or admits its inability to pay its debts generally as they become due; (ii) becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, which is not fully stayed within seven (7) days or is not dismissed or vacated within forty-five (45) days after filing; (iii) makes a general assignment for the benefit of creditors; or (iv) has a receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business.

 

10.2  Consequences of Breach . In addition to any other rights which a holder of Shares of Series A Preferred Shares is entitled under any other contract or agreement and any other rights such holder may have pursuant to applicable law, the holders of Shares of Series A Preferred Shares shall have the rights and remedies set forth in this Section 10.2 on the occurrence of a Series A Preferred Shares Breach.

 

19
 

 

(a)   Redemption Right . If a Series A Preferred Shares Breach has occurred (other than a Series A Preferred Shares Breach described in Section 10.1(b) ) and is continuing for a period of thirty (30) days, any holder of Series A Preferred Shares shall have the right to elect to have, out of funds legally available therefor, all (but not less than all) of the then outstanding Shares of Series A Preferred Shares immediately redeemed by the Corporation for a price per Share equal to the Series A Redemption Price. Any such redemption shall occur not more than twenty (20) days following receipt by the Corporation of the request by the holder.

 

(b)   Automatic Redemption on Bankruptcy . Notwithstanding the earliest date for redemption set forth in Section 7.1 , if a Series A Preferred Shares Breach described in Section 10.1(b) has occurred, all of the then outstanding Shares of Series A Preferred Shares shall be subject to redemption immediately without any action required by the holders of Shares of Series A Preferred Shares, for a price per Share equal to the Series A Redemption Price. Any such redemption shall occur immediately and shall otherwise be executed in accordance with the provisions of Section 7 , applied mutatis mutandis .

 

11.   Reissuance of Series A Preferred Shares . Any Shares of Series A Preferred Shares redeemed, converted or otherwise acquired by the Corporation or any Subsidiary shall be cancelled and retired as authorized and issued shares of capital stock of the Corporation and no such Shares shall thereafter be reissued, sold or transferred.

 

12.   Notices . Except as otherwise provided herein, all notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent (a) to the Corporation, at its principal executive offices and (b) to any stockholder, at such holder's address at it appears in the stock records of the Corporation (or at such other address for a stockholder as shall be specified in a notice given in accordance with this Section 12 ).

 

13.   Amendment and Waiver . No provision of this Certificate of Designation may be amended, modified or waived except by an instrument in writing executed by the Corporation and holders of at least 50% of the Shares, and any such written amendment, modification or waiver will be binding upon the Corporation and each holder of Series A Preferred Shares; provided , that no such action shall change or waive (a) the definition of Liquidation Value or (b) this Section 13 , without the prior written consent of each holder of outstanding Shares of Series A Preferred Shares; provided , further , that no amendment, modification or waiver of the terms or relative priorities of the Series A Preferred Shares may be accomplished by the merger, consolidation or other transaction of the Corporation with another corporation or entity unless the Corporation has obtained the prior written consent of the holders in accordance with this Section 13 .

 

[SIGNATURE PAGE FOLLOWS]

 

20
 

 

IN WITNESS WHEREOF, this Certificate of Designation is duly executed on behalf of the Corporation by an authorized officer as of this 16th day of January 2014.

 

  1347 PROPERTY INSURANCE
  HOLDINGS, INC.
   
  By: /s/ Douglas N. Raucy
    Name:  Douglas N. Raucy
     
    Title:  President and Chief Executive Officer

 

21

 

 

EXHIBIT 3.2

 

THIRD AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

1347 PROPERTY INSURANCE HOLDINGS, INC.

 

1347 Property Insurance Holdings, 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. The Corporation’s Certificate of Incorporation was originally filed with the Secretary of State of Delaware on February 2, 2011, and subsequently amended and restated on November 19, 2013 and January 16, 2014 (the second amended and restated Certificate of Incorporation referred to herein as the “ Second Amended and Restated Certificate ”).

 

2.          This Third Amended and Restated Certificate of Incorporation (the “ Certificate ”) amends, restates and integrates the provisions of the Second Amended and Restated Certificate, 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 Second Amended and Restated Certificate is hereby amended and retstated in its entirety to provide as follows:

 

ARTICLE I

 

The name of the Corporation is 1347 Property Insurance Holdings, 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):

 

1
 

 

 

 

(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.

 

2
 

 

 

 

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 Directors, other than those who may be elected by the holders of any series of Preferred Stock, shall be classified, with respect to the term for which they severally hold office, into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as reasonably may be possible, of one-third of the total number of Directors constituting the entire Board of Directors. The Board of Directors is authorized to assign members of the Board of Directors already in office to Class I, Class II or Class III at the time such classification becomes effective. The initial Class I Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2015, the initial Class II Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2016, and the initial Class III Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2017. At each annual meeting of stockholders, Directors elected to succeed those Directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Notwithstanding the foregoing, the Directors elected to each class shall hold office until their successors are duly elected and qualified or until their earlier resignation or removal. In case of any increase or decrease, from time to time, in the number of Directors (other than Directors elected by the holders of any one or more series of Preferred Stock), the number of Directors in each class shall be apportioned as nearly equal as possible.

 

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 the term of office of the class to which they have been chosen 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.

 

 

3
 

 

 

 

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.

  

4
 

 

 

 

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.

 

5
 

 

 

 

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 Third 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.

 

6
 

 

IN WITNESS WHEREOF, this Third Amended and Restated Certificate of Incorporation this executed as of this ___ day of ____________, 2014.

 

  /s/
  Name:
  Title:

 

7

 

 

 

EXHIBIT 3.3

 

SECOND AMENDED AND RESTATED BY-LAWS

OF

1347 PROPERTY INSURANCE HOLDINGS, INC.

 

 

  

ARTICLE I

 

STOCKHOLDERS

 

SECTION 1. ANNUAL MEETING. The annual meeting of stockholders (any such meeting being referred to in these By-laws as an “Annual Meeting”) shall be held at the hour, date and place within or without the United States which is fixed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President, which time, date and place may subsequently be changed at any time by vote of the Board of Directors. If no Annual Meeting has been held for a period of thirteen months after the Corporation’s last Annual Meeting, a special meeting in lieu thereof may be held, and such special meeting shall have, for the purposes of these By-laws or otherwise, all the force and effect of an Annual Meeting. Any and all references hereafter in these By-laws to an Annual Meeting or Annual Meetings also shall be deemed to refer to any special meeting(s) in lieu thereof. The Board of Directors may postpone, reschedule or cancel any previously scheduled Annual Meeting.

 

SECTION 2. SPECIAL MEETINGS. Except as otherwise required by statute and subject to the rights, if any, of the holders of any series of Preferred Stock (as defined in the Certificate), 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. The Board of Directors may postpone, reschedule or cancel any previously scheduled special meeting of stockholders.

 

SECTION 3. NOTICE OF MEETINGS; ADJOURNMENTS. Except as otherwise provided by law, notice of each meeting, whether annual or special, shall be given not less than 10 days nor more than 60 days before the meeting, to each stockholder entitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting. Without limiting the manner by which notice otherwise may be given to stockholders, any notice shall be effective if given by a form of electronic transmission consented to (in a manner consistent with the General Corporation Law of the State of Delaware (the “DGCL”)) by the stockholder to whom the notice is given. The notices of all meetings shall state the place, if any, date and time of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, and the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting). The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called. If notice is given by mail, such notice shall be deemed given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. If notice is given by electronic transmission, such notice shall be deemed given at the time specified in Section 232 of the DGCL.

 

Notice of an Annual Meeting or special meeting of stockholders need not be given to a stockholder if a written waiver of notice is signed before or after such meeting by such stockholder or if such stockholder attends such meeting, unless such attendance was for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting was not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any Annual Meeting or special meeting of stockholders need be specified in any written waiver of notice.

 

1
 

 

The Board of Directors may postpone and reschedule any previously scheduled Annual Meeting or special meeting of stockholders and any record date with respect thereto, regardless of whether any notice or public announcement with respect to any such meeting has been sent or made pursuant to Section 4 of this Article I of these By-laws or otherwise. In no event shall the public announcement of an adjournment, postponement or rescheduling of any previously scheduled meeting of stockholders commence a new time period for the giving of a stockholder’s notice under Section 4 of this Article I of these By-laws.

 

When any meeting is convened, the presiding officer may adjourn the meeting if (a) no quorum is present for the transaction of business, (b) the Board of Directors determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board of Directors determines has not been made sufficiently or timely available to stockholders, or (c) the Board of Directors determines that adjournment is otherwise in the best interests of the Corporation. When any Annual Meeting or special meeting of stockholders is adjourned to another hour, date or place, notice need not be given of the adjourned meeting other than an announcement at the meeting at which the adjournment is taken of the hour, date and place to which the meeting is adjourned; provided, however, that if the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat and each stockholder who, by law or under the Certificate or these By-laws, is entitled to such notice.

 

SECTION 4. NOTICE OF STOCKHOLDER BUSINESS.

 

(a) ANNUAL MEETING.

 

(1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of any other business to be considered by the stockholders may be made at an Annual Meeting (a) pursuant to the Corporation’s notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Section 4 of this Article I of these By-laws, who is entitled to vote at the meeting, who is present (in person or by proxy) at the meeting and who complies with the notice procedures set forth in this Section 4 of this Article I of these By-laws. In addition to the other requirements set forth in these By-laws, for any proposal of business to be considered at an Annual Meeting, it must be a proper subject for action by stockholders of the Corporation under the DGCL.

 

(2) For nominations or other business to be properly brought before an Annual Meeting by a stockholder pursuant to clause (c) of paragraph (a)(1) of this Section 4 of this Article I of these By-laws, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 90 th  day nor earlier than the close of business on the 120 th  day prior to the first anniversary of the preceding year’s Annual Meeting; provided, however, that in the event that the date of the Annual Meeting is advanced by more than 30 days before or delayed by more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120 th  day prior to such Annual Meeting and not later than the close of business on the later of the 90 th  day prior to such Annual Meeting or the 10 th  day following the day on which public announcement of the date of such meeting is first made. Notwithstanding anything to the contrary provided herein, for the first Annual Meeting following the initial public offering of common stock of the Corporation, a stockholder’s notice shall be timely if delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the 90 th  day prior to the scheduled date of such Annual Meeting or the 10 th  day following the day on which public announcement of the date of such Annual Meeting is first made or sent by the Corporation. Such stockholder’s notice shall set forth:

 

2
 

 

(a) (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (A) such person’s name, age, business address and, if known, residence address, (B) such person’s principal occupation or employment, (C) the class and series and number of shares of stock of the Corporation that are, directly or indirectly, owned, beneficially or of record, by such person, (D) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among the stockholder, the beneficial owner, if any, on whose behalf the nomination is being made and the respective affiliates and associates of, or others acting in concert with, such stockholder and such beneficial owner, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert with such nominee(s), on the other hand, including all information that would be required to be disclosed pursuant to Item 404 of Regulation S-K if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made or any affiliate or associate thereof or person acting in concert therewith were the “registrant” for purposes of such Item and the proposed nominee were a director or executive officer of such registrant, and (E) any other information concerning such person that is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 14a-11 thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected), and (ii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination is made, (A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (B) the class and series and number of shares of stock of the Corporation that are, directly or indirectly, owned, beneficially or of record, by such stockholder and such beneficial owner, (C) a description of any agreement, arrangement or understanding between or among such stockholder and/or such beneficial owner and each proposed nominee and any other person or persons (including their names) pursuant to which the nomination(s) are being made or who may participate in the solicitation of proxies in favor of electing such nominee(s), (D) a description of any agreement, arrangement or understanding (including any derivative or short positions, swaps, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into by, or on behalf of, such stockholder or such beneficial owner, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner with respect to shares of stock of the Corporation, (E) any other information relating to such stockholder and such beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder, (F) a representation that such stockholder intends to appear in person or by proxy at the meeting to nominate the person(s) named in its notice and (G) a representation whether such stockholder and/or such beneficial owner intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock reasonably believed by such stockholder or such beneficial owner to be sufficient to elect the nominee (and such representation shall be included in any such proxy statement and form of proxy) and/or (y) otherwise to solicit proxies or votes from stockholders in support of such nomination (and such representation shall be included in any such solicitation materials).

 

Not later than 10 days after the record date for determining stockholders entitled to notice of the meeting, the information required by Items (a)(i)(A)-(E) and (ii)(A)-(E) of the preceding paragraph shall be supplemented by the stockholder giving the notice to provide updated information as of such record date. The Corporation may require any proposed nominee to furnish such other information as the Corporation may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation or whether such nominee would be independent under applicable Securities and Exchange Commission and applicable stock exchange rules and the Corporation’s publicly disclosed corporate governance guidelines. A stockholder shall not have complied with this Section 4(a)(2)(a) of this Article I of these By-laws if the stockholder (or beneficial owner, if any, on whose behalf the nomination is made) solicits or does not solicit, as the case may be, proxies or votes in support of such stockholder’s nominee in contravention of the representations with respect thereto required by this Section 4 of this Article I of these By-laws.

 

3
 

 

(b) (i) As to any other business that the stockholder proposes to bring before the meeting, (A) a brief description of the business desired to be brought before the meeting, (B) the text of the proposal (including the exact text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend these By-laws, the exact text of the proposed amendment), (C) the reasons for conducting such business at the meeting, and (D) any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made, and the names and addresses of other stockholders known by the stockholder proposing such business to support such proposal, and the class and series and number of shares of stock of the Corporation that are, directly or indirectly, owned, beneficially or of record, by such other stockholders; and (ii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (A) the name and address of such stockholder, as they appear on the Corporation’s books, and of such beneficial owner, (B) the class and series and number of shares of stock of the Corporation that are, directly or indirectly, owned, beneficially or of record, by such stockholder and such beneficial owner, (C) description of any material interest of such stockholder or such beneficial owner and the respective affiliates and associates of, or others acting in concert with, such stockholder or such beneficial owner in such business, (D) a description of any agreement, arrangement or understanding between or among such stockholder and/or such beneficial owner and any other person or persons (including their names) in connection with the proposal of such business or who may participate in the solicitation of proxies in favor of such proposal, (E) a description of any agreement, arrangement or understanding (including any derivative or short positions, swaps, profit interests, options, warrants, convertible securities, stock appreciation or similar rights, hedging transactions, and borrowed or loaned shares) that has been entered into by, or on behalf of, such stockholder or such beneficial owner, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or such beneficial owner with respect to shares of stock of the Corporation, (F) any other information relating to such stockholder and such beneficial owner that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the business proposed pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder, (G) a representation that such stockholder intends to appear in person or by proxy at the annual meeting to bring such business before the meeting and (H) a representation whether such stockholder and/or such beneficial owner intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding capital stock required to approve or adopt the proposal (and such representation shall be included in any such proxy statement and form of proxy) and/or (y) otherwise to solicit proxies or votes from stockholders in support of such proposal (and such representation shall be included in any such solicitation materials).

 

Not later than 10 days after the record date for determining stockholders entitled to notice of the meeting, the information required by Items (b)(i)(C)-(D) and (b)(ii)(A)-(F) of the preceding paragraph shall be supplemented by the stockholder giving the notice to provide updated information as of such record date. A stockholder shall not have complied with this Section 4(a)(2)(b) of this Article I of these By-laws if the stockholder (or beneficial owner, if any, on whose behalf the proposal is made) solicits or does not solicit, as the case may be, proxies or votes in support of such stockholder’s proposal in contravention of the representations with respect thereto required by this Section 4 of this Article I of these By-laws.

 

(3) Notwithstanding anything in the second sentence of paragraph (a)(2) of this Section 4 of this Article I of these By-laws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the Corporation at least 85 days prior to the first anniversary of the preceding year’s Annual Meeting, a stockholder’s notice required by this Section 4 of this Article I of these By-laws shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10 th  day following the day on which such public announcement is first made by the Corporation.

 

(b) GENERAL.

 

(1) Only such persons who are nominated at an Annual Meeting in accordance with the provisions of this Section 4 of this Article I of these By-laws shall be eligible for election and to serve as directors and only such business shall be conducted at an Annual Meeting as shall have been brought before the meeting in accordance with the provisions of this Section 4 of this Article I of these By-laws. The Board of Directors or a designated committee thereof shall have the power to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the provisions of this Section 4 of this Article I of these By-laws. If neither the Board of Directors nor such designated committee makes a determination as to whether any stockholder proposal or nomination was made in accordance with the provisions of this Section 4 of this Article I of these By-laws, the presiding officer of the Annual Meeting shall have the power and duty to determine whether the stockholder proposal or nomination was made in accordance with the provisions of this Section 4 of this Article I of these By-laws. If the Board of Directors or a designated committee thereof or the presiding officer, as applicable, determines that any stockholder proposal or nomination was not made in accordance with the provisions of this Section 4 of this Article I of these By-laws, such proposal or nomination shall be disregarded and shall not be presented for action at the Annual Meeting.

 

(2) For purposes of this Section 4 of this Article I of these By-laws, “public announcement” shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press, PR Newswire, Businesswire or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

 

4
 

 

(3) Notwithstanding the foregoing provisions of this Section 4 of this Article I of these By-laws, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 4 of this Article I of these By-laws. Nothing in this Section 4 of this Article I of these By-laws shall be deemed to affect any rights of (i) stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act, or (ii) the holders of any series of Preferred Stock to elect directors under specified circumstances.

 

SECTION 6. QUORUM. A majority of the shares entitled to vote, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders, unless or except to the extent that the presence of a larger number may be required by these By-laws, the Certificate or by applicable law. Broker non-votes and abstentions are considered as present for purposes of establishing a quorum but shall not be considered as votes cast for or against a proposal or director nominee. If less than a quorum is present at a meeting, the holders of voting stock representing a majority of the voting power present at the meeting or the presiding officer may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 3 of this Article I of these By-laws. At such adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally noticed. The stockholders present at a duly constituted meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.

 

SECTION 7. VOTING AND PROXIES. Stockholders shall have one vote for each share of stock entitled to vote owned by them of record according to the stock ledger of the Corporation, unless otherwise provided by law or by the Certificate. Stockholders may vote either (i) in person, (ii) by written proxy or (iii) by a transmission permitted by Section 212(c) of the DGCL, filed in accordance with the procedure established for the meeting. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission permitted by Section 212(c) of the DGCL may be substituted for or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used; provided, that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Proxies shall be filed in accordance with the procedures established for the meeting of stockholders. Except as otherwise limited therein or as otherwise provided by law, proxies authorizing a person to vote at a specific meeting shall entitle the persons authorized thereby to vote at any adjournment of such meeting, but they shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by or on behalf of any one of them unless at or prior to the exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them.

 

SECTION 8. NO ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called Annual Meeting or a special meeting of such holders and, except as expressly provided for in the Certificate, may not be effected by any consent in writing by such stockholders.

 

SECTION 9. ACTION AT MEETING. When a quorum is present at any meeting of stockholders, any matter before any such meeting (other than an election of a director or directors) shall be decided by a majority of the votes properly cast for and against such matter, except where a larger vote is required by law, by the Certificate or by these By-laws. Any election of directors by stockholders shall be determined by a plurality of the votes properly cast on the election of directors. Abstentions and broker non-votes shall not be counted as votes cast. A direction to “withhold authority” with respect to a nominee shall be treated as a vote cast against the election of such nominee. The Corporation shall not directly or indirectly vote any shares of its own stock; provided, however, that the Corporation or any Subsidiary (as defined in Article V of these By-laws) of the Corporation may vote shares which it holds in a fiduciary capacity to the extent permitted by law.

 

SECTION 10. STOCKHOLDER LISTS. The Secretary or an Assistant Secretary (or the Corporation’s transfer agent or other person authorized by these By-laws or by law) shall prepare and make, at least 10 days before every Annual Meeting or special meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the hour, date and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

 

5
 

 

SECTION 11. PRESIDING OFFICER. The Chairman of the Board, if one is elected, or if not elected or in his or her absence, the President, shall preside at all Annual Meetings or special meetings of stockholders and shall have the power, among other things, to adjourn such meeting at any time and from time to time, subject to Sections 3 and 6 of this Article I of these By-laws. The Board of Directors shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the presiding officer of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such presiding officer, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the Corporation and their duly authorized and constituted proxies and such other persons as the presiding officer shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters that are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the presiding officer of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.

 

SECTION 12. INSPECTORS OF ELECTIONS. The Corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the presiding officer shall appoint one or more inspectors to act at the meeting. Any inspector may, but need not, be an officer, employee or agent of the Corporation. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. The inspectors shall perform such duties as are required by the DGCL, including the counting of all votes and ballots. The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. The presiding officer may review all determinations made by the inspectors, and in so doing the presiding officer shall be entitled to exercise his or her sole judgment and discretion and he or she shall not be bound by any determinations made by the inspectors. All determinations by the inspectors and, if applicable, the presiding officer, shall be subject to further review by any court of competent jurisdiction.

 

ARTICLE II

 

DIRECTORS

 

SECTION 1. POWERS. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors except as otherwise provided by the Certificate or required by law.

 

SECTION 2. NUMBER AND TERMS. 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 directors, other than those who may be elected by the holders of any series of Preferred Stock, shall be classified, with respect to the term for which they severally hold office, into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as reasonably may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The Board of Directors is authorized to assign members of the Board of Directors already in office to Class I, Class II or Class III at the time such classification becomes effective. The initial Class I Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2015, the initial Class II Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2016, and the initial Class III Directors shall serve for a term expiring at the annual meeting of stockholders to be held in 2017. At each annual meeting of stockholders, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding annual meeting of stockholders after their election. Notwithstanding the foregoing, the directors elected to each class shall hold office until their successors are duly elected and qualified or until their earlier resignation or removal. Directors shall (except as hereinafter provided for the filling of vacancies and newly created directorships) be elected by the holders of a plurality of the votes cast by the holders of shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. 

 

6
 

 

Notwithstanding the foregoing, whenever, pursuant to the provisions of Article IV of the 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.

 

SECTION 3. QUALIFICATION. No director need be a stockholder of the Corporation.

 

SECTION 4. VACANCIES. 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 the term of office of the class to which they have been chosen 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.

 

SECTION 5. REMOVAL. Any director or the entire Board of Directors may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of shares representing at least a majority of the votes that would be entitled to be cast on such matter by the then-outstanding shares of all classes and series of capital stock of the Corporation at any annual or special meeting of stockholders, voting together as a single class. At least 45 days prior to any meeting of stockholders at which it is proposed that any director be removed from office, written notice of such proposed removal and the alleged grounds thereof shall be sent to the director whose removal will be considered at the meeting.

 

SECTION 6. RESIGNATION. A director may resign at any time by giving written notice to the Chairman of the Board, if one is elected, the President or the Secretary. A resignation shall be effective upon receipt, unless the resignation otherwise provides.

 

SECTION 7. REGULAR MEETINGS. The regular annual meeting of the Board of Directors shall be held, without notice other than this Section 7 of this Article II of these By-laws, on the same date and at the same place as the Annual Meeting following the close of such meeting of stockholders. Other regular meetings of the Board of Directors may be held at such hour, date and place as the Board of Directors may by resolution from time to time determine and publicize by means of reasonable notice given to any director who is not present at the meeting at which such resolution is adopted.

 

SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called, orally or in writing, by or at the request of a majority of the directors, the Chairman of the Board, if one is elected, or the President. The person calling any such special meeting of the Board of Directors may fix the hour, date and place thereof.

 

SECTION 9. NOTICE OF MEETINGS. Notice of the hour, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary or an Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the Chairman of the Board, if one is elected, or the President or such other officer designated by the Chairman of the Board, if one is elected, or the President. Notice of any special meeting of the Board of Directors shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communication, sent to his or her business or home address, at least 24 hours in advance of the meeting, or by written notice mailed to his or her business or home address, at least 48 hours in advance of the meeting. Such notice shall be deemed to be delivered when hand delivered to such address, read to such director by telephone, deposited in the mail so addressed, with postage thereon prepaid if mailed, dispatched or transmitted if faxed, telexed or telecopied, or when delivered to the telegraph company if sent by telegram.

 

7
 

 

A written waiver of notice signed before or after a meeting by a director and filed with the records of the meeting shall be deemed to be equivalent to notice of the meeting. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because such meeting is not lawfully called or convened. Except as otherwise required by law, by the Certificate or by these By-laws, neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

 

SECTION 10. QUORUM. At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business, but if less than a quorum is present at a meeting, a majority of the directors present may adjourn the meeting from time to time, and the meeting may be held as adjourned without further notice, except as provided in Section 9 of this Article II. Any business which might have been transacted at the meeting as originally noticed may be transacted at such adjourned meeting at which a quorum is present. For purposes of this section, the total number of directors includes any unfilled vacancies on the Board of Directors.

 

SECTION 11. ACTION AT MEETING. At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of the directors present shall constitute action by the Board of Directors, unless otherwise required by law, by the Certificate or by these By-laws.

 

SECTION 12. ACTION BY CONSENT. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing. Such written consent shall be filed with the records of the meetings of the Board of Directors and shall be treated for all purposes as a vote at a meeting of the Board of Directors.

 

SECTION 13. MANNER OF PARTICIPATION. Directors may participate in meetings of the Board of Directors by means of conference telephone or similar communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting for purposes of these By-laws.

 

SECTION 14. COMMITTEES. The Board of Directors, by vote of a majority of the directors then in office, may elect from its number one or more committees and may delegate thereto some or all of its powers except those which by law, by the Certificate or by these By-laws may not be delegated. Except as the Board of Directors may otherwise determine, the majority of members of any such committee may make rules for the conduct of its business, but unless otherwise provided by the Board of Directors or in such rules, its business shall be conducted so far as possible in the same manner as is provided by these By-laws for the Board of Directors. All members of such committees shall hold such offices at the pleasure of the Board of Directors. The Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep minutes of its meetings and shall report its action to the Board of Directors.

 

SECTION 15. COMPENSATION OF DIRECTORS. Directors shall receive such compensation for their services as shall be determined by a majority of the Board of Directors, or a designated committee thereof. Nothing contained in these By-laws shall be construed to preclude any director from serving the Corporation in any other capacity and from receiving compensation from the Corporation for service rendered to the Corporation in such other capacity.

 

ARTICLE III

 

OFFICERS

 

SECTION 1. ENUMERATION. The officers of the Corporation shall consist of a President, a Treasurer, a Secretary and such other officers, including, without limitation, a Chairman of the Board of Directors, a Chief Executive Officer and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine.

 

8
 

 

SECTION 2. ELECTION. At the regular annual meeting of the Board of Directors following the Annual Meeting, the Board of Directors shall elect the President, the Treasurer and the Secretary. Other officers may be elected by the Board of Directors at such regular annual meeting of the Board of Directors or at any other regular or special meeting.

 

SECTION 3. QUALIFICATION. No officer need be a stockholder or a director. Any person may occupy more than one office of the Corporation at any time. Any officer may be required by the Board of Directors to give bond for the faithful performance of his or her duties in such amount and with such sureties as the Board of Directors may determine.

 

SECTION 4. TENURE. Except as otherwise provided by the Certificate or by these By-laws, each of the officers of the Corporation shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal.

 

SECTION 5. RESIGNATION. Any officer may resign by delivering his or her written resignation to the Corporation addressed to the President or the Secretary, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other

event.

 

SECTION 6. REMOVAL. Except as otherwise provided by law, the Board of Directors may remove any officer with or without cause by the affirmative vote of a majority of the directors then in office.

 

SECTION 7. ABSENCE OR DISABILITY. In the event of the absence or disability of any officer, the Board of Directors may designate another officer to act temporarily in place of such absent or disabled officer.

 

SECTION 8. VACANCIES. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

 

SECTION 9. PRESIDENT. The President shall, subject to the direction of the Board of Directors, have general supervision and control of the Corporation’s business. If there is no Chairman of the Board or if he or she is absent, the President shall preside, when present, at all meetings of stockholders and of the Board of Directors. The President shall have such other powers and perform such other duties as the Board of Directors may from time to time designate.

 

SECTION 10. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is elected, shall preside, when present, at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board shall have such other powers and shall perform such other duties as the Board of Directors may from time to time designate.

 

SECTION 11. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

 

SECTION 12. VICE PRESIDENTS AND ASSISTANT VICE PRESIDENTS. Any Vice President (including any Executive Vice President or Senior Vice President) and any Assistant Vice President shall have such powers and shall perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

 

SECTION 13. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall, subject to the direction of the Board of Directors and except as the Board of Directors or the Chief Executive Officer may otherwise provide, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation. He or she shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer.

 

9
 

 

Any Assistant Treasurer shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

 

SECTION 14. SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall record all the proceedings of the meetings of the stockholders and the Board of Directors (including committees of the Board) in books kept for that purpose. In his or her absence from any such meeting, a temporary secretary chosen at the meeting shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation). The Secretary shall have custody of the seal of the Corporation, and the Secretary, or an Assistant Secretary, shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his or her signature or that of an Assistant Secretary. The Secretary shall have such other duties and powers as may be designated from time to time by the Board of Directors or the Chief Executive Officer. In the absence of the Secretary, any Assistant Secretary may perform his or her duties and responsibilities.

 

Any Assistant Secretary shall have such powers and perform such duties as the Board of Directors or the Chief Executive Officer may from time to time designate.

 

SECTION 15. OTHER POWERS AND DUTIES. Subject to these By-laws and to such limitations as the Board of Directors may from time to time prescribe, the officers of the Corporation shall each have such powers and duties as generally pertain to their respective offices, as well as such powers and duties as from time to time may be conferred by the Board of Directors or the Chief Executive Officer.

 

ARTICLE IV

 

CAPITAL STOCK

 

SECTION 1. CERTIFICATES OF STOCK. Shares of the capital stock of the Corporation may be certificated or uncertificated, as provided under the DGCL. Each stockholder, upon written request to the transfer agent of the Corporation, shall be entitled to a certificate of the capital stock of the Corporation, in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by the Chairman of the Board of Directors, the President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. The Corporation seal and the signatures by the Corporation’s officers, the transfer agent or the registrar may be facsimiles. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law.

 

SECTION 2. TRANSFERS. Subject to any restrictions on transfer and unless otherwise provided by the Board of Directors, shares of stock may be transferred only on the books of the Corporation (a) with respect to certificated shares, by the surrender to the Corporation or its transfer agent of the certificate theretofore properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require, or (b) with respect to uncertificated shares, upon delivery of a instruction duly executed, and with such proof of authenticity of the signature as the Corporation or its transfer agent may reasonably require, in each case as well as payment of all taxes thereon.

 

SECTION 3. RECORD HOLDERS. Except as may otherwise be required by law, by the Certificate or by these By-laws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these By-laws.

 

10
 

 

SECTION 4. RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders, shall, unless otherwise required by law, not be more than 60 nor less than 10 days before the date of such meeting and (b) in the case of any other action, shall not be more than 60 days prior to such other action. If no record date is fixed: (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and (ii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

 

SECTION 5. REPLACEMENT OF CERTIFICATES. In case of the alleged loss, destruction or mutilation of a certificate of stock, a duplicate certificate or uncertificated shares may be issued in place thereof, upon such terms as the Board of Directors may prescribe.

 

ARTICLE V

 

INDEMNIFICATION

 

SECTION 1. DEFINITIONS. For purposes of this Article:

 

(a)   “Corporate Status” describes the status of a person who is serving or has served (i) as a Director of the Corporation, (ii) as an Officer of the Corporation, or (iii) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Corporation. For purposes of his Section 1(a), an Officer or Director of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation;

 

(b)   “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;

 

(c)   “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;

 

(d)   “Expenses” means all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;

 

(e)   “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;

 

(f)   “Officer” means any person who serves or has served the Corporation as an officer appointed by the Board of Directors of the Corporation;

 

(g)   “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and

 

11
 

 

(h)   “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) 50% or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) 50% or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.

 

SECTION 2. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Subject to the operation of Section 4 of this Article V of these By-laws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment) against any and all Expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any threatened, pending or completed Proceeding or any claim, issue or matter therein, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 2 shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives. Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding was authorized by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce an Officer or Director’s rights to Indemnification or, in the case of Directors, advancement of Expenses under these By-laws in accordance with the provisions set forth herein.

 

SECTION 3. INDEMNIFICATION OF NON-OFFICER EMPLOYEES. Subject to the operation of Section 4 of this Article V of these By-laws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses, judgments, penalties, fines and amounts reasonably paid in settlement that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 3 shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized by the Board of Directors of the Corporation.

 

SECTION 4. GOOD FAITH. Unless ordered by a court, no indemnification shall be provided pursuant to this Article V to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person 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 and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (a) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (b) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (c) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.

 

12
 

 

SECTION 5. ADVANCEMENT OF EXPENSES TO DIRECTORS AND OFFICERS PRIOR TO FINAL DISPOSITION.

 

(a)   The Corporation shall advance all Expenses incurred by or on behalf of any Director or Officer in connection with any Proceeding in which such Director or Officer is involved by reason of such Director’s or Officer’s Corporate Status within 10 days after the receipt by the Corporation of a written statement from such Director or Officer requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director or Officer and shall be preceded or accompanied by an undertaking by or on behalf of such Director or Officer to repay any Expenses so advanced if it shall ultimately be determined that such Director or Officer is not entitled to be indemnified against such Expenses.

 

(b)   If a claim for advancement of Expenses hereunder by a Director or Oficer is not paid in full by the Corporation within 10 days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Article V shall not be a defense to the action and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director or Officer is not entitled to an advancement of expenses shall be on the Corporation.

 

(c)   In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

 

SECTION 6. ADVANCEMENT OF EXPENSES TO NON-OFFICER EMPLOYEES PRIOR TO FINAL DISPOSITION.

 

(a)   The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Non-Officer Employee in connection with any Proceeding in which such is involved by reason of the Corporate Status of such Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such to repay any Expenses so advanced if it shall ultimately be determined that such Non-Officer Employee is not entitled to be indemnified against such Expenses.

 

(b)   In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.

 

SECTION 7. CONTRACTUAL NATURE OF RIGHTS.

 

(a)   The foregoing provisions of this Article V shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Article V is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any Proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts.

 

(b)   If a claim for indemnification of Expenses hereunder by a Director or Officer is not paid in full by the Corporation within 60 days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of Prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Article V shall not be a defense to the action and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.

 

(c)   In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

 

13
 

 

SECTION 8. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and advancement of Expenses set forth in this Article V shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these By-laws, agreement, vote of stockholders or Disinterested Directors or otherwise.

 

SECTION 9. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non-Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Article V.

 

ARTICLE VI

 

DIVIDENDS

 

SECTION 1. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Certificate, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, at the sole discretion of the Board of Directors.

 

SECTION 2. DIVIDEND RESERVE. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.

 

ARTICLE VII

 

MISCELLANEOUS PROVISIONS

 

SECTION 1. FISCAL YEAR. The fiscal year of the Corporation shall be determined by the Board of Directors.

 

SECTION 2. SEAL. The Board of Directors shall have power to adopt and alter the seal of the Corporation.

 

SECTION 3. EXECUTION OF INSTRUMENTS. All deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without Director action may be executed on behalf of the Corporation by the Chairman of the Board, if one is elected, the President or the Treasurer or any other officer, employee or agent of the Corporation as the Board of Directors or Executive Committee may authorize.

 

SECTION 4. VOTING OF SECURITIES. Unless the Board of Directors otherwise provides, the Chairman of the Board, if one is elected, the President or the Treasurer may waive notice of and act on behalf of this Corporation, or appoint another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by this Corporation.

 

SECTION 5. RESIDENT AGENT. The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.

 

SECTION 6. CORPORATE RECORDS. The original or attested copies of the Certificate, By-laws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock transfer books, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, may be kept outside the State of Delaware and shall be kept at the principal office of the Corporation, at the office of its counsel or at an office of its transfer agent or at such other place or places as may be designated from time to time by the Board of Directors.

 

14
 

 

SECTION 7. CERTIFICATE. All references in these By-laws to the “Certificate” shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and/or restated and in effect from time to time.

 

SECTION 8. AFFIDAVIT OF MAILING OR TRANSMISSION. An affidavit of mailing or transmission, executed by a duly authorized and competent employee of the Corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or Director or Directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained.

 

SECTION 9. ELECTRONIC TRANSMISSION. When used in these By-laws and when permitted by applicable law, the terms “written” and “in writing” shall include any “electronic transmission,” as defined in Section 232(c) of the DGCL, including without limitation any telegram, cablegram, facsimile transmission and communication by electronic mail, and “address” shall include the recipient’s electronic address for such purposes.

 

SECTION 10. ADDRESS UNKNOWN. If the address of a stockholder or Director be unknown, notice to such person may be sent to the principal executive office of the Corporation.

 

SECTION 11. AMENDMENT OF BY-LAWS. These By-laws may be altered, amended or repealed, in whole or in part, or new By-laws may be adopted by the Board or by the stockholders as expressly provided in the Certificate.

 

Adopted ________, 2014 and effective ___________, 2014 

 

15

 

EXHIBIT 4.1

 

 
 

 
 

 

EXHIBIT 10.3

 

1347 PROPERTY INSURANCE HOLDINGS, INC.
2014 EQUITY INCENTIVE PLAN

I.            INTRODUCTION

 

1.1            Purposes . The purposes of the 1347 Property Insurance Holdings, Inc. 2014 Equity Incentive Plan (this “ Plan ) are (i) to align the interests of the Company s shareholders and the recipients of awards under this Plan by increasing the proprietary interest of such recipients in the Company s growth and success; (ii) to advance the interests of the Company by attracting and retaining officers and other employees; and (iii) to motivate such persons to act in the long - term best interests of the Company and its shareholders.

 

1.2            Certain Definitions .

 

Agreement shall mean the written or electronic agreement evidencing an award hereunder between the Company and the recipient of such award.

 

Board shall mean the Board of Directors of the Company.

 

Cause shall mean a participant’s involuntary separation from employment for any of the following reasons: (i) an intentional act of fraud, embezzlement, theft or any other illegal or unethical act in connection with the performance of the participant’s duties as an employee of the Company 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; (ii) intentional damage to the Company’s assets; (iii) conviction of (or plea of nolo contendere to) any felony or other crime involving moral turpitude; (iv) improper, willful and material disclosure or use of the Company’s confidential information or other willful material breach of the participant’s duty of loyalty to the Company; (v) 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 (vi) the participant’s willful failure or refusal to follow the lawful and good faith directions of the Company, as determined in good faith by the Company.

 

Change in Control shall have the meaning set forth in Section 3.8(b) .

 

Code shall mean the Internal Revenue Code of 1986, as amended.

 

Committee shall mean the Committee designated by the Board or a subcommittee thereof, consisting of two or more members of the Board, each of whom shall be (i) a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act; (ii) an “outside director” within the meaning of Section 162(m) of the Code; and (iii) “independent” within the meaning of the rules of The NASDAQ Stock Market or, if the Common Shares are not listed on The NASDAQ Stock Market, within the meaning of the rules of the principal stock exchange on which the Common Shares are then traded.

 

Common Share shall mean a common share of the Company, and all rights appurtenant thereto.

 

 
 

  

Company shall mean 1347 Property Insurance Holdings, Inc., a Delaware corporation, or any successor thereto.

 

Corporate Transaction shall have the meaning set forth in Section 3.8(b) .

 

Disability shall mean the inability of a participant to continue employment with the Company or a Subsidiary due to a long-term disability for which benefits are claimed or received under an insurance plan established by the Company or a Subsidiary.

 

Exchange Act shall mean the Securities Exchange Act of 1934, as amended.

 

Expiration Date shall mean the date on which a Stock Option expires pursuant to Section 2.2(d) of this Plan.

 

Fair Market Value shall mean the closing transaction price of a Common Share as reported on The NASDAQ Stock Market on the date as of which such value is being determined or, if the Common Shares are not listed on The NASDAQ Stock Market, the closing transaction price of a Common Share on the principal national stock exchange on which the Common Shares are traded on the date as of which such value is being determined or, if there shall be no reported transactions for such date, on the next preceding date for which transactions were reported; provided , however , that if the Common Shares are not listed on a national stock exchange or if Fair Market Value for any date cannot be so determined, Fair Market Value shall be determined by the Committee by whatever means or method as the Committee, in the good faith exercise of its discretion, shall at such time deem appropriate and in compliance with Section 409A of the Code.

 

Incumbent Board shall have the meaning set forth in Section 3.8(b) .

 

Outstanding Common Shares shall have the meaning set forth in Section 3.8(b) .

 

Outstanding Voting Securities shall have the meaning set forth in Section 3.8(b) .

 

Person shall have the meaning set forth in Section 3.8(b) .

 

Stock Option shall mean an option to purchase Common Shares which is granted pursuant to Article II .

 

Subsidiary shall mean any corporation, limited liability company, partnership, joint venture or similar entity in which the Company owns, directly or indirectly, an equity interest possessing more than 50% of the combined voting power of the total outstanding equity interests of such entity.

 

Tax Date shall have the meaning set forth in Section 3.5 .

 

2
 

  

1.3            Administration . This Plan shall be administered by the Committee. Stock Options may be awarded under this Plan to eligible persons described in Section 1.4 below. The Committee shall, subject to the terms of this Plan, select eligible persons for participation in this Plan and determine the form, amount and timing of each award to such persons and the number of Stock Options, the exercise price associated with the award, the time and conditions of exercise or settlement of the award and all other terms and conditions of the award, including, without limitation, the form of the Agreement evidencing the award. The Committee may, in its sole discretion and for any reason at any time, take action such that all or a portion of any outstanding Stock Option shall become vested. The Committee shall, subject to the terms of this Plan, interpret this Plan and the application thereof, establish rules and regulations it deems necessary or desirable for the administration of this Plan and may impose, incidental to the grant of an award, conditions with respect to the award, such as limiting competitive employment or other activities. All such interpretations, rules, regulations and conditions shall be conclusive and binding on all parties.

 

The Committee may delegate some or all of its power and authority hereunder to the Board or, subject to applicable law, to the President and Chief Executive Officer or such other executive officer of the Company as the Committee deems appropriate; provided , however , that (i) the Committee may not delegate its power and authority to the Board or the President and Chief Executive Officer or other executive officer of the Company with regard to the grant of a Stock Option to any person who is a “covered employee” within the meaning of Section 162(m) of the Code or who, in the Committee’s judgment, is likely to be a covered employee at any time during the period a Stock Option to such employee would be outstanding and (ii) the Committee may not delegate its power and authority to the President and Chief Executive Officer or other executive officer of the Company with regard to the selection for participation in this Plan of an officer, director or other person subject to Section 16 of the Exchange Act or decisions concerning the timing, pricing or amount of an award to such an officer, director or other person.

 

No member of the Board or Committee, and neither the President and Chief Executive Officer nor any other executive officer to whom the Committee delegates any of its power and authority hereunder, shall be liable for any act, omission, interpretation, construction or determination made in connection with this Plan in good faith, and the members of the Board and the Committee and the President and Chief Executive Officer or other executive officer shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including attorneys’ fees) arising therefrom to the full extent permitted by law (except as otherwise may be provided in the Company’s Articles of Incorporation and/or By-laws) and under any directors’ and officers’ liability insurance that may be in effect from time to time.

 

A majority of the Committee shall constitute a quorum. The acts of the Committee shall be either (i) acts of a majority of the members of the Committee present at any meeting at which a quorum is present or (ii) acts approved in writing by all of the members of the Committee without a meeting.

 

1.4            Eligibility . Participants in this Plan shall consist of directors and such officers and other employees of the Company and its Subsidiaries as the Committee in its sole discretion may select from time to time. The Committee’s selection of a person to participate in this Plan at any time shall not require the Committee to select such person to participate in this Plan at any other time. For purposes of this Plan, references to employment by the Company shall also mean employment by a Subsidiary and all references to employment shall also mean service to the Company as an independent contractor. The Committee shall determine, in its sole discretion, the extent to which a participant shall be considered employed during any periods during which such participant is on a leave of absence.

 

3
 

  

1.5            Shares Available . Subject to adjustment as provided in Section 3.7 , (i) five percent (5%) of the Common Shares outstanding as of the close of the Company's initial public offering (the "IPO") shall be available for Stock Options granted pursuant to Section 2.2 upon the close of IPO ; and (ii) an additional five percent (5%) of outstanding Common Shares as of the close of the IPO shall be available for future grants. Of the Common Shares available pursuant to 1.5(i), Stock Options available for grant to directors of the Company shall not exceed two percent (2%) of outstanding Common Shares as of the close of the IPO, and the remainder, which shall not be less than three percent (3%), shall be available to grant to officers and key employees.

 

1.6            Per Person Limits . To the extent necessary for a Stock Option to be qualified performance-based compensation under Section 162(m) of the Code and the regulations thereunder, the maximum number of Common Shares with respect to which Stock Options may be granted during any fiscal year of the Company to any person shall be 575,000, subject to adjustment as provided in Section 3.7 .

 

II.           STOCK OPTIONS

 

2.1            Stock Options . Subject to the limits set forth in Sections 1.5 and 1.6 , the Committee may, in its discretion, grant Stock Options to purchase Common Shares to such eligible persons as may be selected by the Committee. The number of Common Shares subject to each Stock Option granted pursuant hereto shall be determined by the Committee in its sole discretion.

 

2.2            Terms Applicable to Stock Options . The Stock Options granted under Sections 2.1 of this Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of this Plan, as the Committee shall deem advisable:

 

(a)           Nonqualified Options . The Stock Options are not intended to qualify as incentive stock options, within the meaning of Section 422 of the Code.

 

(b)           Exercise Price . The exercise price of each Stock Option granted pursuant to Section 1.5(i) shall be equal to the price of the Common Shares as of the close of the IPO. The exercise price of each Stock Option granted pursuant to Section 1.5(ii) shall bear a strike price at or above Fair Market Value, but in no event less than tangible book value per share.

 

(c)           Vesting and Exercisability .

 

i.             Vesting. Except for Stock Options granted to directors, each Stock Option granted pursuant to Section 1.5(i) shall vest in five equal installments. The first installment shall vest on the option grant date, with each succeeding installment vesting one (1) year from the date that the immediately preceding installment became exercisable. Stock Options shall vest pro-rata should the employee leave voluntarily, without Cause, or leaves employment due to a Disability. In the event of the death of the participant, the Stock Options shall fully vest. If a participant's employment with the Company is terminated for Cause, all Stock Options granted under the Plan shall terminate immediately. Stock Options awarded to directors will fully vest immediately on the grant date.

 

4
 

  

ii.          Exercisability. An exercisable Stock Option, or portion thereof, may be exercised only with respect to whole Common Shares.

 

(d)           Expiration Date . Except to the extent earlier exercised pursuant to Section 2.3(e) of the Plan, each Stock Option granted pursuant to Section 1.5(i) shall terminate at 5:00 p.m., Central time, on the fifth anniversary of the grant date, given that the holder of such Stock Option remains in employment with the Company through such expiration date; provided that if the fifth anniversary of the grant date shall occur during or within 10 business days after a period (a “Black-out Period”) in which the participant is restricted from buying or selling Common Shares under the Company’s trading policy or applicable law, such Stock Option instead shall terminate on the 10 th business day after the end of the Black-out Period. If the employee leaves voluntarily, without Cause, due to a disability, or in case of death, the Stock Option will expire 90 days from the date the employment ends.

 

(e)           Method of Exercise . A Stock Option granted pursuant to Section 1.5(i) may be exercised (i) by giving written notice to the Company specifying the number of whole Common Shares to be purchased and accompanying such notice with payment therefor in full (or arrangement made for such payment to the Company’s satisfaction) either (A) in cash or (B) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise, or such other forms as authorized by the Committee from time to time including without limitation tendering previously acquired shares or net settlement and (ii) by executing such documents as the Company may reasonably request. No Common Shares shall be issued and no certificate representing Common Shares shall be delivered until the full exercise price therefor and any withholding taxes thereon, as described in Section 3.5 , have been paid (or arrangement made for such payment to the Company’s satisfaction).

 

(f)           The Committee shall have discretion in setting terms for the Stock Option granted pursuant to Section 1.5(ii).

 

2.3            No Repricing . Subject to Section 2.1 , Section 3.7 and Section 3.8 , the Committee shall not, without the approval of the shareholders of the Company, (i) reduce the exercise price of any previously granted Stock Option; (ii) cancel any previously granted Stock Option in exchange for another Stock Option with a lower exercise price; or (iii) cancel any previously granted Stock Option in exchange for cash or another award if the exercise price of such Stock Option exceeds the Fair Market Value of a Common Share on the date of such cancellation.

 

III.          GENERAL

 

3.1            Effective Date and Term of Plan . This Plan shall become effective as of the date on which the Plan was approved by the Board. This Plan shall terminate as of the date on which all of the shares available under Section 1.5 have become subject to awards granted under this Plan unless the Plan is terminated earlier by the Board. Termination of this Plan shall not affect the terms or conditions of any award granted prior to termination. Awards hereunder may be made at any time prior to the termination of this Plan.

 

5
 

  

3.2            Amendments .

 

(a)           The Board may amend this Plan as it shall deem advisable; provided , however , that no amendment to the Plan shall be effective without the approval of the Company’s shareholders if shareholder approval is required by applicable law, rule or regulation, including Section 162(m) of the Code or any rule of The NASDAQ Stock Market or any other stock exchange on which the Common Shares are then traded; provided further , that no amendment may materially impair the rights of a holder of an outstanding award without the consent of such holder, except to the extent required by applicable law or regulatory requirements. Any amendment under this Section shall be subject to all necessary regulatory approvals.

 

(b)           Notwithstanding Section 3.2(a) , no amendments to the Plan or an award agreement to:

 

(i)           reduce the exercise price of any Stock Options, or cancel and reissue any Stock Options so as to in effect reduce the exercise price (other than pursuant to Section 3.7 or 3.8 hereof);

 

(ii)          extend the date on which a Stock Option would otherwise expire without having been exercised, or on which it would be forfeited or terminated for the benefit of insiders;

 

(iii)         increase the fixed maximum number of Common Shares reserved for issuance under this Plan (including a change from a fixed maximum number of Common Shares to a fixed maximum percentage of Common Shares); or

 

(iv)         revise these amending provisions set forth in this Section 3.2 ;

 

shall be made without obtaining approval of the shareholders of the Company in accordance with the requirements of The NASDAQ Stock Market , as applicable.

 

(c)           No amendment, suspension or discontinuance of the Plan or of any award may contravene the requirements of The NASDAQ Stock Market or any other stock exchange on which the Common Shares are then traded, any securities commission or other regulatory body to which the Plan or the Company is now or may hereafter be subject to. Termination of the Plan shall not affect the ability of the Board to exercise the powers granted to it hereunder with respect to awards granted under the Plan prior to the date of such termination.

 

3.3            Agreement . Each award under this Plan shall be evidenced by an Agreement setting forth the terms and conditions applicable to such award. No award shall be valid until an Agreement is executed by the Company and, to the extent required by the Company, either executed by the recipient or accepted by the recipient by electronic means approved by the Company within the time period specified by the Company. Upon such execution or execution and electronic acceptance, and delivery of the Agreement to the Company, such award shall be effective as of the effective date set forth in the Agreement.

 

6
 

  

3.4            Non-Transferability . No award shall be transferable other than by will, the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Committee or, to the extent expressly permitted in the Agreement relating to such award, to the holder’s family members, a trust or entity established by the holder for estate planning purposes or a charitable organization designated by the holder, in each case, without consideration. Except to the extent permitted by the foregoing sentence or the Agreement relating to an award, each award may be exercised or settled during the holder’s lifetime only by the holder or the holder’s legal representative or similar person. Except as permitted by the second preceding sentence, no award may be sold, transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed of (whether by operation of law or otherwise) or be subject to execution, attachment or similar process. Upon any attempt to so sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of any award, such award and all rights thereunder shall immediately become null and void.

 

3.5            Tax Withholding . The Company shall have the right to require, prior to the issuance or delivery of any Common Shares or the payment of any cash pursuant to an award made hereunder, payment by the holder of such award of any federal, state, local or other taxes which may be required to be withheld or paid in connection with such award. An Agreement may provide that (i) the Company shall withhold whole Common Shares which would otherwise be delivered to a holder, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with an award (the “ Tax Date ”), or withhold an amount of cash which would otherwise be payable to a holder, in the amount necessary to satisfy any such obligation or (ii) the holder may satisfy any such obligation by any of the following means: (A) a cash payment to the Company; (B) delivery (either actual delivery or by attestation procedures established by the Company) to the Company of previously owned whole Common Shares having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation; (C) authorizing the Company to withhold whole Common Shares which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash which would otherwise be payable to a holder, equal to the amount necessary to satisfy any such obligation; (D) in the case of the exercise of a Stock Option, a cash payment by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise or (E) any combination of (A), (B) and (C), in each case to the extent permitted by the Committee. Common Shares to be delivered or withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate. Any fraction of a Common Share which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by the holder.

 

3.6            Restrictions on Shares . Each award made hereunder shall be subject to the requirement that if at any time the Company determines that the listing, registration or qualification of the Common Shares subject to such award upon any securities exchange or under any law, or the consent or approval of any governmental body, or the taking of any other action is necessary or desirable as a condition of, or in connection with, the delivery of shares thereunder, such shares shall not be delivered unless such listing, registration, qualification, consent, approval or other action shall have been effected or obtained, free of any conditions not acceptable to the Company. The Company may require that certificates evidencing Common Shares delivered pursuant to any award made hereunder bear a legend indicating that the sale, transfer or other disposition thereof by the holder is prohibited except in compliance with the Securities Act of 1933, as amended, and the rules and regulations thereunder, or other applicable securities laws.

 

7
 

  

3.7            Adjustment . In the event of any equity restructuring (within the meaning of Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation—Stock Compensation) that causes the per share value of Common Shares to change, such as a stock dividend, stock split, reverse stock split, spinoff, rights offering or recapitalization through an extraordinary dividend, the number and class of securities available under this Plan with respect to Stock Options, the terms of each outstanding Stock Option (including the number and class of securities subject to each outstanding Stock Option and the exercise price per share), and the maximum number of securities with respect to which Stock Options may be granted during any fiscal year of the Company to any one participant shall be appropriately adjusted by the Committee, such adjustments to be made in the case of outstanding Stock Options without an increase in the aggregate exercise price and in accordance with Section 409A of the Code. In the event of any other change in corporate capitalization, including a merger, consolidation, reorganization, or partial or complete liquidation of the Company, such equitable adjustments described in the foregoing sentence shall be made as determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of rights of participants. In either case, the decision of the Committee regarding any such adjustment shall be final, binding and conclusive.

 

3.8            Change in Control .

 

(a)           Upon a Change in Control:

 

(i)           the Board (as constituted immediately prior to such Change in Control) may in its discretion:

 

(A)          require that shares of stock of the corporation 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 Stock Option, with an appropriate and equitable adjustment to such award as shall be determined by the Board in accordance with Section 3.7 ; and/or

 

(B)          require outstanding Stock Options, 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 such Stock Option surrendered multiplied by the excess, if any, of the Fair Market Value 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.

 

8
 

  

(b)           A “ Change in Control ” means any of the following events:

 

(i)           the acquisition by any individual, entity or group (a “ Person ”), including any “person” within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 50% or more of either (x) the then outstanding Common Shares (the “ Outstanding Common Shares ”) or (y) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the “ Outstanding Voting Securities ”); excluding, however, the following: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of an exercise, conversion or exchange privilege unless the security being so exercised, converted or exchanged was acquired directly from the Company); (B) any acquisition by the Company; (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; or (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 3.8(b) ; provided further, that for purposes of clause (B), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 50% or more of the Outstanding Common Shares or 50% or more of the Outstanding Voting Securities by reason of an acquisition by the Company, and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Common Shares or any additional Outstanding Voting Securities and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change in Control;

 

(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 (a “ Corporate Transaction ”); excluding, however, a Corporate Transaction pursuant to which (A) all or substantially all of the individuals or entities who are the beneficial owners, respectively, of the Outstanding Common Shares and the Outstanding Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than 50% of, respectively, the outstanding shares of common stock, and the combined voting power of the outstanding securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or indirectly) in substantially the same proportions relative to each other as their ownership, immediately prior to such Corporate Transaction, of the Outstanding Common Shares and the Outstanding Voting Securities, as the case may be, (B) no Person (other than: the Company; any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; the corporation resulting from such Corporate Transaction; and any Person which beneficially owned, immediately prior to such Corporate Transaction, directly or indirectly, 50% or more of the Outstanding Common Shares or the Outstanding Voting Securities, as the case may be) will beneficially own, directly or indirectly, 50% or more of, respectively, the outstanding shares of common stock of the corporation resulting from such Corporate Transaction or the combined voting power of the outstanding securities of such corporation entitled to vote generally in the election of directors, and (C) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or

 

9
 

  

(iii)        the consummation of a plan of complete liquidation or dissolution of the Company.

 

3.9            No Right of Participation, Employment or Service . Unless otherwise set forth in an award agreement, employment agreement or any other agreement between the Company and a participant, no person shall have any right to participate in this Plan. Neither this Plan nor any award made hereunder shall confer upon any person any right to continued employment by or service with the Company, any Subsidiary or any affiliate of the Company or affect in any manner the right of the Company, any Subsidiary or any affiliate of the Company to terminate the employment or service of any person at any time without liability hereunder. Further, participation in the Plan is voluntary.

 

3.10          Rights as Shareholder . No person shall have any right as a shareholder of the Company with respect to any Common Shares or other equity security of the Company which is subject to an award hereunder unless and until such person becomes a shareholder of record with respect to such Common Shares or equity security.

 

3.11          Designation of Beneficiary . The Committee may permit the holder of an award to file with the Company a written designation of one or more persons as such holder’s beneficiary or beneficiaries (both primary and contingent) in the event of the holder’s death or incapacity. To the extent an outstanding Stock Option granted hereunder is exercisable, such beneficiary or beneficiaries shall be entitled to exercise such Stock Option pursuant to procedures prescribed by the Company. Each beneficiary designation shall become effective only when filed in writing with the Company during the holder’s lifetime on a form prescribed by the Company. The spouse of a married holder domiciled in a community property jurisdiction shall join in any designation of a beneficiary other than such spouse. The filing with the Company of a new beneficiary designation shall cancel all previously filed beneficiary designations. If a holder fails to designate a beneficiary, or if all designated beneficiaries of a holder predecease the holder, then each outstanding award held by such holder, to the extent vested or exercisable, shall be payable to or may be exercised by such holder’s executor, administrator, legal representative or similar person.

 

3.12          Governing Law . This Plan, each award hereunder and the related Agreement, and all determinations made and actions taken pursuant thereto, to the extent not otherwise governed by the Code or applicable federal law, shall be governed by the laws of the State of Delaware and construed in accordance therewith without giving effect to principles of conflicts of laws.

 

10
 

  

3.13          Foreign Employees . Without amending this Plan, the Committee may grant awards to eligible persons who are foreign nationals and/or reside outside the U.S. on such terms and conditions different from those specified in this Plan as may in the judgment of the Committee be necessary or desirable to foster and promote achievement of the purposes of this Plan and, in furtherance of such purposes the Committee may make such modifications, amendments, procedures, subplans and the like as may be necessary or advisable to comply with provisions of laws in other countries or jurisdictions in which the Company or its Subsidiaries operates or has employees.

 

3.14          Awards Subject to Clawback . The awards granted under this Plan and any cash payment or Common Shares delivered pursuant to an award are subject to forfeiture, recovery by the Company or other action pursuant to the applicable Agreement or any clawback or recoupment policy which the Company may adopt from time to time, including without limitation any such policy which the Company may be required to adopt under the Dodd-Frank Wall Street Reform and Consumer Protection Act and implementing rules and regulations thereunder, or as otherwise required by law.

 

3.15          Section 409A of the Code . It is intended that Awards under the Plan either be excluded from or comply with the requirements of Section 409A of the Code, and the guidance and regulations issued thereunder and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and Awards shall be structured consistent with such intent. In the event that any Award is subject to but fails to comply with Section 409A of the Code, the Committee may revise the terms of the grant to correct such noncompliance to the extent permitted under any guidance, procedure or other method promulgated by the Internal Revenue Service now or in the future or otherwise available that provides for such correction as a means to avoid or mitigate any taxes, interest or penalties that would otherwise be incurred by a participant on account of such noncompliance; provided , however , that in no event whatsoever shall the Company or any Subsidiary be liable for any additional tax, interest or penalty imposed upon or other detriment suffered by a participant under Section 409A of the Code or damages for failing to comply with Section 409A of the Code.

 

11

 

 

 

Exhibit 10.4

 

Form of Lock-Up Agreement

[•], 2014

 

Aegis Capital Corp
810 Seventh Avenue, 18 th Floor
New York, New York 10019

 

Ladies and Gentlemen:

 

The undersigned understands that Aegis Capital Corp (the “ Representative ”) proposes to enter into an Underwriting Agreement (the “ Underwriting Agreement ”) with 1347 Property Insurance Holdings, Inc., a Delaware corporation (the “ Company ”), providing for the public offering (the “ Public Offering ”) of shares of common stock, par value $0.001 per share, of the Company (the “ Shares ”).

 

To induce the Representative to continue its efforts in connection with the Public Offering, the undersigned hereby agrees that, without the prior written consent of the Representative, the undersigned will not, during the period commencing on the date hereof and ending 180 days after the date of the Underwriting Agreement (the “ Lock-Up Period ”), (1) offer, pledge, sell, contract to sell, grant or otherwise transfer or dispose of, directly or indirectly, any Shares or any securities convertible into or exercisable or exchangeable for Shares, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “ Lock-Up Securities ”); (2) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Lock-Up Securities, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of Lock-Up Securities, in cash or otherwise; (3) make any demand for or exercise any right with respect to the registration of any Lock-Up Securities; or (4) publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any Lock-Up Securities. Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer Lock-Up Securities without the prior written consent of the Representative in connection with (a) transactions relating to Lock-Up Securities acquired in open market transactions after the completion of the Public Offering; provided that no filing under Section 16(a) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), shall be required or shall be voluntarily made in connection with subsequent sales of Lock-Up Securities acquired in such open market transactions; (b) transfers of Lock-Up Securities (i) as a bona fide gift, (ii) by will or intestacy, (iii) to a family member or trust or other estate planning vehicle for the direct or indirect benefit of the undersigned or a family member (for purposes of this lock-up agreement, “family member” means any relationship by blood, marriage or adoption, not more remote than first cousin) or (iv) to a charity or educational institution; or (c) transfers of Lock-Up Securities to (i) any shareholder, partner or member of, or owner of similar equity interests of the undersigned, as the case may be, (ii) the undersigned’s affiliates or (iii) any investment fund or other entity controlled or managed by the undersigned; provided that in the case of any transfer pursuant to the foregoing clauses (b) or (c), (i) any such transfer shall not involve a disposition for value, (ii) each transferee shall sign and deliver to the Representative a lock-up agreement substantially in the form of this lock-up agreement and (iii) no filing under Section 16(a) of the Exchange Act shall be required or shall be voluntarily made. The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the undersigned’s Lock-Up Securities except in compliance with this lock-up agreement.

 

The undersigned agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this lock-up agreement during the period from the date hereof to the expiration of the Lock-Up Period, the undersigned will give notice thereof to the Company and will not consummate

- 1 -
 

any such transaction or take any such action unless it has received written confirmation from the Company that the Lock-Up Period has expired.

 

If the undersigned is an officer or director of the Company, (i) the undersigned agrees that the foregoing restrictions shall be equally applicable to any issuer-directed or “friends and family” Shares that the undersigned may purchase in the Public Offering; (ii) the Representative agrees that, at least three (3) business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of Lock-Up Securities, the Representative will notify the Company of the impending release or waiver; and (iii) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two (2) business days before the effective date of the release or waiver. Any release or waiver granted by the Representative hereunder to any such officer or director shall only be effective two (2) business days after the publication date of such press release. The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer of Lock-Up Securities not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this lock-up agreement to the extent and for the duration that such terms remain in effect at the time of such transfer.

 

No provision in this agreement shall be deemed to restrict or prohibit the exercise, exchange or conversion by the undersigned of any securities exercisable or exchangeable for or convertible into Shares, as applicable; provided that the undersigned does not transfer the Shares acquired on such exercise, exchange or conversion during the Lock-Up Period, unless otherwise permitted pursuant to the terms of this lock-up agreement. In addition, no provision herein shall be deemed to restrict or prohibit the entry into or modification of a so-called “10b5-1” plan at any time (other than the entry into or modification of such a plan in such a manner as to cause the sale of any Lock-Up Securities within the Lock-Up Period).

 

The undersigned understands that the Company and the Representative are relying upon this lock-up agreement in proceeding toward consummation of the Public Offering. The undersigned further understands that this lock-up agreement is irrevocable and shall be binding upon the undersigned’s heirs, legal representatives, successors and assigns.

 

The undersigned understands that, if the Underwriting Agreement is not executed by [•], 2014, or if the Underwriting Agreement (other than the provisions thereof which survive termination) shall terminate or be terminated prior to payment for and delivery of the Shares to be sold thereunder, then this lock-up agreement shall be void and of no further force or effect.

 

- 2 -
 

Whether or not the Public Offering actually occurs depends on a number of factors, including market conditions. Any Public Offering will only be made pursuant to an Underwriting Agreement, the terms of which are subject to negotiation between the Company and the Representative.

 

Very truly yours,

 

 

                                                                                                       

(Name - Please Print)

 

 

 

                                                                                                          
(Signature)

 

 

 

                                                                                                           
(Name of Signatory, in the case of entities - Please Print)

 

 

 

 

                                                                                                              
(Title of Signatory, in the case of entities - Please Print)

 

 

 

Address: ________________________________________

 

_______________________________________________

 

_______________________________________________

 

- 3 -

 

EXHIBIT 10.6

 

INDEMNIFICATION AGREEMENT

 

THIS AGREEMENT is made this _______ day of _____________, 20__ by and between 1347 Property Insurance Holdings Inc., a Delaware corporation (the “ Corporation ”), and ____________________________ (the “ Director and/or Officer ”).

 

WHEREAS the Director and/or Officer has agreed to serve, or continue to serve, as a director and/or officer of the Corporation or as a director, officer, trustee, manager, participating member and/or in any other similar capacity of an Other Entity (as defined below) (any one or more of which capacities constitute an “ Indemnified Capacity ”), providing that adequate liability insurance, indemnification or a combination thereof is, and will continue to be, provided;

 

AND WHEREAS the Corporation, in order to induce the Director and/or Officer to serve or continue to serve the Corporation and/or an Other Entity, has agreed to execute this Agreement to evidence the indemnification of the Director and/or Officer to the fullest extent permitted by law;

 

AND WHEREAS , as a result of such indemnification, the Director and/or Officer has agreed to serve or to continue to serve in an Indemnified Capacity;

 

NOW THEREFORE , in consideration of the promises, conditions, representations and warranties set forth herein, including the Director and/or Officer’s service or continued service to the Corporation and/or Other Entity, the Corporation and the Director and/or Officer hereby agree as follows:

 

1. Definitions: In addition to the other defined words and phrases contained in this Agreement, as used in this Agreement, the following terms have the following meanings, respectively:

 

(a) " Agreement " means this Indemnification Agreement, as amended, supplemented or restated from time to time;

 

(b) Covered Proceeding ” means all civil, criminal, quasi-criminal, administrative, regulatory, investigative or other claims, suits, actions, applications, hearings, arbitrations or proceedings of any nature or kind in which the Director and/or Officer has been named as party or respondent or is required by law to participate or respond because of his or her association with the Corporation or Other Entity, or in which the Director and/or Officer participates either at the request of the Corporation or Other Entity or based on his or her reasonable belief that he or she may be subsequently named in that proceeding, and also includes any and all proceedings that relate to, arise from or are based upon the Director and/or Officer’s service in an Indemnified Capacity, so long as:

 

(i) the Director and/or Officer acted honestly and in good faith with a view to the best interests of the Corporation and/or Other Entity, as the case may be; and

 

- 1 -
 

 

(ii) in the case of a criminal, quasi-criminal, regulatory or administrative action, proceeding or hearing that is enforced by a monetary penalty, the Director and/or Officer had reasonable grounds for believing that the Director and/or Officer’s conduct was lawful;

 

(which conduct collectively constitutes the “ Standards of Conduct ”);

 

(c) Excluded Proceeding ” means any civil, criminal, quasi-criminal, administrative, regulatory, or investigative or other claim, suit, action, application, hearing, arbitration or proceeding of any nature or kind:

 

(i) initiated by the Director and/or Officer against the Corporation or Other Entity, unless it is brought to establish or enforce any right under this Agreement;

 

(ii) initiated by the Director and/or Officer against any director or officer (or an individual holding a similar capacity) of the Corporation or Other Entity unless the Corporation or Other Entity, as the case may be, has joined in or consented to the initiation of such proceeding;

 

(iii) initiated by the Director and/or Officer against any other corporation, partnership, trust, joint venture, unincorporated entity or person, unless it is a counterclaim;

 

(iv) involving the payment or reimbursement for Losses or Expenses to the Director and/or Officer by the Corporation not permitted by applicable law; or

 

(v) which is not a Covered Proceeding;

 

(d) Expenses ” means any and all fees, charges, disbursements and expenses which may be reasonably incurred by the Director and/or Officer in connection with or as a result of the investigation and defense of a Covered Proceeding, including, without limitation, reasonable and necessary attorneys’ fees, costs, expenses and disbursements, costs of investigative, judicial, regulatory or administrative proceedings, arbitrations or appeals and, subject to the terms of this Agreement, all such fees, charges, disbursements and expenses which the Director and/or Officer may reasonably incur in any proceedings to enforce rights and/or defend against or respond to a Covered Proceeding under this Agreement;

 

(e) Indemnified Capacity ” has the meaning set out in the recitals to this Agreement;

 

(f) Losses ” means all judgements, damages, fines, penalties, liabilities, settlement amounts or any other expense which the Director and/or Officer may incur or become liable to pay as a result of any Covered Proceeding, whether incurred alone or jointly with others, and includes Expenses;

 

- 2 -
 

 

(g) Other Entity ” means each subsidiary or affiliate of the Corporation and each of the respective committees or bodies of such subsidiary or affiliate, in each case, for whom the Director and/or Officer has agreed to serve in an Indemnified Capacity at the request of the Corporation; and

 

(h) Standards of Conduct ” has the meaning set out at subsection 1(b) herein.

 

2. Indemnification: The Corporation shall indemnify and hold the Director and/or Officer harmless against any and all Losses and Expenses which the Director and/or Officer may incur or be required to pay as a result of any Covered Proceeding subject, in each case, to the provisions of this Agreement and the following:

 

(a) unless a court or other authority of competent jurisdiction has expressly so ruled in respect of the Director and/or Officer, the resolution of any Covered Proceeding by judgment, order, settlement or conviction shall not of itself create a presumption either that the Director and/or Officer did not adhere to the Standards of Conduct in the circumstances relating to the Covered Proceeding or that the Director and/or Officer is not entitled to indemnity under this Agreement; and

 

(b) in respect of an action by or on behalf of the Corporation to procure judgement in its favour to which the Director and/or Officer is made a party by reason of having served in an Indemnified Capacity, the Corporation shall make application for approval of the court having jurisdiction to furnish indemnity and make advances as needed by the Director and/or Officer, provided that the Director and/or Officer adhered to the Standards of Conduct.

 

3. Excluded Coverage: The Corporation shall have no obligation to indemnify and hold the Director and/or Officer harmless against any Losses or Expenses which have been judicially determined to constitute an Excluded Proceeding.

 

4. Indemnification Procedures:

 

(a) Promptly after receipt by the Director and/or Officer of notice of the commencement, or the threat of commencement, of a Covered Proceeding or potential Covered Proceeding (a “ Commencement Notice ”), the Director and/or Officer shall, if indemnification with respect thereto may be sought from the Corporation under this Agreement, notify the Corporation in writing in respect thereof and provide to the Corporation concurrently therewith copies of any demand letter, Statement of Claim, complaint, pleading, request for arbitration, regulatory or administrative demand, indictment or other claim document. If the Corporation becomes aware of any Covered Proceeding or reasonably expects that a Covered Proceeding or potential Covered Proceeding may be made, the Corporation will promptly and immediately give the Director and/or Officer notice thereof in writing (also a “ Commencement Notice ”).

 

- 3 -
 

 

(b) If, at the time of the receipt or delivery of a Commencement Notice, the Corporation has applicable directors’ and officers’ liability insurance in effect, the Corporation shall give immediate notice of the commencement, or the threat of commencement, of such Covered Proceeding or potential Covered Proceeding to its insurers, primary and excess, in accordance with the procedures set forth in the respective policies in favour of the Director and/or Officer. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Director and/or Officer, all Losses and Expenses payable as a result of such Covered Proceeding or potential Covered Proceeding in accordance with the terms of such policies, including but not limited to the payment of any applicable deductible or retention.

 

(c) To the extent the Corporation does not, at the time of the commencement of or the threat of commencement of a Covered Proceeding or potential Covered Proceeding, have applicable directors’ and officers’ liability insurance in effect, or if a determination is made by the insurance carrier that any Expenses arising out of such Covered Proceeding or potential Covered Proceeding will not be payable under the directors’ and officers’ liability insurance then in effect, the Corporation shall be obligated to pay contemporaneously the Expenses of any such action, suit, arbitration or proceeding in advance of the final disposition thereof; and the Corporation shall be entitled, at its expense and in a timely manner, to assume the defense of such Covered Proceeding or potential Covered Proceeding with counsel satisfactory to the Director and/or Officer, acting reasonably, upon the delivery to the Director and/or Officer of written notice of its election so to do (a “ Defense Notice ”). After the Director and/or Officer is in receipt of a Defense Notice, the Corporation will not be liable to the Director and/or Officer under this Agreement for any Expenses subsequently incurred by the Director and/or Officer in connection with any such Covered Proceeding or potential Covered Proceeding and the Corporation will keep the Director and/or Officer informed on a timely basis regarding all material steps and developments, provided that the Director and/or Officer shall have the right to employ his or her own counsel in any such Covered Proceeding or potential Covered Proceeding, but the fees and expenses of such counsel incurred after receipt of the Defense Notice shall be at the Director and/or Officer’s expense, provided however that if:

 

(i) the employment of counsel by the Director and/or Officer has been previously authorized by the Corporation;

 

(ii) the Director and/or Officer shall have reasonably concluded that there may be a conflict of interest between the Corporation and the Director and/or Officer in the conduct of any such defense; or

 

(iii) the Corporation does not in a timely manner employ counsel to assume the defense of such Covered Proceeding or potential Covered Proceeding or undertake such legal steps as may from time to time be needed to properly defend the Director and/or Officer against such Covered Proceeding or potential Covered Proceeding;

 

then the attorneys’ fees, costs and expenses of such counsel employed by the Director and/or Officer shall be at the expense of the Corporation.

 

- 4 -
 

 

(d) The Director and/or Officer and his or her advisors, including legal counsel, may, with the consent of the Corporation’s chairperson or board of directors (which consent shall not be unreasonably withheld or delayed), review during regular business hours all documents, records and other information under the Corporation’s control with respect to the Corporation or any Other Entity in which the Director and/or Officer has served in an Indemnified Capacity and which may be reasonably necessary in order for the Director and/or Officer to defend himself or herself against any Covered Proceeding or potential Covered Proceeding, provided that the Director and/or Officer and his or her advisors, including legal counsel, shall maintain all such information in the strictest confidence except to the extent necessary for his or her defense in the Covered Proceeding or potential Covered Proceeding. At any time after there has been a change of control of the Corporation, or a receiver, rehabilitator, liquidator or trustee in bankruptcy has been appointed in respect of the Corporation, the Director and/or Officer and his or her advisors shall be entitled to review the information referred to in this subsection 4(d), subject to the conditions set out herein, whether or not the Corporation’s new chairperson or board of directors or the receiver or trustee in bankruptcy has provided the consent referred to herein. The Director and/or Officer’s right to review documents shall not apply where the claim or proceeding is initiated by the Corporation or by any of its subsidiaries, provided, however, that this limitation is not meant to in any way limit or preclude any party’s right to discovery, production of documents or other legal process.

 

(e) All payments on account of the Corporation’s indemnification obligations under this Agreement shall be made within thirty (30) days of the Director and/or Officer’s written request therefore (which written request shall be accompanied by applicable supporting documentation), unless a judicial determination has been made that the claims giving rise to the Director and/or Officer’s request are Excluded Proceedings or otherwise not payable under this Agreement, provided that, subject to the provisions of this Agreement and any statutory requirement that court approval be obtained for the indemnification of any Expenses, all payments on account of the Corporation’s obligations under subsection 4(c) of this Agreement prior to the final disposition of any Covered Proceeding or potential Covered Proceeding shall be made within twenty (20) days of the Director and/or Officer’s written request therefore (which written request shall be accompanied by applicable supporting documentation) and such obligation shall not be subject to any such determination, but shall be subject to subsection 4(c) of this Agreement.

 

(f) The Director and/or Officer agrees that he or she will reimburse the Corporation for all Losses and Expenses paid or reimbursed by the Corporation in connection with any action, suit or proceeding against the Director and/or Officer in the event and only to the extent that a determination shall have been made by a court in a final adjudication, from which all rights of appeal have expired, that the Director and/or Officer is not entitled to be indemnified by the Corporation for such Losses and Expenses because the claim is an Excluded Proceeding or because the Director and/or Officer is otherwise not entitled to payment under this Agreement.

 

- 5 -
 

 

5. Settlement: The Corporation shall have no obligation to indemnify the Director and/or Officer under this Agreement for any amounts paid in settlement of any Covered Proceeding effected without the Corporation’s prior written consent. The Corporation shall not conclude a settlement of any Covered Proceeding or potential Covered Proceeding on the Director and/or Officer’s behalf without the Director and/or Officer’s prior written consent. Neither the Corporation nor the Director and/or Officer shall unreasonably withhold or delay consent to any proposed settlement of a Covered Proceeding. If the Director and/or Officer refuses to consent to the terms of a proposed settlement the Corporation may require the Director and/or Officer, at his or her own expense, to assume defensedefense of the Covered Proceeding. In such a case, any amount recovered by the claimant in excess of the amount for which settlement could have otherwise been achieved shall not be recoverable under this Agreement. A Director and/or Officer shall at all times have the right, at his or her own expense, to negotiate and conclude settlement of a Covered Proceeding made against the Director and/or Officer.

 

6. Rights Not Exclusive: This Agreement shall not operate to abridge or exclude any other rights, in law or in equity, to which the Director and/or Officer may be entitled by operation of law or under any statute, bylaw, agreement, vote of securityholders or of disinterested directors or otherwise, both as to action in an Indemnified Capacity and as to action in any other capacity by holding such office, and shall continue after the Director and/or Officer ceases to serve the Corporation in an Indemnified Capacity.

 

7. Enforcement:

 

(a) The burden of proving that indemnification is not required under this Agreement shall be on the Corporation and must be made by a court of law.

 

(b) In the event that any action or proceeding is instituted by the Director and/or Officer under this Agreement to enforce or interpret any of the terms of this Agreement, the Director and/or Officer shall be entitled to be paid all court, arbitration or mediation costs and expenses, including reasonable legal fees and disbursements, incurred by the Director and/or Officer with respect to such action or proceeding, unless the court, arbitrator or mediator determines that each of the material assertions made by the Director and/or Officer as a basis for such action or proceeding were not made in good faith or were frivolous.

 

- 6 -
 

 

8. Duration:

 

(a) Notwithstanding the date of its execution and delivery, this Agreement shall be conclusively deemed to commence on the day upon which the Director and/or Officer first became or becomes a director, officer, trustee, manager and/or participating member of the Corporation and/or an Other Entity or first undertook or undertakes the responsibilities associated with an Indemnified Capacity.

 

(b) The obligations of the Corporation under this Agreement shall continue after the Director and/or Officer ceases to serve in an Indemnified Capacity. Upon ceasing to so act, the Director and/or Officer shall continue to be entitled to all stipulated rights and indemnification hereunder.

 

(c) The liability of the Corporation under this Agreement shall not be affected, discharged, impaired, mitigated or released by reason of the discharge or release of the Director and/or Officer in any bankruptcy, insolvency, receivership or other similar proceeding of creditors.

 

9. Insurance:

 

(a) The Corporation shall maintain in full force and effect a comprehensive program of liability insurance, including policies providing coverage for the liability exposures of directors and officers (the “ Policies ”). To the extent commercially feasible, the salient coverage features of the Policies to be maintained shall be substantially the same as those applicable under the Policies obtained by the Corporation and in effect on the date hereof.

 

(b) If for any reason whatsoever the Director and/or Officer ceases to act in an Indemnified Capacity, the Corporation shall ensure that the liability insurance coverage available to the Director and/or Officer and his or her heirs and legal representatives is at all times substantially equivalent to the coverage maintained for the then current directors and officers. The Corporation shall maintain such continuing coverage for a minimum of six years following the Director and/or Officer ceasing to act in an Indemnified Capacity.

 

(c) In the event that a claim is brought in which the Director and/or Officer is named as party, the Corporation shall promptly pay the insurance deductible or retention applicable under any responding Policies providing coverage to the Director and/or Officer.

 

(d) If one or more of the Policies providing coverage on a “claims-made” basis is cancelled or is not renewed, the Corporation will promptly purchase the maximum degree of extended reporting or discovery period coverage available under such Policies unless:

 

(i) replacement liability insurance has been obtained that does not contain a “retroactive date” so as to deprive the Director and/or Officer of coverage for wrongful acts alleged to have been committed prior to the inception date of such replacement insurance; or

 

- 7 -
 

 

(ii) the Corporation is unable to fund the purchase of such extended coverage by reason of its insolvency or bankruptcy, in which case the Director and/or Officer shall be given reasonable notice regarding its inability to fund such purchase together with an identification of the additional premium that would be required to exercise the extended reporting or discovery period coverage option of the relevant Policies.

 

(e) The Corporation shall promptly advise the Director and/or Officer if:

 

(i) any Policy lapses, is cancelled, or undergoes any material adverse change in coverage or is rescinded in whole or in part; or

 

(ii) any insurer informs the Corporation that all or part of a particular Covered Proceeding or potential Covered Proceeding is not covered by one or more of the Policies.

 

10. Severability: In the event that any provision of this Agreement is determined by a court to require the Corporation to do or to fail to do any act which is in violation of applicable law, such provision shall be limited or modified in its application to the minimum extent necessary to avoid a violation of law, and, as so limited or modified, such provision and the balance of this Agreement shall be enforceable in accordance with their terms.

 

11. Choice of Law; Jurisdiction: This Agreement shall be deemed to have been made in and shall be governed by and construed and enforced in accordance with the laws of the State of Delaware. The parties hereby agree that any claims, disputes or questions arising out of or in relation to this Agreement may be submitted to the jurisdiction of the courts of the State of Delaware. Each of the parties hereto irrevocably attorns to the jurisdiction of the courts of the State of Delaware.

 

12. Subrogation: In the event of any indemnification payment under this Agreement to or on behalf of the Director and/or Officer, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Director and/or Officer, who shall execute all documents and take all actions reasonably requested by the Corporation to implement such right of subrogation.

 

13. Successor and Assigns: This Agreement shall be binding upon all successors and assigns of the Corporation (including any transferee of all or substantially all of its assets and any successor by merger or otherwise by operation of law), and shall be binding upon and enure to the benefit of the Director and/or Officer and his or her heirs, executors, administrators, legal personal representatives and estate.

 

14. Amendment; Waiver: No amendment, modification, termination or cancellation of this Agreement shall be effective unless made in writing signed by each of the parties hereto. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver of any provision of this Agreement constitute a continuing waiver unless otherwise expressly provided.

 

- 8 -
 

 

15. Execution in Counterparts: This Agreement may be executed in several counterparts, by original or facsimile signature or by or through such other electronic form in which a party may place or evidence its signature hereon (including an electronic scan of same), each of which so executed shall be deemed to be an original and such counterparts together shall be deemed to be one and the same instrument, which shall be deemed to be executed as of the day and year first above written.

 

IN WITNESS WHEREOF , the Corporation and the Director and/or Officer have executed this Agreement as of the day and year first above written.

 

    1347 Property Insurance Holdings Inc.
     
    Per:   
      Name:
      Title:

 

    Per:   
       
      Name:
      Title:

 

SIGNED, SEALED AND DELIVERED  )  
In the presence of:  )  
   )  
   )  
   )  
Signature of Witness  ) Name:   
     
   )  
   )  
   )  
Print Full Name of Witness  )  

 

- 9 -

 

 

EXHIBIT 10.8

 

INVESTMENT AGREEMENT

 

by and between

 

DOUGLAS N. RAUCY

 

and

 

1347 PROPERTY INSURANCE HOLDINGS, INC.

 

Dated as of             , 2014

 

 

INVESTMENT AGREEMENT dated as of             , 2014 (this “ Agreement ”) between Douglas N. Raucy (“Raucy”) and 1347 Property Insurance Holdings, Inc., a Delaware corporation (“ PIH ” or the “ Company ”).

 

RECITALS

 

Whereas, PIH has filed with the U.S. Securities and Exchange Commission a registration statement on Form S-1 with respect to an initial public offering of its common stock (“ IPO ”);

 

Whereas, Raucy is the President and CEO of PIH and is the holder of 288,000 shares of common stock of Prepared Holdings LLC, a limited liability company that owns a Florida homeowner’s insurer (the “ Prepared Shares ”);

 

Whereas, the Board of Directors of PIH wishes to incentivize Raucy to act in the long-term best interest of PIH and its shareholders;

 

Whereas, in furtherance thereto, the Company desires to issue to Raucy _____ shares of common stock of PIH (the “ Exchanged Shares ”) in exchange for the Prepared Shares, subject to the conditions set forth herein (the “ Exchange ”);

 

Whereas, as further incentive, the Company desires to match the Exchanged Shares one-for one with restricted shares of the Company’s common stock (the “ Matched Shares ”).

 

Now, therefore, in consideration of the mutual covenants and agreements contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows:

 

ARTICLE I

 

THE EXCHANGE OF SHARES

 

Section 1.1  The Exchange . At the Closing (as hereinafter defined), Raucy shall exchange, assign and transfer to the Company all right, title and interest in and to the Prepared Shares, and the Company shall issue _____ shares of the common stock of the Company to Raucy. The valuation of the Prepared Shares shall be based on tangible book value per share using the September 30, 2013 GAAP consolidated financial statements of Prepared Holdings LLC. The number of Company shares issued to Raucy in exchange for the Prepared Shares shall equal the value of the Prepared Shares (but in no event shall such valuation exceed $350,000) divided by the price of the Company’s common stock price as of the close of the IPO.

 

 
 

 

ARTICLE II

 

CLOSING

 

Section 2.1  Closing of the Exchange .

 

(a) The closing shall take place on _________, 2014 (the “Closing”).

 

(b) At the Closing, Raucy shall deliver to the Company stock certificates of Prepared Holdings LLC duly transferred to the Company. Raucy shall instruct Prepared Holdings LLC to modify its books and records to reflect the delivery and transfer of the Prepared Shares to the Company and the Company shall receive evidence of such modification.

 

(c) At the Closing, the Company shall issue and deliver to Raucy duly executed stock certificates of the Company registered in Raucy’s name representing ______ shares of common stock of the Company.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OF RAUCY

 

Raucy represents and warrants to Company as of the date hereof that all of the Prepared Shares are owned by him of record and beneficially, free and clear of all encumbrances or liens. Raucy further represents and warrants that this Agreement is a valid and binding obligation upon him, enforceable against him in accordance with its terms.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF COMPANY

 

Company represents and warrants to Raucy as of the date hereof that:

 

Section 4.1  Existence and Power . Company is duly organized and validly existing under the laws of the state of its organization and has all requisite power and authority to enter into and perform its obligations under this Agreement.

 

Section 4.2  Authorization . The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of the Company, and this Agreement is a valid and binding obligation of the Company, enforceable against it in accordance with its terms.

 

Section 4.3  Valid Issuance . The Exchanged Shares have been duly authorized by all necessary corporate action. When issued and sold against receipt of the consideration therefor, the Exchanged Shares will be validly issued, fully paid and nonassessable, will not subject the holders thereof to personal liability and will not be issued in violation of preemptive rights.

 

Section 4.4  Non-Contravention . The execution, delivery and performance of this Agreement will not conflict with, violate or result in a breach of any provision of, or constitute a default (or an event which, with notice or lapse of time or both would constitute a default) under, or result in the termination of or accelerate the performance required by, or result in a right of termination or acceleration under, any provision of the organizational or governing documents of Company.

 

ARTICLE V

 

MATCHED SHARES

 

Section 5.1  Granting of Matched Shares . As soon as practicable after the Closing, and in no event later than thirty days after the date thereof (the “ Award Date ”), the Exchanged Shares shall be matched one-for-one with _______ restricted shares of the common stock of the Company.

 

 
 

 

Section 5.2 Tax Withholding . The Company shall have the right to require, prior to the issuance or delivery of any Matched Shares or the payment of any cash pursuant to an award made hereunder, payment by Raucy of any federal, state, local or other taxes which may be required to be withheld or paid in connection with such award. In furtherance thereof, at the Company’s option (i) (a) the Company may withhold whole Matched Shares which would otherwise be delivered to Raucy, having an aggregate Fair Market Value determined as of the date the obligation to withhold or pay taxes arises in connection with an award (the “ Tax Date ”), or (b) withhold an amount of cash which would otherwise be payable to Raucy, in the amount necessary to satisfy any such obligation or (ii) Raucy may satisfy any such obligation by any of the following means: (A) a cash payment to the Company in the amount necessary to satisfy such obligation; (B) delivery (either actual delivery or by attestation procedures established by the Company) to the Company of previously owned whole Matched Shares having an aggregate Fair Market Value, determined as of the Tax Date, equal to the amount necessary to satisfy any such obligation; (C) authorizing the Company to withhold whole Matched Shares which would otherwise be delivered having an aggregate Fair Market Value, determined as of the Tax Date, or withhold an amount of cash which would otherwise be payable to Raucy, equal to the amount necessary to satisfy any such obligation; (D) or any combination of (A), (B) and (C), in each case to the extent permitted by the Company. Matched Shares to be delivered or withheld may not have an aggregate Fair Market Value in excess of the amount determined by applying the minimum statutory withholding rate. Any fraction of a Matched Share which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by Raucy to the Company.

 

ARTICLE VI

 

VESTING

 

Section 6.1 Vesting . Subject to Raucy’s continued service from the Award Date through the vesting date, the Matched Shares will not vest until the five year anniversary of the Award Date (the “ Vesting Date ”). In the event that Raucy sells, transfers or otherwise disposes of any of the Exchanged Shares prior to the Vesting Date, Raucy shall forfeit to the Company an amount of Matched Shares equal to the Exchanged Shares sold, transferred or otherwise disposed of. Raucy will automatically forfeit to the Company all of the unvested Matched Shares made hereunder on the date of his termination of service to the extent such termination occurs during the vesting period. Notwithstanding the foregoing vesting schedule, the Matched Shares will become 100% vested upon Raucy’s death.

 

ARTICLE VII

 

TERMINATION

 

Section 7.1  Injunction; Illegality . This Agreement may be terminated at any time prior to the Closing by the Company if (a) an order, injunction or decree shall have been issued by any court or agency of competent jurisdiction and shall be non-appealable, or other law shall have been issued preventing or making the completion of the Exchange or the other transactions contemplated by this Agreement illegal or (b) the IPO fails to close.

 

ARTICLE VIII

 

MISCELLANEOUS

 

Section 8.1  Notices . All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given if delivered personally or by facsimile or seven days after having been sent by certified mail, return receipt requested, postage prepaid, to the parties to this Agreement at the following address or to such other address either party to this Agreement shall specify by notice to the other party:

 

(a) if to Raucy, to:

 

Douglas N. Raucy

16404 Brieva DE Avila

Tampa, FL 33613

 

 
 

 

 

(b) if to Company, to:

 

1347 Property Insurance Holdings, Inc.

9100 Bluebonnet Centre Blvd., Suite 502

Baton Rouge, LA 70809

ATTN:  _________

 

Section 8.2  Further Assurances . Each party hereto shall do and perform or cause to be done and performed all further acts and shall execute and deliver all other agreements, certificates, instruments and documents as any other party hereto reasonably may request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

Section 8.3  Amendments and Waivers . Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is duly executed and delivered by the Company and Raucy. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.

 

Section 8.4  Fees and Expenses . Each party hereto shall pay all of its own fees and expenses (including attorneys’ fees) incurred in connection with this Agreement and the transactions contemplated hereby.

 

Section 8.5  Successors and Assigns . The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns,  provided  that neither party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other party hereto.

 

Section 8.6  Governing Law . This Agreement shall be governed and construed in accordance with the internal laws of the State of Delaware applicable to contracts made and wholly performed within such state, without regard to any applicable conflicts of law principles. The parties hereto agree that any suit, action or proceeding brought by either party to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in any federal or state court located in the State of Delaware. Each of the parties hereto submits to the jurisdiction of any such court in any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of, or in connection with, this Agreement or the transactions contemplated hereby and hereby irrevocably waives the benefit of jurisdiction derived from present or future domicile or otherwise in such action or proceeding. Each party hereto irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

 

Section 8.7  Waiver Of Jury Trial . EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

 

Section 8.8  Entire Agreement . This Agreement constitutes the entire agreement between the parties with respect to the subject matter of this Agreement and supersedes all prior agreements and understandings, both oral and written, between the parties and/or their affiliates with respect to the subject matter of this Agreement.

 

Section 8.9  Effect of Headings . The Article and Section headings herein are for convenience only and shall not affect the construction hereof.

 

Section 8.10  Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be deemed to be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision were so excluded and shall be enforced in accordance with its terms to the maximum extent permitted by law.

 

 
 

 

Section 8.11  Counterparts; Third Party Beneficiaries . This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures were upon the same instrument. No provision of this Agreement shall confer upon any person other than the parties hereto any rights or remedies hereunder.

 

Section 8.12  Specific Performance . The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms. It is accordingly agreed that the parties shall be entitled to seek specific performance of the terms hereof, this being in addition to any other remedies to which they are entitled at law or equity.

 

[Signature Page Follows]

 

 
 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.

 

DOUGLAS N. RAUCY   1347 PROPERTY INSURANCE HOLDINGS, INC.
       
    By:  
    Name:   
    Title:  
       
    By:  
    Name:   
    Title:  

 

 

 

 

EXHIBIT 10.9

 

SERIES A CONVERTIBLE PREFERRED SHARES PURCHASE AGREEMENT

 

THIS SERIES A CONVERTIBLE PREFERRED SHARES PURCHASE AGREEMENT, dated as of January 23, 2014 (as it may from time to time be amended and including all exhibits referenced herein, this “ Agreement ”), is entered into by and between 1347 Property Insurance Holdings, Inc., a Delaware corporation (the “ Company ”), and Fund Management Group LLC, a Connecticut limited liability company (the “ Purchaser ”).

 

RECITALS

 

WHEREAS, the Company intends to consummate a public offering (the “ Public Offering ”) of the Company’s common stock, par value $0.001 per share (the “ Common Stock ”); and

 

WHEREAS, prior to the Public Offering, the Company wishes to sell, and the Purchaser wishes to purchase, an aggregate of eighty thousand (80,000) shares of the Company’s Series A Convertible Preferred Shares, par value $25.00 per share (the “ Preferred Shares ”), having the rights and preferences set forth in the Certificate of Designation attached hereto as Exhibit A (the “ Certificate of Designation ”), including, without limitation, the right to convert such Preferred Shares into shares of Common Stock and warrants to purchase shares of Common Stock (“ Warrants ”) on the terms and conditions set forth therein;

 

NOW THEREFORE, in consideration of the mutual promises contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby, intending legally to be bound, agree as follows:

 

AGREEMENT

 

1.           Purchase and Sale of the Preferred Shares . On the date hereof (the “ Closing Date ”), the Company shall issue and sell to the Purchaser, and the Purchaser shall purchase from the Company, the Preferred Shares, at a price of $25.00 per Preferred Share, for an aggregate purchase price of two million dollars ($2,000,000) (the “ Purchase Price ”), which shall be paid by wire transfer of immediately available funds to the Company in accordance with the Company’s wiring instructions. On the Closing Date, upon the payment by the Purchaser of the Purchase Price by wire transfer of immediately available funds to the Company, the Company shall issue the Preferred Shares to the Purchaser, and deliver to the Purchaser a stock certificate representing the Preferred Shares.

 

2.           Representations and Warranties of the Company . As a material inducement to the Purchaser to enter into this Agreement and purchase the Preferred Shares, the Company hereby represents and warrants to the Purchaser (which representations and warranties shall survive the Closing Date) that:

 

(a)           Organization and Corporate Power . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in every jurisdiction in which the failure to so qualify would reasonably be expected to have a material adverse effect on the financial condition, operating results or assets of the Company. The Company possesses all requisite corporate power and authority necessary to carry out the transactions contemplated by this Agreement.

 

1
 

 

(b)           Authorization; No Breach .

 

(i)          The execution, delivery and performance of this Agreement, and the issuance of the Preferred Shares, the shares of Common Stock and Warrants issuable upon conversion of the Preferred Shares, and the issuance of the shares of Common Stock issuable upon exercise of the Warrants, have been duly authorized by the Company as of the Closing Date. This Agreement constitutes the valid and binding obligation of the Company, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws of general applicability relating to or affecting creditors’ rights and to general equitable principles (whether considered in a proceeding in equity or law). Upon conversion of the Preferred Shares, the Warrants will constitute valid and binding obligations of the Company.

 

(ii)         The execution and delivery by the Company of this Agreement and the issuance of the Preferred Shares, the shares of Common Stock and Warrants issuable upon conversion of the Preferred Shares, and the issuance of the shares of Common Stock issuable upon exercise of the Warrants, and compliance with the respective terms hereof and thereof by the Company, do not and will not as of the Closing Date and the respective dates of issuance (a) conflict with or result in a breach of the terms, conditions or provisions of, (b) constitute a default under, (c) result in the creation of any lien, security interest, charge or encumbrance upon the Company’s capital stock or assets under, (d) result in a violation of, or (e) require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any court or administrative or governmental body or agency pursuant to the Certificate of Incorporation of the Company or the By Laws of the Company, or any material law, statute, rule or regulation to which the Company is subject, or any agreement, order, judgment or decree to which the Company is subject, except for any filings required after the date hereof under federal or state securities laws.

 

(iii)         Title to Securities . Upon issuance in accordance with, and payment pursuant to, the terms hereof, the Certificate of Designation and the Warrant (as applicable), the Preferred Shares, the shares of Common Stock and Warrants issuable upon conversion of the Preferred Shares, and the shares of Common Stock issuable upon exercise of the Warrants will be duly and validly issued, fully paid and nonassessable, and the Purchaser will have good title to the Preferred Shares, the shares of Common Stock and Warrants issuable upon conversion of the Preferred Shares, and the shares of Common Stock issuable upon exercise of the Warrants, free and clear of all liens, claims and encumbrances of any kind, other than (i) transfer restrictions hereunder and under the other agreements contemplated hereby, (ii) transfer restrictions under federal and state securities laws, and (iii) liens, claims or encumbrances imposed due to the actions of the Purchaser.

 

(iv)         Governmental Consents . No permit, consent, approval or authorization of, or declaration to or filing with, any governmental authority is required in connection with the execution, delivery and performance by the Company of this Agreement or the consummation by the Company of any other transactions contemplated hereby.

 

2
 

 

3.           Representations and Warranties of the Purchaser . As a material inducement to the Company to enter into this Agreement and issue and sell the Preferred Shares to the Purchaser, the Purchaser hereby represents and warrants to the Company (which representations and warranties shall survive the Closing Date) that:

 

(a)           Organization and Requisite Authority . The Purchaser is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Connecticut. The Purchaser possesses all requisite company power and authority necessary to carry out the transactions contemplated by this Agreement.

 

(b)           Authorization; No Breach .

 

(i)          This Agreement constitutes a valid and binding obligation of the Purchaser, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws of general applicability relating to or affecting creditors’ rights and to general equitable principles (whether considered in a proceeding in equity or law).

 

(ii)         The execution and delivery by the Purchaser of this Agreement and the fulfillment of and compliance with the terms hereof by the Purchaser does not and shall not as of the Closing Date conflict with or result in a breach by the Purchaser of the terms, conditions or provisions of any agreement, instrument, order, judgment or decree to which the Purchaser is subject.

 

(c)           Investment Representations .

 

(i)          The Purchaser is acquiring the Preferred Shares, the shares of Common Stock and Warrants issuable upon conversion of the Preferred Shares, and, upon exercise of the Warrants, the Shares issuable upon such exercise (collectively, the “ Securities ”) for the Purchaser’s own account, for investment purposes only and not with a view towards, or for resale in connection with, any public sale or distribution thereof.

 

(ii)         The Purchaser is an “accredited investor” as such term is defined in Rule 501(a)(3) of Regulation D promulgated under the Securities Act of 1933, as amended (the “ Securities Act ”).

 

(iii)        The Purchaser understands that the Securities are being offered and will be sold to it in reliance on specific exemptions from the registration requirements of the United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Purchaser’s compliance with, the representations and warranties of the Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire such Securities.

 

(iv)        The Purchaser did not decide to enter into this Agreement as a result of any general solicitation or general advertising within the meaning of Rule 502(c) promulgated under the Securities Act.

 

3
 

 

(v)         The Purchaser has been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Purchaser. The Purchaser has been afforded the opportunity to ask questions of the executive officers and directors of the Company. The Purchaser understands that its investment in the Securities involves a high degree of risk and it has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to the acquisition of the Securities.

 

(vi)        The Purchaser understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities by the Purchaser nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

 

(vii)       The Purchaser understands that: (a) the Securities have not been registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (1) subsequently registered thereunder or (2) sold in reliance on an exemption therefrom; (b) the Preferred Shares and the Warrants will not be registered under the Securities Act or any state securities laws; and (c) neither the Company nor any other person is under any obligation to register the Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

 

(viii)      The Purchaser has such knowledge and experience in financial and business matters, knows of the high degree of risk associated with investments in the securities of companies in the development stage such as the Company, is capable of evaluating the merits and risks of an investment in the Securities and is able to bear the economic risk of an investment in the Securities in the amount contemplated hereunder for an indefinite period of time. The Purchaser has adequate means of providing for its current financial needs and contingencies and will have no current or anticipated future needs for liquidity which would be jeopardized by the investment in the Securities. The Purchaser can afford a complete loss of its investments in the Securities.

 

4.           Survival of Representations and Warranties . All of the representations and warranties contained herein shall survive the Closing Date.

 

5.           Company Registration .

 

(a)           Piggyback Registration Rights . If the Company proposes to register any of its Common Stock under the Securities Act in connection with the public offering of the Common Stock solely for cash other than Excluded Registration (as defined below), the Company shall, at such time, promptly give Purchaser notice of such registration. Upon the written request of Purchaser given within five (5) days after such notice is given by the Company, the Company shall, subject to the provisions of Subsection 5(b) , cause to be registered all of (i) the Common Stock issuable or issued upon conversion of the Preferred Shares (the “ Conversion Shares ”) and (ii) any Common Stock issued or issuable upon exercise of the Warrants issued upon conversion of the Preferred Shares (collectively with the Conversion Shares, the “ Registrable Securities ”) that Purchaser has requested to be included in such registration. The Company shall have the right to terminate or withdraw any registration initiated by it under this Subsection 5(a) before the effective date of such registration, whether or not Purchaser has elected to include Registrable Securities in such registration. For purposes of this Subsection 5(a) , an “ Excluded Registration ” shall mean (i) a registration relating to the sale of securities to employees of the Company or a subsidiary pursuant to a stock option, stock purchase, or similar plan; (ii) a registration relating to an SEC Rule 145 transaction; (iii) a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities (as defined below); (iv) a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered; or (v) the registration of the Company’s Common Stock on Form S-1 relating to the Company’s Public Offering.

 

4
 

 

(b)           Underwriting Requirements . In connection with any offering involving an underwriting of shares of the Company’s Common Stock pursuant to Subsection 5(a) , the Company shall not be required to include any of Purchaser’s Registrable Securities in such underwriting unless Purchaser accepts the terms of the underwriting as agreed upon between the Company and its underwriters, and then only in such quantity as the underwriters in their sole discretion determine will not jeopardize the success of the offering by the Company. If the total number of Registrable Securities requested by Purchaser to be included in such offering exceeds the number of shares of Common Stock to be sold (other than by the Company) that the underwriters in their reasonable discretion determine is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of Registrable Securities which the underwriters and the Company in their sole discretion determine will not jeopardize the success of the offering. Notwithstanding the foregoing, in no event shall the number of Registrable Securities included in the offering be reduced below twenty percent (20%) of the total number of shares of Common Stock included in such offering.

 

(c)           Demand Registration Rights . Following the twenty-four (24) month anniversary of the consummation of the Public Offering, Purchaser may request the registration under the Securities Act of all or any portion of its Conversion Shares on Form S-3 or any successor form thereto (each a " Short-Form Registration "). Purchaser’s request for a Short-Form Registration shall specify the number of Conversion Shares to be registered. The Company shall cause a Registration Statement on Form S-3 (or any successor form) to be filed as soon as practicable after the date on which the initial request is given and shall use its reasonable best efforts to cause such Registration Statement to be declared effective by the Securities and Exchange Commission (the “ SEC ”) as soon as practicable thereafter. The Company shall not be required to effect a Short-Form Registration more than one (1) time for the Purchaser.

 

(i)          Notwithstanding the foregoing obligations, if the Company furnishes Purchaser a certificate signed by the Company’s chief executive officer stating that in the good faith judgment of the Company’s Board of Directors it would be materially detrimental to the Company and its stockholders for such registration statement to either become effective or remain effective for as long as such registration statement otherwise would be required to remain effective, because such action would (i) materially interfere with a significant acquisition, corporate reorganization, or other similar transaction involving the Company; (ii) require premature disclosure of material information that the Company has a bona fide business purpose for preserving as confidential; or (iii) render the Company unable to comply with requirements under the Securities Act or Securities Exchange Act of 1934,  then the Company shall have the right to defer taking action with respect to such filing, and any time periods with respect to filing or effectiveness thereof shall be tolled correspondingly, for a period of not more than ninety (90) days after the request of Purchaser is given.

 

5
 

 

(ii)         If Purchaser intends to distribute the Conversion Shares covered by its request by means of an underwriting, it shall so advise the Company as a part of its request.  The underwriter(s) will be selected by the Company and shall be reasonably acceptable to Purchaser.  Purchaser and the Company shall enter into an underwriting agreement in customary form with the underwriter(s) selected for such underwriting. 

 

(d)          Notwithstanding anything to the contrary herein, shares of Common Stock shall cease to be considered Conversion Shares or Registrable Securities when (a) a registration statement with respect to the sale of such shares shall have been declared effective under the Securities Act by the SEC and such shares shall have been disposed of pursuant to such effective registration statement, (b) such shares have been distributed pursuant to Rule 144 under the Securities Act and are no longer “restricted securities”, (c) such shares have ceased to be outstanding, or (d) the entire amount of the Conversion Shares or Registrable Securities, as applicable, may be sold by Purchaser in a single sale without, in the opinion of counsel to the Company, any limitation as to volume or manner of sale requirements pursuant to Rule 144 under the Securities Act.

 

6.           General Provisions .

 

(a)           Successors and Assigns . Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors of the parties hereto whether so expressed or not. Notwithstanding the foregoing or anything to the contrary herein, the parties may not assign this Agreement, other than assignments by the Purchaser to affiliates thereof (including, without limitation, one or more of its members).

 

(b)           Transfer . The Purchaser shall not offer, sell, transfer or otherwise dispose of the Preferred Shares without the prior written consent of the Company.

 

(c)           Severability . Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.

 

(d)           Counterparts . This Agreement may be executed simultaneously in two or more counterparts, none of which need contain the signatures of more than one party, but all such counterparts taken together shall constitute one and the same agreement.

 

6
 

 

(e)           Descriptive Headings; Interpretation . The descriptive headings of this Agreement are inserted for convenience only and do not constitute a substantive part of this Agreement. The use of the word “including” in this Agreement shall be by way of example rather than by limitation.

 

(f)           Governing Law . This Agreement shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be construed in accordance with the internal laws of the State of Delaware.

 

(g)           Amendments . This Agreement may not be amended, modified or waived as to any particular provision, except by a written instrument executed by all parties hereto.

 

[Signature page follows]

 

7
 

 

IN WITNESS WHEREOF , the parties hereto have executed this Agreement to be effective as of the date first set forth above.

 

  COMPANY :
   
  1347 PROPERTY INSURANCE HOLDINGS, INC.
     
  By: /s/ Douglas N. Raucy
  Name: Douglas N. Raucy
  Title: Director, President & CEO
     
  By: /s/ William A. Hickey, Jr.
  Name: William A. Hickey, Jr.
  Title: Authorized Signer
     
  By: /s/ Bradley S. Diericx
  Name: Bradley S. Diericx
  Title: Authorized Signer
   
  PURCHASER :
   
  FUND MANAGEMENT GROUP LLC
     
  By: /s/ Gordon G. Pratt
  Name: Gordon G. Pratt
  Title: Managing Director

 

 
 

 

EXHIBIT A

 

Certificate of Designations

 

CERTIFICATE OF DESIGNATION OF SERIES A CONVERTIBLE PREFERRED SHARES OF 1347 PROPERTY INSURANCE HOLDINGS, INC.

 

Pursuant to Section 151 of the General Corporation Law of the State of Delaware, 1347 Property Insurance Holdings, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the “ Corporation ”), in accordance with the provisions of Section 103 thereof, does hereby submit the following:

 

WHEREAS, the Second Amended and Restated Certificate of Incorporation of the Corporation (as may be further amended or amended and restated from time to time, the “ Certificate of Incorporation ”) authorizes the issuance of up to one million (1,000,000) shares of preferred stock, par value $25.00 per share, of the Corporation (“ Preferred Stock ”) in one or more series, and expressly authorizes the Board of Directors of the Corporation (the " Board "), subject to limitations prescribed by law, to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock, and, with respect to each such series, to establish and fix the number of shares to be included in any series of Preferred Stock and the designation, rights, preferences, powers, restrictions and limitations of the shares of such series; and

 

WHEREAS, it is the desire of the Board to establish and fix the number of shares to be included in a new series of Preferred Stock and the designation, rights, preferences and limitations of the shares of such new series.

 

NOW, THEREFORE, BE IT RESOLVED, that the Board does hereby provide for the issue of a series of Preferred Stock and does hereby in this Certificate of Designation (the “ Certificate of Designation ”) establish and fix and herein state and express the designation, rights, preferences, powers, restrictions and limitations of such series of Preferred Stock as follows:

 

Designation . There shall be a series of Preferred Stock that shall be designated as “Series A Convertible Preferred Shares” (the “ Series A Preferred Shares ”) and the number of Shares constituting such series shall be 80,000. The rights, preferences, powers, restrictions and limitations of the Series A Preferred Shares shall be as set forth herein.

 

Defined Terms . For purposes hereof, the following terms shall have the following meanings:

 

Board ” has the meaning set forth in the Recitals.

 

Certificate of Designation ” has the meaning set forth in the Recitals.

 

 
 

 

Certificate of Incorporation ” has the meaning set forth in the Recitals.

 

Change of Control ” means (a) any sale, lease or transfer or series of sales, leases or transfers of all or substantially all of the consolidated assets of the Corporation and its Subsidiaries; (b) any sale, transfer or issuance (or series of sales, transfers or issuances) of capital stock by the Corporation or the holders of Common Stock (or other voting stock of the Corporation) that results in the inability of the holders of Common Stock (or other voting stock of the Corporation) immediately prior to such sale, transfer or issuance to designate or elect a majority of the board of directors (or its equivalent) of the Corporation; or (c) any merger, consolidation, recapitalization or reorganization of the Corporation with or into another Person (whether or not the Corporation is the surviving corporation) that results in the inability of the holders of Common Stock (or other voting stock of the Corporation) immediately prior to such merger, consolidation, recapitalization or reorganization to designate or elect a majority of the board of directors (or its equivalent) of the resulting entity or its parent company.

 

Common Stock ” means the common stock, $0.001 par value per share, of the Corporation to be issued in connection with the Initial Public Offering.

 

Common Stock Deemed Outstanding ” means, at any given time, the sum of (a) the number of shares of Common Stock actually outstanding at such time, plus (b) the number of shares of Common Stock issuable upon exercise of Options actually outstanding at such time, plus (c) the number of shares of Common Stock issuable upon conversion or exchange of Convertible Securities actually outstanding at such time (treating as actually outstanding any Convertible Securities issuable upon exercise of Options actually outstanding at such time), in each case, regardless of whether the Options or Convertible Securities are actually exercisable at such time; provided , that Common Stock Deemed Outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any of its wholly owned Subsidiaries.

 

Convertible Securities ” means any securities (directly or indirectly) convertible into or exchangeable for Common Stock, but excluding Options.

 

Corporation ” has the meaning set forth in the Preamble.

 

Conversion Price ” has the meaning set forth in Section 8.1 .

 

Conversion Shares ” means the shares of Common Stock and Warrants then issuable upon conversion of the Series A Preferred Shares in accordance with the terms of Section 8 .

 

Date of Issuance ” means, for any Share, the Closing Date, as such term is defined in the Series A Preferred Shares Purchase Agreement.

 

2
 

 

" Excluded Issuances " means any issuance or sale by the Corporation after the Date of Issuance of: (a) shares of Common Stock issued on the conversion of the Series A Preferred Stock; (b) shares of Common Stock issued directly or upon the exercise of Options to directors, officers, employees, or consultants of the Corporation in connection with their service as directors of the Corporation, their employment by the Corporation or their retention as consultants by the Corporation, in each case authorized by the Board and issued pursuant to the Corporation's 2013 Equity Incentive Plan (including all such shares of Common Stock and Options outstanding prior to the Date of Issuance); or (c) shares of Common Stock issued upon the conversion or exercise of Options (other than Options covered by clause (b) above) or Convertible Securities issued prior to the Date of Issuance, provided that such securities are not amended after the date hereof to increase the number of shares of Common Stock issuable thereunder or to lower the exercise or conversion price thereof.

 

Initial Public Offering ” means the sale, in a firm commitment underwritten public offering led by a nationally recognized underwriting firm pursuant to an effective registration statement under the Securities Act, of Common Stock of the Corporation having an aggregate offering value (net of underwriters' discounts and selling commissions) of at least twenty million dollars ($20,000,000), following which at least thirty percent (30%) of the total Common Stock of the Corporation on a fully diluted, as-converted basis shall have been sold to the public and shall be listed on any national securities exchange registered with the Securities and Exchange Commission under Section 6(a) of the Securities Exchange Act of 1934, as amended.

 

Junior Securities ” means, collectively, the Common Stock and any other class of securities that is specifically designated as junior to the Series A Preferred Shares.

 

Liquidation ” has the meaning set forth in Section 5.1 .

 

Liquidation Value ” means, with respect to any Share on any given date, $25.00.

 

Options ” means any warrants or other rights or options to subscribe for or purchase Common Stock or Convertible Securities.

 

Person ” means an individual, corporation, partnership, joint venture, limited liability company, governmental authority, unincorporated organization, trust, association or other entity.

 

Preferred Stock ” has the meaning set forth in the Recitals.

 

Securities Act ” means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time.

 

Series A Preferred Shares ” has the meaning set forth in Section 1 .

 

Series A Preferred Shares Breach ” has the meaning set forth in Section 10.1 .

 

3
 

 

Series A Redemption ” has the meaning set forth in Section 7.1 .

 

Series A Redemption Date ” has the meaning set forth in Section 7.1 .

 

Series A Redemption Price ” has the meaning set forth in Section 7.1 .

 

Share ” means a share of Series A Preferred Shares.

 

Subsidiary ” means, with respect to any Person, any other Person of which a majority of the outstanding shares or other equity interests having the power to vote for directors or comparable managers are owned, directly or indirectly, by the first Person.

 

Warrant ” means a warrant exercisable for one share of Common Stock at an exercise price equal to 120% of the per share price offered to the public in the Initial Public Offering.

 

Rank . With respect to distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, all Shares of the Series A Preferred Shares shall rank senior to all Junior Securities, and the Corporation shall not issue any other series of Preferred Stock that ranks equal or senior to the Series A Preferred Shares while any Share is outstanding.

 

Dividends .

 

Dividends on the Series A Preferred Shares . The Series A Preferred Shares will not be entitled to receive payment of any dividends, fixed or otherwise.

 

Restriction on Junior Securities Dividends and Repurchases . For so long as any Share of Series A Preferred Shares is outstanding, the Corporation shall not (i) declare or pay any dividend or make any distribution on Junior Securities, other than a dividend or distribution payable in shares of Common Stock or in Options or Convertible Securities for which there is an adjustment pursuant to Section 8.5(e) , or (ii) purchase, redeem or acquire any Junior Securities of the Corporation.

 

Liquidation .

 

Liquidation . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a “ Liquidation ”), the holders of Shares of Series A Preferred Shares then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made to the holders of Junior Securities by reason of their ownership thereof, an amount in cash equal to the aggregate Liquidation Value of all Shares held by such holder, as adjusted, and will not be entitled to any further assets of the Corporation.

 

4
 

 

Insufficient Assets . If upon any Liquidation the remaining assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of the Shares of Series A Preferred Shares the Liquidation Value, (a) the holders of the Shares shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective full preferential amounts which would otherwise be payable in respect of the Series A Preferred Shares in the aggregate upon such Liquidation if all amounts payable on or with respect to such Shares were paid in full, and (b) the Corporation shall not make or agree to make any payments to the holders of Junior Securities.

 

Notice Requirement . In the event of any Liquidation, the Corporation shall, within ten (10) days following the date the Board approves such action, or no later than twenty (20) days following any stockholders' meeting called to approve such action, or within twenty (20) day of the commencement of any involuntary proceeding, whichever is earlier, give each holder of Shares written notice of the proposed action. Such written notice shall describe the material terms and conditions of such proposed action, including a description of the stock, cash and property to be received by the holders of Shares upon consummation of the proposed action and the date of delivery thereof. If any material change in the facts set forth in the initial notice shall occur, the Corporation shall promptly give written notice to each holder of Shares of such material change.

 

Voting . The Shares of Series A Preferred Shares shall not be entitled to vote with respect to any matters presented to the stockholders of the Corporation for their action or consideration (whether at a meeting of stockholders of the Corporation, by written action of stockholders in lieu of a meeting or otherwise), except as provided by law, nor will the holders of the Series A Preferred Shares be given any notice of a meeting or vote by the Corporation, except as provided herein.

 

Redemption of Series A Preferred Shares .

 

Mandatory Redemption . If the Initial Public Offering has not closed by the one-year anniversary of the Date of Issuance (the “ Series A Redemption Date ”), the then outstanding Shares of Series A Preferred Shares shall be redeemed by the Corporation (a “ Series A Redemption ”) for a price per Share equal to $28 per Share (the “ Series A Redemption Price ”). In exchange for the surrender to the Corporation by the respective holders of Shares of their certificate or certificates representing such Shares, the aggregate Series A Redemption Price for all Shares held by each holder of Shares shall be payable in cash in immediately available funds to the respective holders of the Series A Preferred Shares on the applicable Series A Redemption Date and the Corporation shall contribute all of its assets to the payment of the Series A Redemption Price, and to no other corporate purpose, except to the extent prohibited by applicable Delaware law.

 

5
 

 

Insufficient Funds; Remedies For Nonpayment .  If on the Series A Redemption Date, the assets of the Corporation legally available are insufficient to pay the full Series A Redemption Price for the total number of Shares required to be redeemed pursuant to Section 7.1 , the Corporation shall (i) take all appropriate action reasonably within its means to maximize the assets legally available for paying the Series A Redemption Price, (ii) redeem out of all such assets legally available therefor on the applicable Series A Redemption Date the maximum possible number of Shares that it can redeem on such date, pro rata among the holders of such Shares to be redeemed in proportion to the aggregate number of Shares elected to be redeemed by each such holder on the applicable Series A Redemption Date and (iii) following the applicable Series A Redemption Date, at any time and from time to time when additional assets of the Corporation become legally available to redeem the remaining Shares, the Corporation shall immediately use such assets to pay the remaining balance of the aggregate applicable Series A Redemption Price.

 

Rights Subsequent to Redemption . If on the Series A Redemption Date, the Series A Redemption Price is paid (or tendered for payment) for any of the Shares to be redeemed on such Series A Redemption Date, then on such date all rights of the holder in the Shares so redeemed and paid or tendered shall cease and such Shares shall no longer be deemed issued and outstanding.

 

Conversion .

 

Automatic Conversion . Subject to the provisions of this Section 8 , in connection with, and on the closing of, the Initial Public Offering by the Corporation, all of the outstanding Shares (including any fraction of a Share) held by stockholders shall automatically convert into (A) an aggregate number of shares of Common Stock (rounded down to the nearest whole share) as is determined by (i) multiplying the number of Shares of Series A Preferred Shares (including any fraction of a Share) to be converted by the Liquidation Value thereof, and then (ii) dividing the result by the Conversion Price in effect immediately prior to such conversion and (B) an aggregate number of Warrants (rounded down to the nearest whole Warrant) equal to the number of shares of Common Stock issued as a result of the conversion (as determined in accordance with clause (A) of this Section 8.1 ); provided , however , that the aggregate amount of shares of Common Stock issued upon conversion hereunder shall not exceed 9.99% of the outstanding shares of Common Stock of the Corporation immediately prior to such Conversion, and any Shares not converted because of this provision, may, at the option of the stockholder, be (x) converted after the required regulatory approval or (y) redeemed at a price per Share equal to the Series A Redemption Price; and provided , further , that if regulatory approval is not obtained within six (6) months of the date of the closing of the Initial Public Offering, then all remaining Shares shall be redeemed in accordance with clause (y) above. The initial conversion price per Series A Preferred Share (the “ Conversion Price ”) shall be determined by multiplying 0.8 by the price per share of Common Stock offered to the public in the Initial Public Offering, subject to adjustment as applicable in accordance with Section 8.5 below. If the closing of the Initial Public Offering occurs, such automatic conversion of all of the outstanding Shares of Series A Preferred Shares shall be deemed to have occurred immediately prior to such closing.

 

6
 

 

Procedures for Conversion; Effect of Conversion

 

Procedures for Automatic Conversion . As of the closing of the Initial Public Offering all outstanding Shares of Series A Preferred Shares shall be converted to the number of shares of Common Stock and Warrants calculated pursuant to Section 8.1 without any further action by the relevant holder of such Shares or the Corporation. As promptly as practicable following such Initial Public Offering (but in any event within five (5) days thereafter), the Corporation shall send each holder of Shares of Series A Preferred Shares written notice of such event. Upon receipt of such notice, each holder shall surrender to the Corporation the certificate or certificates representing the Shares being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto) or, in the event the certificate or certificates are lost, stolen or missing, accompanied by an affidavit of loss executed by the holder. Upon the surrender of such certificate(s) and accompanying materials, the Corporation shall as promptly as practicable (but in any event within ten (10) days thereafter) deliver to the relevant holder a certificate in such holder's name (or the name of such holder's designee as stated in the written election) for the number of shares of Common Stock and the number of Warrants to which such holder shall be entitled upon conversion of the applicable Shares. All shares of Common Stock issued hereunder (or issued upon the exercise of Warrants issued hereunder in accordance with the terms thereof) by the Corporation shall be duly and validly issued, fully paid and nonassessable, free and clear of all taxes, liens, charges and encumbrances with respect to the issuance thereof.

 

Effect of Conversion . All Shares of Series A Preferred Shares converted as provided in this Section 8.1 shall no longer be deemed outstanding as of the effective time of the applicable conversion and all rights with respect to such Shares shall immediately cease and terminate as of such time (including, without limitation, any right of redemption pursuant to Section 7 ), other than the right of the holder to receive shares of Common Stock and Warrants in exchange therefor pursuant to the terms of this Agreement.

 

Reservation of Stock . The Corporation shall at all times when any Share is outstanding reserve and keep available out of its authorized but unissued shares of capital stock, solely for the purpose of issuance upon the conversion of the Series A Preferred Shares, such number of shares of Common Stock issuable upon the conversion of all outstanding Series A Preferred Shares pursuant to this Section 8 , including all shares of Common Stock issuable upon exercise of the Warrants, taking into account any adjustment to such number of shares so issuable in accordance with Section 8.5 hereof. The Corporation shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not close its books against the transfer of any of its capital stock in any manner which would prevent the timely conversion of the Shares of Series A Preferred Shares.

 

7
 

 

No Charge or Payment . The issuance of certificates for shares of Common Stock upon conversion of Shares pursuant to Section 8.1 shall be made without payment of additional consideration by, or other charge, cost or tax to, the holder in respect thereof.

 

Adjustment to Conversion Price and Number of Conversion Shares . In order to prevent dilution of the conversion rights granted under this Section 8 , the Conversion Price and the number of Conversion Shares issuable on conversion of the Shares of Series A Preferred Shares shall be subject to adjustment from time to time as provided in this Section 8.5 .

 

Adjustment to Conversion Price upon Issuance of Common Stock . Except in the case of an event described in either Section 8.5(c) or Section 8.5(d) , if any Shares remain outstanding following the Initial Public Offering, and the Corporation shall, at any time or from time to time after the closing of the Initial Public Offering, issue or sell, or is deemed to have issued or sold, any shares of Common Stock without consideration or for consideration per share less than the Conversion Price in effect immediately prior to such issuance or sale (or deemed issuance or sale), then immediately upon such issuance or sale (or deemed issuance or sale), the Conversion Price in effect immediately prior to such issuance or sale (or deemed issuance or sale) shall be reduced (and in no event increased) to a Conversion Price equal to the quotient obtained by dividing:

 

the sum of (A) the product obtained by multiplying the Common Stock Deemed Outstanding immediately prior to such issuance or sale (or deemed issuance or sale) by the Conversion Price then in effect plus (B) the aggregate consideration, if any, received by the Corporation upon such issuance or sale (or deemed issuance or sale); by

 

the sum of (A) the Common Stock Deemed Outstanding immediately prior to such issuance or sale (or deemed issuance or sale) plus (B) the aggregate number of shares of Common Stock issued or sold (or deemed issued or sold) by the Corporation in such issuance or sale (or deemed issuance or sale).

 

Adjustment to Number of Conversion Shares Upon Adjustment to Conversion Price . Upon any and each adjustment of the Conversion Price as provided in Section 8.5(a) , the number of Conversion Shares issuable upon the conversion of the Series A Preferred Shares immediately prior to any such adjustment shall be increased to a number of Conversion Shares equal to the quotient obtained by dividing:

 

8
 

 

the product of (A) the Conversion Price in effect immediately prior to any such adjustment multiplied by (B) the number of Conversion Shares issuable upon conversion of the Series A Preferred Shares immediately prior to any such adjustment; by

 

the Conversion Price resulting from such adjustment.

 

Exceptions To Adjustment Upon Issuance of Common Stock . Anything herein to the contrary notwithstanding, there shall be no adjustment to the Conversion Price or the number of Conversion Shares issuable upon conversion of the Series A Preferred Stock with respect to any Excluded Issuance.

 

Effect of Certain Events on Adjustment to Conversion Price . For purposes of determining the adjusted Conversion Price under Section 8.5(a) hereof, the following shall be applicable:

 

Issuance of Options . If any Shares remain outstanding after the Initial Public Offering, and the Corporation shall, following the closing of the Initial Public Offering, at any time or from time to time, in any manner grant or sell (whether directly or by assumption in a merger or otherwise) any Options, whether or not such Options or the right to convert or exchange any Convertible Securities issuable upon the exercise of such Options are immediately exercisable, and the price per share (determined as provided in this paragraph and in Section 8.5(d)(v) ) for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon the exercise of such Options is less than the Conversion Price in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued as of the date of granting or sale of such Options (and thereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price under Section 8.5(a) ), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable consideration received for purposes of Section 8.5(a) ) of (x) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of all such Options, plus (y) the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of all such Convertible Securities and the conversion or exchange of all such Convertible Securities, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of all such Options or upon the conversion or exchange of all Convertible Securities issuable upon the exercise of all such Options. Except as otherwise provided in Section 8.5(d)(iii) , no further adjustment of the Conversion Price shall be made upon the actual issuance of Common Stock or of Convertible Securities upon exercise of such Options or upon the actual issuance of Common Stock upon conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

9
 

 

Issuance of Convertible Securities . If the Corporation shall, at any time or from time to time after the Date of Issuance, in any manner grant or sell (whether directly or by assumption in a merger or otherwise) any Convertible Securities, whether or not the right to convert or exchange any such Convertible Securities is immediately exercisable, and the price per share (determined as provided in this paragraph and in Section 8.5(d)(v) ) for which Common Stock is issuable upon the conversion or exchange of such Convertible Securities is less than the Conversion Price in effect immediately prior to the time of the granting or sale of such Convertible Securities, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of the total maximum amount of such Convertible Securities shall be deemed to have been issued as of the date of granting or sale of such Convertible Securities (and thereafter shall be deemed to be outstanding for purposes of adjusting the Conversion Price pursuant to Section 8.5(a) ), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable consideration received for purposes of Section 8.5(a) ) of (x) the total amount, if any, received or receivable by the Corporation as consideration for the granting or sale of such Convertible Securities, plus (y) the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange of all such Convertible Securities, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. Except as otherwise provided in Section 8.5(d)(iii) , (A) no further adjustment of the Conversion Price shall be made upon the actual issuance of Common Stock upon conversion or exchange of such Convertible Securities and (B) no further adjustment of the Conversion Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Conversion Price have been made pursuant to the other provisions of this Section 8.5(d) .

 

10
 

 

Change in Terms of Options or Convertible Securities . Upon any change in any of (A) the total amount received or receivable by the Corporation as consideration for the granting or sale of any Options or Convertible Securities referred to in Section 8.5(d)(i) or Section 8.5(d)(ii) hereof, (B) the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the exercise of any Options or upon the issuance, conversion or exchange of any Convertible Securities referred to in Section 8.5(d)(i) or Section 8.5(d)(ii) hereof, (C) the rate at which Convertible Securities referred to in Section 8.5(d)(i) or Section 8.5(d)(ii) hereof are convertible into or exchangeable for Common Stock, or (D) the maximum number of shares of Common Stock issuable in connection with any Options referred to in Section 8.5(d)(i) hereof or any Convertible Securities referred to in Section 8.5(d)(ii) hereof (in each case, other than in connection with an Excluded Issuance), then (whether or not the original issuance or sale of such Options or Convertible Securities resulted in an adjustment to the Conversion Price pursuant to this Section 8.5 ) the Conversion Price in effect at the time of such change shall be adjusted or readjusted, as applicable, to the Conversion Price which would have been in effect at such time pursuant to the provisions of this Section 8.5 had such Options or Convertible Securities still outstanding provided for such changed consideration, conversion rate or maximum number of shares, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment or readjustment the Conversion Price then in effect is reduced, and the number of Conversion Shares issuable upon the conversion of the Series A Preferred Stock immediately prior to any such adjustment or readjustment shall be correspondingly adjusted or readjusted pursuant to the provisions of Section 8.5(b) .

 

Treatment of Expired or Terminated Options or Convertible Securities . Upon the expiration or termination of any unexercised Option (or portion thereof) or any unconverted or unexchanged Convertible Security (or portion thereof) for which any adjustment (either upon its original issuance or upon a revision of its terms) was made pursuant to this Section 8.5 (including without limitation upon the redemption or purchase for consideration of all or any portion of such Option or Convertible Security by the Corporation), the Conversion Price then in effect hereunder shall forthwith be changed pursuant to the provisions of this Section 8.5 to the Conversion Price which would have been in effect at the time of such expiration or termination had such unexercised Option (or portion thereof) or unconverted or unexchanged Convertible Security (or portion thereof), to the extent outstanding immediately prior to such expiration or termination, never been issued.

 

11
 

 

Calculation of Consideration Received . If the Corporation shall, at any time or from time to time after the Date of Issuance, issue or sell, or is deemed to have issued or sold in accordance with Section 8.5(d) , any shares of Common Stock, Options or Convertible Securities: (A) for cash, the consideration received therefor shall be deemed to be the net amount received by the Corporation therefor; (B) for consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Corporation shall be the market price (as reflected on any securities exchange, quotation system or association or similar pricing system covering such security) for such securities as of the end of business on the date of receipt of such securities; (C) for no specifically allocated consideration in connection with an issuance or sale of other securities of the Corporation, together comprising one integrated transaction, the amount of the consideration therefor shall be deemed to be the fair value of such portion of the aggregate consideration received by the Corporation in such transaction as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be, issued in such transaction; or (D) to the owners of the non-surviving entity in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be, issued to such owners. The net amount of any cash consideration and the fair value of any consideration other than cash or marketable securities shall be determined in good faith by the Board.

 

Record Date . For purposes of any adjustment to the Conversion Price or the number of Conversion Shares in accordance with this Section 8.5 , in case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

Treasury Shares . The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Corporation or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof or the transfer of such shares among the Corporation and its wholly-owned subsidiaries) shall be considered an issue or sale of Common Stock for the purpose of this Section 8.5 .

 

12
 

 

Adjustment to Conversion Price and Conversion Shares Upon Stock Dividend, Subdivision or Combination of Common Stock . If any Shares remain outstanding following the Initial Public Offering, and the Corporation shall, at any time or from time to time after the closing of the Initial Public Offering, (i) pay a dividend or make any other distribution upon the Common Stock or any other capital stock of the Corporation payable in shares of Common Stock or in Options or Convertible Securities, or (ii) subdivide (by any stock split, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to any such subdivision shall be proportionately reduced and the number of Conversion Shares issuable upon conversion of the Series A Preferred Shares shall be proportionately increased. If any Shares remain outstanding following the Initial Public Offering, and the Corporation at any time thereafter combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased and the number of Conversion Shares issuable upon conversion of the Series A Preferred Shares shall be proportionately decreased. Any adjustment under this Section 8.5(c) shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.

 

Adjustment to Conversion Price and Conversion Shares Upon Reorganization, Reclassification, Consolidation or Merger . Following the Initial Public Offering, if any Shares remain outstanding, in the event of any (i) capital reorganization of the Corporation, (ii) reclassification of the stock of the Corporation (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), (iii) consolidation or merger of the Corporation with or into another Person, (iv) sale of all or substantially all of the Corporation's assets to another Person or (v) other similar transaction (other than any such transaction covered by Section 8.5(c) ), in each case which entitles the holders of Common Stock to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, each Share of Series A Preferred Shares shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Conversion Shares then convertible for such Share, be exercisable for the kind and number of shares of stock or other securities or assets of the Corporation or of the successor Person resulting from such transaction to which such Share would have been entitled upon such reorganization, reclassification, consolidation, merger, sale or similar transaction if the Share had been converted in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale or similar transaction and acquired the applicable number of Conversion Shares then issuable hereunder as a result of such conversion (without taking into account any limitations or restrictions on the convertibility of such Share, if any); and, in such case, appropriate adjustment shall be made with respect to such holder's rights under this Certificate of Designation to insure that the provisions of this Section 8 hereof shall thereafter be applicable, as nearly as possible, to the Series A Preferred Shares in relation to any shares of stock, securities or assets thereafter acquirable upon conversion of Series A Preferred Shares (including, in the case of any consolidation, merger, sale or similar transaction in which the successor or purchasing Person is other than the Corporation, an immediate adjustment in the Conversion Price to the value per share for the Common Stock reflected by the terms of such consolidation, merger, sale or similar transaction, and a corresponding immediate adjustment to the number of Conversion Shares acquirable upon conversion of the Series A Preferred Shares without regard to any limitations or restrictions on conversion, if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger, sale or similar transaction). The provisions of this Section 8.5(d) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or similar transactions. The Corporation shall not effect any such reorganization, reclassification, consolidation, merger, sale or similar transaction unless, prior to the consummation thereof, the successor Person (if other than the Corporation) resulting from such reorganization, reclassification, consolidation, merger, sale or similar transaction, shall assume, by written instrument substantially similar in form and substance to this Certificate of Designation, the obligation to deliver to the holders of Series A Preferred Shares such shares of stock, securities or assets which, in accordance with the foregoing provisions, such holders shall be entitled to receive upon conversion of the Series A Preferred Shares.

 

13
 

 

Certain Events . Following the Initial Public Offering, if any Shares remain outstanding, if any event of the type contemplated by the provisions of this Section 8.5 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features) occurs, then the Board shall make an appropriate adjustment in the Conversion Price and the number of Conversion Shares issuable upon conversion of Shares of Series A Preferred Shares so as to protect the rights of the holder of such Shares in a manner consistent with the provisions of this Section 8 ; provided , that no such adjustment pursuant to this Section 8.5 shall increase the Conversion Price or decrease the number of Conversion Shares issuable as otherwise determined pursuant to this Section 8 .

 

Certificate as to Adjustment . As promptly as reasonably practicable following any adjustment of the Conversion Price, but in any event not later than 20 days thereafter, the Corporation shall furnish to each holder of record of Series A Preferred Shares at the address specified for such holder in the books and records of the Corporation (or at such other address as may be provided to the Corporation in writing by such holder) a certificate of an executive officer setting forth in reasonable detail such adjustment and the facts upon which it is based and certifying the calculation thereof.

 

Notices . Following the Initial Public Offering, if any Shares remain outstanding, in the event:

 

14
 

 

of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, any consolidation or merger of the Corporation with or into another Person, or sale of all or substantially all of the Corporation's assets to another Person; or

 

of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation;

 

then, and in each such case, the Corporation shall send or cause to be sent to each holder of record of Series A Preferred Shares at the address specified for such holder in the books and records of the Corporation (or at such other address as may be provided to the Corporation in writing by such holder) at least five (5) days prior to the applicable record date or the applicable expected effective date, as the case may be, for the event, a written notice specifying, as the case may be, (A) the record date for such dividend, distribution, meeting or consent or other right or action, and a description of such dividend, distribution or other right or action to be taken at such meeting or by written consent, or (B) the effective date on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up is proposed to take place, and the date, if any is to be fixed, as of which the books of the Corporation shall close or a record shall be taken with respect to which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon conversion of the Series A Preferred Shares) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series A Preferred Shares and the Conversion Shares.

 

Warrants .

 

Underlying Warrant Terms .

 

Exercise . Each Warrant underlying the Series A Preferred Shares shall be immediately exercisable after issuance and will be exercisable into one share of Common Stock at an exercise price equal to 120% of the Initial Public Offering price per share of Common Stock. The Warrants will expire worthless on the five (5) year anniversary of the Date of Issuance.

 

Redemption . The Warrants will be redeemable by the Corporation at a price of $0.01 per Warrant during any period in which the closing price of the shares of Common Stock equals or exceeds 175% of the Initial Public Offering price per share of Common Stock for 20 consecutive trading days. Holders of the Warrants will be entitled to notice of such redemption 30 days prior to the date of redemption.

 

15
 

 

Breach of Obligations .

 

Series A Preferred Shares Breach . A breach by the Corporation of the rights, preferences, powers, restrictions and limitations of the Series A Preferred Shares set forth herein shall mean the occurrence of one or more of any of the events and conditions set forth in this Section 10.1 (each such event or condition, a “ Series A Preferred Shares Breach ”), whether such event or condition occurs voluntarily or involuntarily, by operation of law or pursuant to any judgment, order, decree, rule or regulation and regardless of the reason or cause of such event or condition.

 

Nonpayment of Redemption or Liquidation Payments . The failure of the Corporation to make any (i) redemption payment when due pursuant to Section 7 or (ii) liquidation payment when due pursuant to Section 5 , in each case whether or not such payment is legally permissible or is otherwise prohibited.

 

Bankruptcy or Insolvency . The Corporation or any of its Subsidiaries (i) becomes insolvent or admits its inability to pay its debts generally as they become due; (ii) becomes subject, voluntarily or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency law, which is not fully stayed within seven (7) days or is not dismissed or vacated within forty-five (45) days after filing; (iii) makes a general assignment for the benefit of creditors; or (iv) has a receiver, trustee, custodian or similar agent appointed by order of any court of competent jurisdiction to take charge of or sell any material portion of its property or business.

 

Consequences of Breach . In addition to any other rights which a holder of Shares of Series A Preferred Shares is entitled under any other contract or agreement and any other rights such holder may have pursuant to applicable law, the holders of Shares of Series A Preferred Shares shall have the rights and remedies set forth in this Section 10.2 on the occurrence of a Series A Preferred Shares Breach.

 

Redemption Right . If a Series A Preferred Shares Breach has occurred (other than a Series A Preferred Shares Breach described in Section 10.1(b) ) and is continuing for a period of thirty (30) days, any holder of Series A Preferred Shares shall have the right to elect to have, out of funds legally available therefor, all (but not less than all) of the then outstanding Shares of Series A Preferred Shares immediately redeemed by the Corporation for a price per Share equal to the Series A Redemption Price. Any such redemption shall occur not more than twenty (20) days following receipt by the Corporation of the request by the holder.

 

Automatic Redemption on Bankruptcy . Notwithstanding the earliest date for redemption set forth in Section 7.1 , if a Series A Preferred Shares Breach described in Section 10.1(b) has occurred, all of the then outstanding Shares of Series A Preferred Shares shall be subject to redemption immediately without any action required by the holders of Shares of Series A Preferred Shares, for a price per Share equal to the Series A Redemption Price. Any such redemption shall occur immediately and shall otherwise be executed in accordance with the provisions of Section 7 , applied mutatis mutandis .

 

16
 

 

Reissuance of Series A Preferred Shares . Any Shares of Series A Preferred Shares redeemed, converted or otherwise acquired by the Corporation or any Subsidiary shall be cancelled and retired as authorized and issued shares of capital stock of the Corporation and no such Shares shall thereafter be reissued, sold or transferred.

 

Notices . Except as otherwise provided herein, all notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next business day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent (a) to the Corporation, at its principal executive offices and (b) to any stockholder, at such holder's address at it appears in the stock records of the Corporation (or at such other address for a stockholder as shall be specified in a notice given in accordance with this Section 12 ).

 

Amendment and Waiver . No provision of this Certificate of Designation may be amended, modified or waived except by an instrument in writing executed by the Corporation and holders of at least 50% of the Shares, and any such written amendment, modification or waiver will be binding upon the Corporation and each holder of Series A Preferred Shares; provided , that no such action shall change or waive (a) the definition of Liquidation Value or (b) this Section 13 , without the prior written consent of each holder of outstanding Shares of Series A Preferred Shares; provided , further , that no amendment, modification or waiver of the terms or relative priorities of the Series A Preferred Shares may be accomplished by the merger, consolidation or other transaction of the Corporation with another corporation or entity unless the Corporation has obtained the prior written consent of the holders in accordance with this Section 13 .

 

[SIGNATURE PAGE FOLLOWS]

 

17
 

 

IN WITNESS WHEREOF, this Certificate of Designation is duly executed on behalf of the Corporation by an authorized officer as of this 16th day of January 2014.

 

  1347 PROPERTY INSURANCE
  HOLDINGS, INC.
   
  By: /s/ Douglas N. Raucy
    Name:  Douglas N. Raucy
    Title:  President and Chief Executive Officer

 

18
 

 

EXHIBIT B

 

[Form of Warrant]

 

WARRANT

 

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE " ACT "), OR QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT AND IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR (II) THE TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE ACT AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW AND, IF THE CORPORATION REQUESTS, AN OPINION SATISFACTORY TO THE CORPORATION TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL.

 

NO TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THIS WARRANT MAY BE MADE WITHOUT THE CONSENT OF THE COMPANY (AS DEFINED BELOW).

 

Warrant Certificate No.: [NUMBER]

 

Original Issue Date: [DATE]

 

FOR VALUE RECEIVED, 1347 PROPERTY INSURANCE HOLDINGS, INC., a Delaware corporation (the " Company "), hereby certifies that [NAME OF HOLDER], a [JURISDICTION AND TYPE OF ENTITY], or its registered permitted assigns (the " Holder ") is entitled to purchase from the Company [SPECIFIED NUMBER] duly authorized, validly issued, fully paid and nonassessable shares of Common Stock at a purchase price per share of $[_____] (subject to adjustment as provided herein, the " Exercise Price "), all subject to the terms, conditions and adjustments set forth below in this Warrant. Certain capitalized terms used herein are defined in 1 hereof.

 

This Warrant has been issued pursuant to the terms of the Series A Preferred Stock of the Company.

 

1
 

 

Definitions . As used in this Warrant, the following terms have the respective meanings set forth below:

 

" Aggregate Exercise Price " means an amount equal to the product of (a) the number of Warrant Shares in respect of which this Warrant is then being exercised pursuant to Section 3 hereof, multiplied by (b) the Exercise Price in effect as of the Exercise Date in accordance with the terms of this Warrant.

 

" Board " means the board of directors of the Company.

 

" Business Day " means any day, except a Saturday, Sunday or legal holiday, on which banking institutions in the city of [LOCATION] are authorized or obligated by law or executive order to close.

 

" Common Stock " means the common stock, par value $0.001 per share, of the Company, and any capital stock into which such Common Stock shall have been converted, exchanged or reclassified following the date hereof.

 

" Common Stock Deemed Outstanding " means, at any given time, the sum of (a) the number of shares of Common Stock actually outstanding at such time, plus (b) the number of shares of Common Stock issuable upon exercise of Options actually outstanding at such time, plus (c) the number of shares of Common Stock issuable upon conversion or exchange of Convertible Securities actually outstanding at such time (treating as actually outstanding any Convertible Securities issuable upon exercise of Options actually outstanding at such time), in each case, regardless of whether the Options or Convertible Securities are actually exercisable at such time; provided , that Common Stock Deemed Outstanding at any given time shall not include shares owned or held by or for the account of the Company or any of its wholly owned subsidiaries.

 

" Company " has the meaning set forth in the preamble.

 

" Convertible Securities " means any securities (directly or indirectly) convertible into or exchangeable for Common Stock, but excluding Options.

 

" Excluded Issuances " means any issuance or sale by the Corporation after the Original Issue Date of: (a) shares of Common Stock issued upon the exercise of this Warrant; (b) [up to an aggregate of [NUMBER]] shares of Common Stock issued directly or upon the exercise of Options to directors, officers, employees, or consultants of the Company in connection with their service as directors of the Company, their employment by the Company or their retention as consultants by the Company, in each case authorized by the Board and issued pursuant to the Company's 2013 Equity Incentive Plan [(including all such shares of Common Stock and Options outstanding prior to the Original Issue Date)][; or (c) shares of Common Stock issued upon the conversion or exercise of Options (other than Options covered by clause (b) above) or Convertible Securities issued prior to the Original Issue Date, provided that such securities are not amended after the date hereof to increase the number of shares of Common Stock issuable thereunder or to lower the exercise or conversion price thereof.]

 

2
 

 

" Exercise Date " means, for any given exercise of this Warrant, the date on which the conditions to such exercise as set forth in Section 3 shall have been satisfied at or prior to 5:00 p.m., [LOCATION] time, on a Business Day, including, without limitation, the receipt by the Company of the Exercise Agreement, the Warrant and the Aggregate Exercise Price.

 

" Exercise Agreement " has the meaning set forth in Section 3(a)(i).

 

" Exercise Period " has the meaning set forth in Section 2 .

 

" Exercise Price " has the meaning set forth in the preamble.

 

" Fair Market Value " means, as of any particular date: (a) the volume weighted average of the closing sales prices of the Common Stock for such day on all domestic securities exchanges on which the Common Stock may at the time be listed; (b) if there have been no sales of the Common Stock on any such exchange on any such day, the average of the highest bid and lowest asked prices for the Common Stock on all such exchanges at the end of such day; (c) if on any such day the Common Stock is not listed on a domestic securities exchange, the closing sales price of the Common Stock as quoted on Nasdaq, the OTC Bulletin Board or similar quotation system or association for such day; or (d) if there have been no sales of the Common Stock on Nasdaq, the OTC Bulletin Board or similar quotation system or association on such day, the average of the highest bid and lowest asked prices for the Common Stock quoted on Nasdaq, the OTC Bulletin Board or similar quotation system or association at the end of such day; in each case, averaged over twenty (20) consecutive Business Days ending on the Business Day immediately prior to the day as of which "Fair Market Value" is being determined; provided , that if the Common Stock is listed on any domestic securities exchange, the term "Business Day" as used in this sentence means Business Days on which such exchange is open for trading. If at any time the Common Stock is not listed on any domestic securities exchange or quoted on Nasdaq, the OTC Bulletin Board or similar quotation system or association, the "Fair Market Value" of the Common Stock shall be the fair market value per share as determined jointly by the Board and the Holder.

 

" Holder " has the meaning set forth in the preamble.

 

" Options " means any warrants or other rights or options to subscribe for or purchase Common Stock or Convertible Securities.

 

" Original Issue Date " means [DATE].

 

3
 

 

" Nasdaq " means The Nasdaq Stock Market, Inc.

 

" OTC Bulletin Board " means the National Association of Securities Dealers, Inc. OTC Bulletin Board.

 

" Person " means an individual, corporation, partnership, joint venture, limited liability company, governmental authority, unincorporated organization, trust, association or other entity.

 

" Warrant " means this Warrant and all warrants issued upon division or combination of, or in substitution for, this Warrant.

 

" Warrant Shares " means the shares of Common Stock or other capital stock of the Company then purchasable upon exercise of this Warrant in accordance with the terms of this Warrant.

 

Term of Warrant . Subject to the terms and conditions hereof, at any time or from time to time after the date hereof and prior to 5:00 p.m., [LOCATION] time, on the fifth (5 th ) anniversary of the date hereof or, if such day is not a Business Day, on the next preceding Business Day (the " Exercise Period "), the Holder of this Warrant may exercise this Warrant for all or any part of the Warrant Shares purchasable hereunder (subject to adjustment as provided herein).

 

Exercise of Warrant .

 

Exercise Procedure . This Warrant may be exercised from time to time on any Business Day during the Exercise Period, for all or any part of the unexercised Warrant Shares, upon:

 

surrender of this Warrant to the Company at its then principal executive offices (or an indemnification undertaking with respect to this Warrant in the case of its loss, theft or destruction), together with an Exercise Agreement in the form attached hereto as Exhibit A (each, an " Exercise Agreement "), duly completed (including specifying the number of Warrant Shares to be purchased) and executed; and

 

payment to the Company of the Aggregate Exercise Price in accordance with Section 3(b) .

 

Payment of the Aggregate Exercise Price . Payment of the Aggregate Exercise Price shall be made, at the option of the Holder as expressed in the Exercise Agreement, by the following methods:

 

by delivery to the Company of a certified or official bank check payable to the order of the Company or by wire transfer of immediately available funds to an account designated in writing by the Company, in the amount of such Aggregate Exercise Price;

 

4
 

 

by instructing the Company to withhold a number of Warrant Shares then issuable upon exercise of this Warrant with an aggregate Fair Market Value as of the Exercise Date equal to such Aggregate Exercise Price;

 

by surrendering to the Company (x) Warrant Shares previously acquired by the Holder with an aggregate Fair Market Value as of the Exercise Date equal to such Aggregate Exercise Price and/or (y) other securities of the Company having a value as of the Exercise Date equal to the Aggregate Exercise Price (which value in the case of debt securities shall be the principal amount thereof plus accrued and unpaid interest, in the case of preferred stock shall be the liquidation value thereof plus accumulated and unpaid dividends and in the case of shares of Common Stock shall be the Fair Market Value thereof); or

 

any combination of the foregoing.

 

In the event of any withholding of Warrant Shares or surrender of other equity securities pursuant to clause (ii), (iii) or (iv) above where the number of shares whose value is equal to the Aggregate Exercise Price is not a whole number, the number of shares withheld by or surrendered to the Company shall be rounded up to the nearest whole share and the Company shall make a cash payment to the Holder (by delivery of a certified or official bank check or by wire transfer of immediately available funds) based on the incremental fraction of a share being so withheld by or surrendered to the Company in an amount equal to the product of (x) such incremental fraction of a share being so withheld or surrendered multiplied by (y) in the case of Common Stock, the Fair Market Value per Warrant Share as of the Exercise Date, and, in all other cases, the value thereof as of the Exercise Date determined in accordance with clause (iii)(y) above.

 

Delivery of Stock Certificates . Upon receipt by the Company of the Exercise Agreement, surrender of this Warrant and payment of the Aggregate Exercise Price (in accordance with Section 3(a) hereof), the Company shall, as promptly as practicable, and in any event within ten (10) Business Days thereafter, execute (or cause to be executed) and deliver (or cause to be delivered) to the Holder a certificate or certificates representing the Warrant Shares issuable upon such exercise, together with cash in lieu of any fraction of a share, as provided in Section 3(d) hereof. The stock certificate or certificates so delivered shall be, to the extent possible, in such denomination or denominations as the exercising Holder shall reasonably request in the Exercise Agreement and shall be registered in the name of the Holder or, subject to compliance with Section 7 below, such other Person's name as shall be designated in the Exercise Agreement. This Warrant shall be deemed to have been exercised and such certificate or certificates of Warrant Shares shall be deemed to have been issued, and the Holder or any other Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares for all purposes, as of the Exercise Date.

 

5
 

 

Fractional Shares . The Company shall not be required to issue a fractional Warrant Share upon exercise of any Warrant. As to any fraction of a Warrant Share that the Holder would otherwise be entitled to purchase upon such exercise, the Company shall pay to such Holder an amount in cash (by delivery of a certified or official bank check or by wire transfer of immediately available funds) equal to the product of (i) such fraction multiplied by (ii) the Fair Market Value of one Warrant Share on the Exercise Date.

 

Delivery of New Warrant . Unless the purchase rights represented by this Warrant shall have expired or shall have been fully exercised, the Company shall, at the time of delivery of the certificate or certificates representing the Warrant Shares being issued in accordance with Section 3(c) hereof, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unexpired and unexercised Warrant Shares called for by this Warrant. Such new Warrant shall in all other respects be identical to this Warrant.

 

Valid Issuance of Warrant and Warrant Shares; Payment of Taxes . With respect to the exercise of this warrant, the Company hereby represents, covenants and agrees:

 

This Warrant is, and any Warrant issued in substitution for or replacement of this Warrant shall be, upon issuance, duly authorized and validly issued.

 

All Warrant Shares issuable upon the exercise of this Warrant pursuant to the terms hereof shall be, upon issuance, and the Company shall take all such actions as may be necessary or appropriate in order that such Warrant Shares are, validly issued, fully paid and non-assessable, issued without violation of any pre-emptive or similar rights of any stockholder of the Company and free and clear of all taxes, liens and charges.

 

The Company shall take all such actions as may be necessary to ensure that all such Warrant Shares are issued without violation by the Company of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock or other securities constituting Warrant Shares may be listed at the time of such exercise (except for official notice of issuance which shall be immediately delivered by the Company upon each such issuance).

 

The Company shall use its best efforts to cause the Warrant Shares, immediately upon such exercise, to be listed on any domestic securities exchange upon which shares of Common Stock or other securities constituting Warrant Shares are listed at the time of such exercise.

 

The Company shall pay all expenses in connection with, and all taxes and other governmental charges that may be imposed with respect to, the issuance or delivery of Warrant Shares upon exercise of this Warrant; provided , that the Company shall not be required to pay any tax or governmental charge that may be imposed with respect to any applicable withholding or the issuance or delivery of the Warrant Shares to any Person other than the Holder, and no such issuance or delivery shall be made unless and until the Person requesting such issuance has paid to the Company the amount of any such tax, or has established to the satisfaction of the Company that such tax has been paid.

 

6
 

 

Conditional Exercise . Notwithstanding any other provision hereof, if an exercise of any portion of this Warrant is to be made in connection with a public offering or a sale of the Company (pursuant to a merger, sale of stock, or otherwise), such exercise may at the election of the Holder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction.

 

Reservation of Shares . During the Exercise Period, the Company shall at all times reserve and keep available out of its authorized but unissued Common Stock or other securities constituting Warrant Shares, solely for the purpose of issuance upon the exercise of this Warrant, the maximum number of Warrant Shares issuable upon the exercise of this Warrant, and the par value per Warrant Share shall at all times be less than or equal to the applicable Exercise Price. The Company shall not increase the par value of any Warrant Shares receivable upon the exercise of this Warrant above the Exercise Price then in effect, and shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant.

 

Adjustment to Exercise Price and Number of Warrant Shares . In order to prevent dilution of the purchase rights granted under this Warrant, the Exercise Price and the number of Warrant Shares issuable upon exercise of this Warrant shall be subject to adjustment from time to time as provided in this Section 4 .

 

Adjustment to Exercise Price Upon Issuance of Common Stock . Except as provided in Section 4(c) and except in the case of an event described in either Section 4(e) or Section 4(f) , if the Company shall, at any time or from time to time after the Original Issue Date, issue or sell, or in accordance with Section 4(d) is deemed to have issued or sold, any shares of Common Stock without consideration or for consideration per share less than the Exercise Price in effect immediately prior to such issuance or sale (or deemed issuance or sale), then immediately upon such issuance or sale (or deemed issuance or sale), the Exercise Price in effect immediately prior to such issuance or sale (or deemed issuance or sale) shall be reduced (and in no event increased) to an Exercise Price equal to the quotient obtained by dividing:

 

the sum of (A) the product obtained by multiplying the Common Stock Deemed Outstanding immediately prior to such issuance or sale (or deemed issuance or sale) by the Exercise Price then in effect plus (B) the aggregate consideration, if any, received by the Company upon such issuance or sale (or deemed issuance or sale); by

 

7
 

 

the sum of (A) the Common Stock Deemed Outstanding immediately prior to such issuance or sale (or deemed issuance or sale) plus (B) the aggregate number of shares of Common Stock issued or sold (or deemed issued or sold) by the Company in such issuance or sale (or deemed issuance or sale).

 

Adjustment to Number of Warrant Shares Upon Adjustment to Exercise Price . Upon any and each adjustment of the Exercise Price as provided in Section 4(a) , the number of Warrant Shares issuable upon the exercise of this Warrant immediately prior to any such adjustment shall be increased to a number of Warrant Shares equal to the quotient obtained by dividing:

 

the product of (A) the Exercise Price in effect immediately prior to any such adjustment multiplied by (B) the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to any such adjustment; by

 

the Exercise Price resulting from such adjustment.

 

Exceptions To Adjustment Upon Issuance of Common Stock . Anything herein to the contrary notwithstanding, there shall be no adjustment to the Exercise Price or the number of Warrant Shares issuable upon exercise of this Warrant with respect to any Excluded Issuance.

 

Effect of Certain Events on Adjustment to Exercise Price . For purposes of determining the adjusted Exercise Price under Section 4(a) hereof, the following shall be applicable:

 

Issuance of Options . If the Company shall, at any time or from time to time after the Original Issue Date, in any manner grant or sell (whether directly or by assumption in a merger or otherwise) any Options, whether or not such Options or the right to convert or exchange any Convertible Securities issuable upon the exercise of such Options are immediately exercisable, and the price per share (determined as provided in this paragraph and in Section 4(d)(v) ) for which Common Stock is issuable upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon the exercise of such Options is less than the Exercise Price in effect immediately prior to the time of the granting or sale of such Options, then the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued as of the date of granting or sale of such Options (and thereafter shall be deemed to be outstanding for purposes of adjusting the Exercise Price under Section 4(a) ), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable consideration received for purposes of Section 4(a) ) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting or sale of all such Options, plus (y) the minimum aggregate amount of additional consideration payable to the Company upon the exercise of all such Options, plus (z), in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Company upon the issuance or sale of all such Convertible Securities and the conversion or exchange of all such Convertible Securities, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of all such Options or upon the conversion or exchange of all Convertible Securities issuable upon the exercise of all such Options. Except as otherwise provided in Section 4(d)(iii), no further adjustment of the Exercise Price shall be made upon the actual issuance of Common Stock or of Convertible Securities upon exercise of such Options or upon the actual issuance of Common Stock upon conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

8
 

 

Issuance of Convertible Securities . If the Company shall, at any time or from time to time after the Original Issue Date, in any manner grant or sell (whether directly or by assumption in a merger or otherwise) any Convertible Securities, whether or not the right to convert or exchange any such Convertible Securities is immediately exercisable, and the price per share (determined as provided in this paragraph and in Section 4(d)(v) ) for which Common Stock is issuable upon the conversion or exchange of such Convertible Securities is less than the Exercise Price in effect immediately prior to the time of the granting or sale of such Convertible Securities, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of the total maximum amount of such Convertible Securities shall be deemed to have been issued as of the date of granting or sale of such Convertible Securities (and thereafter shall be deemed to be outstanding for purposes of adjusting the Exercise Price pursuant to Section 4(a) ), at a price per share equal to the quotient obtained by dividing (A) the sum (which sum shall constitute the applicable consideration received for purposes of Section 4(a) ) of (x) the total amount, if any, received or receivable by the Company as consideration for the granting or sale of such Convertible Securities, plus (y) the minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange of all such Convertible Securities, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. Except as otherwise provided in Section 4(d)(iii), (A) no further adjustment of the Exercise Price shall be made upon the actual issuance of Common Stock upon conversion or exchange of such Convertible Securities and (B) no further adjustment of the Exercise Price shall be made by reason of the issue or sale of Convertible Securities upon exercise of any Options to purchase any such Convertible Securities for which adjustments of the Exercise Price have been made pursuant to the other provisions of this Section 4(d) .

 

Change in Terms of Options or Convertible Securities . Upon any change in any of (A) the total amount received or receivable by the Company as consideration for the granting or sale of any Options or Convertible Securities referred to in Section 4(d)(i) or Section 4(d)(ii) hereof, (B) the minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of any Options or upon the issuance, conversion or exchange of any Convertible Securities referred to in Section 4(d)(i) or Section 4(d)(ii) hereof, (C) the rate at which Convertible Securities referred to in Section 4(d)(i) or Section 4(d)(ii) hereof are convertible into or exchangeable for Common Stock, or (D) the maximum number of shares of Common Stock issuable in connection with any Options referred to in Section 4(d)(i) hereof or any Convertible Securities referred to in Section 4(d)(ii) hereof (in each case, other than in connection with an Excluded Issuance), then (whether or not the original issuance or sale of such Options or Convertible Securities resulted in an adjustment to the Exercise Price pursuant to this Section 4 ) the Exercise Price in effect at the time of such change shall be adjusted or readjusted, as applicable, to the Exercise Price which would have been in effect at such time pursuant to the provisions of this Section 4 had such Options or Convertible Securities still outstanding provided for such changed consideration, conversion rate or maximum number of shares, as the case may be, at the time initially granted, issued or sold, but only if as a result of such adjustment or readjustment the Exercise Price then in effect is reduced, and the number of Warrant Shares issuable upon the exercise of this Warrant immediately prior to any such adjustment or readjustment shall be correspondingly adjusted or readjusted pursuant to the provisions of Section 4(b) .

 

9
 

 

Treatment of Expired or Terminated Options or Convertible Securities . Upon the expiration or termination of any unexercised Option (or portion thereof) or any unconverted or unexchanged Convertible Security (or portion thereof) for which any adjustment (either upon its original issuance or upon a revision of its terms) was made pursuant to this Section 4 (including without limitation upon the redemption or purchase for consideration of all or any portion of such Option or Convertible Security by the Company), the Exercise Price then in effect hereunder shall forthwith be changed pursuant to the provisions of this Section 4 to the Exercise Price which would have been in effect at the time of such expiration or termination had such unexercised Option (or portion thereof) or unconverted or unexchanged Convertible Security (or portion thereof), to the extent outstanding immediately prior to such expiration or termination, never been issued.

 

Calculation of Consideration Received . If the Company shall, at any time or from time to time after the Original Issue Date, issue or sell, or is deemed to have issued or sold in accordance with Section 4(d) , any shares of Common Stock, Options or Convertible Securities: (A) for cash, the consideration received therefor shall be deemed to be the net amount received by the Company therefor; (B) for consideration other than cash, the amount of the consideration other than cash received by the Company shall be the fair value of such consideration, except where such consideration consists of marketable securities, in which case the amount of consideration received by the Company shall be the market price (as reflected on any securities exchange, quotation system or association or similar pricing system covering such security) for such securities as of the end of business on the date of receipt of such securities; (C) for no specifically allocated consideration in connection with an issuance or sale of other securities of the Company, together comprising one integrated transaction, the amount of the consideration therefor shall be deemed to be the fair value of such portion of the aggregate consideration received by the Company in such transaction as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be, issued in such transaction; or (D) to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving corporation, the amount of consideration therefor shall be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be, issued to such owners. The net amount of any cash consideration and the fair value of any consideration other than cash or marketable securities shall be determined in good faith jointly by the Board and the Holder.

 

10
 

 

Record Date . For purposes of any adjustment to the Exercise Price or the number of Warrant Shares in accordance with this Section 4 , in case the Company shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

 

Treasury Shares . The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company or any of its wholly-owned subsidiaries, and the disposition of any such shares (other than the cancellation or retirement thereof or the transfer of such shares among the Company and its wholly-owned subsidiaries) shall be considered an issue or sale of Common Stock for the purpose of this Section 4 .

 

Adjustment to Exercise Price and Warrant Shares Upon Dividend, Subdivision or Combination of Common Stock . If the Company shall, at any time or from time to time after the Original Issue Date, (i) pay a dividend or make any other distribution upon the Common Stock or any other capital stock of the Company payable in shares of Common Stock or in Options or Convertible Securities, or (ii) subdivide (by any stock split, recapitalization or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to any such dividend, distribution or subdivision shall be proportionately reduced and the number of Warrant Shares issuable upon exercise of this Warrant shall be proportionately increased. If the Company at any time combines (by combination, reverse stock split or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased and the number of Warrant Shares issuable upon exercise of this Warrant shall be proportionately decreased. Any adjustment under this Section 4(e) shall become effective at the close of business on the date the dividend, subdivision or combination becomes effective.

 

11
 

 

Adjustment to Exercise Price and Warrant Shares Upon Reorganization, Reclassification, Consolidation or Merger . In the event of any (i) capital reorganization of the Company, (ii) reclassification of the stock of the Company (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), (iii) consolidation or merger of the Company with or into another Person, (iv) sale of all or substantially all of the Company's assets to another Person or (v) other similar transaction (other than any such transaction covered by Section 4(e) ), in each case which entitles the holders of Common Stock to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock, each Warrant shall, immediately after such reorganization, reclassification, consolidation, merger, sale or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Warrant Shares then exercisable under this Warrant, be exercisable for the kind and number of shares of stock or other securities or assets of the Company or of the successor Person resulting from such transaction to which the Holder would have been entitled upon such reorganization, reclassification, consolidation, merger, sale or similar transaction if the Holder had exercised this Warrant in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale or similar transaction and acquired the applicable number of Warrant Shares then issuable hereunder as a result of such exercise (without taking into account any limitations or restrictions on the exercisability of this Warrant); and, in such case, appropriate adjustment (in form and substance satisfactory to the Holder) shall be made with respect to the Holder's rights under this Warrant to insure that the provisions of this Section 4 hereof shall thereafter be applicable, as nearly as possible, to this Warrant in relation to any shares of stock, securities or assets thereafter acquirable upon exercise of this Warrant (including, in the case of any consolidation, merger, sale or similar transaction in which the successor or purchasing Person is other than the Company, an immediate adjustment in the Exercise Price to the value per share for the Common Stock reflected by the terms of such consolidation, merger, sale or similar transaction, and a corresponding immediate adjustment to the number of Warrant Shares acquirable upon exercise of this Warrant without regard to any limitations or restrictions on exercise, if the value so reflected is less than the Exercise Price in effect immediately prior to such consolidation, merger, sale or similar transaction). The provisions of this Section 4(f) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or similar transactions. The Company shall not effect any such reorganization, reclassification, consolidation, merger, sale or similar transaction unless, prior to the consummation thereof, the successor Person (if other than the Company) resulting from such reorganization, reclassification, consolidation, merger, sale or similar transaction, shall assume, by written instrument substantially similar in form and substance to this Warrant and satisfactory to the Holder, the obligation to deliver to the Holder such shares of stock, securities or assets which, in accordance with the foregoing provisions, such Holder shall be entitled to receive upon exercise of this Warrant. Notwithstanding anything to the contrary contained herein, with respect to any corporate event or other transaction contemplated by the provisions of this Section 4(f) , the Holder shall have the right to elect prior to the consummation of such event or transaction, to give effect to the exercise rights contained in Section 2 instead of giving effect to the provisions contained in this Section 4(f) with respect to this Warrant.

 

12
 

 

Certain Events . If any event of the type contemplated by the provisions of this Section 4 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features) occurs, then the Board shall make an appropriate adjustment in the Exercise Price and the number of Warrant Shares issuable upon exercise of this Warrant so as to protect the rights of the Holder in a manner consistent with the provisions of this Section 4 ; provided , that no such adjustment pursuant to this Section 4(g) shall increase the Exercise Price or decrease the number of Warrant Shares issuable as otherwise determined pursuant to this Section 4 .

 

Certificate as to Adjustment .

 

As promptly as reasonably practicable following any adjustment of the Exercise Price, but in any event not later than ten (10) Business Days thereafter, the Company shall furnish to the Holder a certificate of an executive officer setting forth in reasonable detail such adjustment and the facts upon which it is based and certifying the calculation thereof.

 

As promptly as reasonably practicable following the receipt by the Company of a written request by the Holder, but in any event not later than ten (10) Business Days thereafter, the Company shall furnish to the Holder a certificate of an executive officer certifying the Exercise Price then in effect and the number of Warrant Shares or the amount, if any, of other shares of stock, securities or assets then issuable upon exercise of the Warrant.

 

Notices . In the event:

 

of any capital reorganization of the Company, any reclassification of the Common Stock of the Company, any consolidation or merger of the Company with or into another Person, or sale of all or substantially all of the Company's assets to another Person; or

 

of the voluntary or involuntary dissolution, liquidation or winding-up of the Company;

 

then, and in each such case, the Company shall send or cause to be sent to the Holder at least five (5) days prior to the applicable record date or the applicable expected effective date, as the case may be, for the event, a written notice specifying, as the case may be, (A) the record date for such dividend, distribution, meeting or consent or other right or action, and a description of such dividend, distribution or other right or action to be taken at such meeting or by written consent, or (B) the effective date on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up is proposed to take place, and the date, if any is to be fixed, as of which the books of the Company shall close or a record shall be taken with respect to which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon exercise of the Warrant) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Warrant and the Warrant Shares.

 

13
 

 

Purchase Rights . In addition to any adjustments pursuant to Section 4 above, if at any time the Company grants, issues or sells any shares of Common Stock, Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of Common Stock (the " Purchase Rights "), then the Holder shall be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder would have acquired if the Holder had held the number of Warrant Shares acquirable upon complete exercise of this Warrant immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights. Anything herein to the contrary notwithstanding, the Holder shall not be entitled to the Purchase Rights granted herein with respect to any Excluded Issuance.

 

Transfer of Warrant . The Holder may not transfer, sell, assign, pledge, hypothecate or otherwise dispose of this Warrant without the consent of the Company.

 

Holder Not Deemed a Stockholder; Limitations on Liability . Except as otherwise specifically provided herein, prior to the issuance to the Holder of the Warrant Shares to which the Holder is then entitled to receive upon the due exercise of this Warrant, the Holder shall not be entitled to vote or receive dividends or be deemed the holder of shares of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, as such, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.

 

Replacement on Loss; Division and Combination .

 

Replacement of Warrant on Loss . Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and upon delivery of an indemnity reasonably satisfactory to it (it being understood that a written indemnification agreement or affidavit of loss of the Holder shall be a sufficient indemnity) and, in case of mutilation, upon surrender of such Warrant for cancellation to the Company, the Company at its own expense shall execute and deliver to the Holder, in lieu hereof, a new Warrant of like tenor and exercisable for an equivalent number of Warrant Shares as the Warrant so lost, stolen, mutilated or destroyed; provided , that, in the case of mutilation, no indemnity shall be required if this Warrant in identifiable form is surrendered to the Company for cancellation.

 

14
 

 

Division and Combination of Warrant . Subject to compliance with the applicable provisions of this Warrant and the Stockholders Agreement as to any transfer or other assignment which may be involved in such division or combination, this Warrant may be divided or, following any such division of this Warrant, subsequently combined with other Warrants, upon the surrender of this Warrant or Warrants to the Company at its then principal executive offices, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the respective Holders or their agents or attorneys. Subject to compliance with the applicable provisions of this Warrant and the Stockholders Agreement as to any transfer or assignment which may be involved in such division or combination, the Company shall at its own expense execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants so surrendered in accordance with such notice. Such new Warrant or Warrants shall be of like tenor to the surrendered Warrant or Warrants and shall be exercisable in the aggregate for an equivalent number of Warrant Shares as the Warrant or Warrants so surrendered in accordance with such notice.

 

Compliance with the Securities Act .

 

Agreement to Comply with the Securities Act; Legend . The Holder, by acceptance of this Warrant, agrees to comply in all respects with the provisions of this Section 9 and the restrictive legend requirements set forth on the face of this Warrant and further agrees that such Holder shall not offer, sell or otherwise dispose of this Warrant or any Warrant Shares to be issued upon exercise hereof except under circumstances that will not result in a violation of the Securities Act of 1933, as amended (the " Securities Act "). This Warrant and all Warrant Shares issued upon exercise of this Warrant (unless registered under the Securities Act) shall be stamped or imprinted with a legend in substantially the following form:

 

"THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR QUALIFIED UNDER ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR ASSIGNED UNLESS (I) A REGISTRATION STATEMENT COVERING SUCH SHARES IS EFFECTIVE UNDER THE ACT AND IS QUALIFIED UNDER APPLICABLE STATE AND FOREIGN LAW OR (II) THE TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER THE ACT AND THE QUALIFICATION REQUIREMENTS UNDER APPLICABLE STATE AND FOREIGN LAW AND, IF THE CORPORATION REQUESTS, AN OPINION SATISFACTORY TO THE CORPORATION TO SUCH EFFECT HAS BEEN RENDERED BY COUNSEL."

 

15
 

 

Representations of the Holder . In connection with the issuance of this Warrant, the Holder specifically represents, as of the date hereof, to the Company by acceptance of this Warrant as follows:

 

The Holder is an "accredited investor" as defined in Rule 501 of Regulation D promulgated under the Securities Act. The Holder is acquiring this Warrant and the Warrant Shares to be issued upon exercise hereof for investment for its own account and not with a view towards, or for resale in connection with, the public sale or distribution of this Warrant or the Warrant Shares, except pursuant to sales registered or exempted under the Securities Act.

 

The Holder understands and acknowledges that this Warrant and the Warrant Shares to be issued upon exercise hereof are "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that, under such laws and applicable regulations, such securities may be resold without registration under the Securities Act only in certain limited circumstances. In addition, the Holder represents that it is familiar with Rule 144 under the Securities Act, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act.

 

The Holder acknowledges that it can bear the economic and financial risk of its investment for an indefinite period, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Warrant and the Warrant Shares. The Holder has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Warrant and the business, properties, prospects and financial condition of the Company.

 

Warrant Register . The Company shall keep and properly maintain at its principal executive offices books for the registration of the Warrant and any transfers thereof. The Company may deem and treat the Person in whose name the Warrant is registered on such register as the Holder thereof for all purposes, and the Company shall not be affected by any notice to the contrary, except any assignment, division, combination or other transfer of the Warrant effected in accordance with the provisions of this Warrant.

 

Notices . All notices, requests, consents, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the [third] day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent to the respective parties at the addresses indicated below (or at such other address for a party as shall be specified in a notice given in accordance with this Section 13 ).

 

16
 

 

If to the Company: [COMPANY ADDRESS]
   
If to the Holder: [HOLDER ADDRESS]

 

Cumulative Remedies . Except to the extent expressly provided in Section 8 to the contrary, the rights and remedies provided in this Warrant are cumulative and are not exclusive of, and are in addition to and not in substitution for, any other rights or remedies available at law, in equity or otherwise.

 

Equitable Relief . Each of the Company and the Holder acknowledges that a breach or threatened breach by such party of any of its obligations under this Warrant would give rise to irreparable harm to the other party hereto for which monetary damages would not be an adequate remedy and hereby agrees that in the event of a breach or a threatened breach by such party of any such obligations, the other party hereto shall, in addition to any and all other rights and remedies that may be available to it in respect of such breach, be entitled to equitable relief, including a restraining order, an injunction, specific performance and any other relief that may be available from a court of competent jurisdiction.

 

Entire Agreement . This Warrant, together with the Stockholders Agreement and the Purchase Agreement, constitutes the sole and entire agreement of the parties to this Warrant with respect to the subject matter contained herein, and supersedes all prior and contemporaneous understandings and agreements, both written and oral, with respect to such subject matter. In the event of any inconsistency between the statements in the body of this Warrant, the Stockholders Agreement and the Purchase Agreement, the statements in the body of this Warrant shall control.

 

Successor and Assigns . This Warrant and the rights evidenced hereby shall be binding upon and shall inure to the benefit of the parties hereto and the successors of the Company and the successors and permitted assigns of the Holder. Such successors and/or permitted assigns of the Holder shall be deemed to be a Holder for all purposes hereunder.

 

No Third-Party Beneficiaries . This Warrant is for the sole benefit of the Company and the Holder and their respective successors and, in the case of the Holder, permitted assigns and nothing herein, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever, under or by reason of this Warrant.

 

17
 

 

Headings . The headings in this Warrant are for reference only and shall not affect the interpretation of this Warrant.

 

Amendment and Modification; Waiver . Except as otherwise provided herein, this Warrant may only be amended, modified or supplemented by an agreement in writing signed by each party hereto. No waiver by the Company or the Holder of any of the provisions hereof shall be effective unless explicitly set forth in writing and signed by the party so waiving. No waiver by any party shall operate or be construed as a waiver in respect of any failure, breach or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any rights, remedy, power or privilege arising from this Warrant shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

Severability . If any term or provision of this Warrant is invalid, illegal or unenforceable in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other term or provision of this Warrant or invalidate or render unenforceable such term or provision in any other jurisdiction.

 

Governing Law . This Warrant shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdiction other than those of the State of Delaware.

 

Submission to Jurisdiction . Any legal suit, action or proceeding arising out of or based upon this Warrant or the transactions contemplated hereby may be instituted in the federal courts of the United States of America or the courts of the State of Delaware, and each party irrevocably submits to the exclusive jurisdiction of such courts in any such suit, action or proceeding. Service of process, summons, notice or other document by certified or registered mail to such party's address set forth herein shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or any proceeding in such courts and irrevocably waive and agree not to plead or claim in any such court that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.

 

Waiver of Jury Trial . Each party acknowledges and agrees that any controversy which may arise under this Warrant is likely to involve complicated and difficult issues and, therefore, each such party irrevocably and unconditionally waives any right it may have to a trial by jury in respect of any legal action arising out of or relating to this Warrant or the transactions contemplated hereby.

 

18
 

 

Counterparts . This Warrant may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Warrant delivered by facsimile, e-mail or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Warrant.

 

No Strict Construction . This Warrant shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted.

 

[SIGNATURE PAGE FOLLOWS]

 

19
 

 

IN WITNESS WHEREOF, the Company has duly executed this Warrant on the Original Issue Date.

 

  1347 PROPERTY INSURANCE HOLDINGS, INC.
     
  By:  
  Name:
  Title:

 

Accepted and agreed,
 
[HOLDER NAME]  
     
By:    
Name:  
Title:  

 

20

 

 

  EXHIBIT 10.10

 

September 25, 2012

 

Douglas Raucy

16404 Brieva DE Avila

Tampa, FL 33613-1064

 

Dear Doug,

 

It is with great pleasure that we extend to you this offer to join the team as an employee of Kingsway America Inc. (the “Company”).

 

The following is a summary of the terms of the offer, which is contingent upon satisfactory completion of several pre-employment requirements listed below. It is our understanding that you are not subject to any non-competition contract or any other agreement that would otherwise restrict your employment opportunities. Should this not be the case, please let us know immediately.

 

· Your position will be President and Chief Executive Officer of Maison Holdings LLC, Maison Insurance Company and Maison Managers LLC beginning on Monday, October 1, 2012.

 

· Your base pay will be $10,769.23 bi-weekly ($280,000 annualized). Your salary will be reviewed annually and increased appropriately to reflect your contributions to the Company.

 

· You will be eligible for a signing bonus of $20,000, payable on the payroll following your one month anniversary.

 

· You will be eligible for a bonus payment of $50,000, contingent upon successful completion of agreed upon objectives, including the successful launch of Maison Insurance Company. If attained, this bonus payment will be paid on the payroll following the completion of these objectives, as determined by Company’s management.

 

· You will be eligible to participate in other bonus and/or stock option incentive programs of the Company, if any, based on the terms of that program.

  

· You will be included in all benefit programs available to full time employees of Kingsway America Inc.

 

· The Company is committed to providing its employees with a safe and drug-free environment and therefore, all employment offers are contingent upon successful completion of a pre-employment drug screen. Failure to schedule and complete may result in the possible rescission of your employment offer.

 

· Your employment is also contingent upon the successful completion of a background check which does not reveal any item in your past that (in the sole opinion of the Company) would prevent you from being successful at your job.

 

· While it is our sincere hope that our working relationship will be a long and fulfilling one, we remind you that Kingsway America Inc. is an At Will employer. As such, the Company does not offer employment on a fixed-term basis. Your employment will be “At Will”, meaning that you will not have a contract for a specific duration. Either you or the Company can terminate the employment relationship at any time for any nondiscriminatory reason, with or without cause.

 

 
 

 

  EXHIBIT 10.10

 

By signing this offer letter, you agree and acknowledge that (i) you have not relied, and are not relying, on any oral or written statements, promises or representations made by any employee, agent, or representative of the Company that are not expressly set forth in this letter, and (ii) you are not bound by any agreement or obligation (including any confidentiality, non-competition or non-solicitation covenants or agreements) that would restrict you from performing the functions of your position to the best of your ability.

 

We are delighted that you have entertained this opportunity and will be very pleased to have you join the Company and participate in its anticipated success. Please acknowledge your understanding of the foregoing by signing and dating below and returning this letter to Leeann Repta by Monday, October 1, 2012. Please do not hesitate to contact her directly at 847-700-8059 with any questions.

 

Sincerely,

 

KINGSWAY AMERICA INC.

 

 

By:   /s/ Larry G. Swets, Jr.    
Larry G. Swets, Jr.    

 

 

By:    /s/ Leeann Repta    
Leeann Repta    

 

 

I have carefully read and understand and acknowledge all the terms of this letter and accept employment with the Company on those terms. I understand that this is an employment-at-will relationship. I understand that this letter is the sole component of this offer of employment.

 

 

/s/ Douglas Raucy    
Douglas Raucy    

 

 

Dated: 9/27/2012

 

 

Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

 

1347 Property Insurance Holdings, Inc.

Baton Rouge, Louisiana

 

We hereby consent to the use in the Prospectus constituting a part of this Registration Statement of our report dated December 6, 2013, relating to the consolidated financial statements of 1347 Property Insurance Holdings, Inc. which is contained in that Prospectus.

 

We also consent to the reference to us under the caption “Experts” in the Prospectus.

 

 

Grand Rapids, Michigan

January 29, 2014