Unassociated Document
Registration
No. 333-150327
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT
NO. 2
TO
FORM
S-4
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
FMG
ACQUISITION CORP.
(Exact
name of registrant as specified in its charter)
Delaware
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|
6770
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75-3241964
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(State
or other jurisdiction
of
incorporation or
organization)
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|
(Primary Standard Industrial Classification Code
Number)
|
|
(I.R.S. Employer
Identification No.)
|
Four
Forest Park, Second Floor
Farmington,
Connecticut 06032
(860)
677-2701
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Chairman,
President and
Chief
Executive Officer
Four
Forest Park, Second Floor
Farmington,
Connecticut 06032
(860)
677-2701
(Name,
address including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
Douglas
S. Ellenoff, Esq.
Adam
S. Mimeles, Esq.
Ellenoff
Grossman & Schole LLP
150
East 42nd Street
New
York, New York 10017
(212)
370-1300
(212)
370-7889—Fax
|
Carolyn
T. Long, Esq.
Steven
W. Vazquez, Esq.
Foley
& Lardner LLP
100
North Tampa Street, Suite 2700
Tampa,
Florida 33602
(813)
229-2300
(813)
221-4210—Fax
|
Approximate
date of commencement of proposed sale to the public:
As soon
as practicable after this Registration Statement becomes effective and all
other
conditions to the merger contemplated by the merger agreement described in
the
enclosed proxy statement/prospectus have been satisfied or waived.
If
any of
the securities being registered on this form are to be offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. o
If
this
Form is filed to register additional securities 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(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.
Large
accelerated filer o
Accelerated filer o
Non-accelerated
filer o
Smaller
reporting company x
CALCULATION
OF REGISTRATION FEE
Title of Each Class of
Security to Be Registered
|
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Amount Being
Registered
|
|
Proposed Maximum
Offering Price Per Security(1)
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Proposed Maximum
Aggregate Offering Price
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Amount of
Registration Fee
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Shares
of Common Stock(2)
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8,750,000
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$
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8.00
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$
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70,000,000
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$
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2,751
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Total
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8,750,000
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$
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70,000,000
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$
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2,751
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(3)
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(1)
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Based
on the market price of the common stock for the purpose of calculating
the
registration fee pursuant to Rule
457(f)(1).
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(2)
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Represents
8,750,000 shares of common stock to be issued to members of United
Insurance Holdings, L.C. in exchange for their membership
units.
|
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.
The
information in this proxy statement/prospectus is not complete and may be
changed. We may not sell these securities until the Securities and Exchange
Commission declares our registration statement effective. This proxy
statement/prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or
sale
is not permitted.
SUBJECT
TO COMPLETION DATED JULY 8, 2008
PROXY
STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
AND
PROSPECTUS FOR UP TO 8,750,000 SHARES OF COMMON STOCK OF
FMG
ACQUISITION CORP.
Proxy
Statement/Prospectus dated [
], 2008
and
first
mailed to stockholders on or about [
], 2008
We
are pleased to announce the boards of directors of FMG Acquisition Corp. (“FMG”
or the “Company”), United Insurance Holdings, L.C., (“United”) and United
Subsidiary Corp., a newly-incorporated Florida corporation and a wholly-owned
subsidiary of FMG (“United Subsidiary”), have agreed to the purchase of all of
the membership units of United by FMG, and to effect a merger whereby United
Subsidiary will merge with and into United, with United surviving as a
wholly-owned subsidiary of FMG. We are sending you this document to ask for
your
vote for the approval and adoption of this transaction, as well as for the
approval and adoption of several related proposals.
On
April 2, 2008, the Company entered into an Agreement and Plan of Merger (the
“Merger Agreement”) pursuant to which United Subsidiary agreed to merge with and
into United, and United has agreed, subject to receipt of the merger
consideration from FMG, to become a wholly-owned subsidiary of FMG (the
“Merger”). If the stockholders of the Company approve the transactions
contemplated by the Merger Agreement, FMG, through United Subsidiary, which
was
newly incorporated in order to facilitate the Merger contemplated thereby,
will
merge pursuant to a merger transaction summarized as follows:
(i)
FMG has
formed a transitory merger subsidiary, United Subsidiary Corp., and will merge
such subsidiary with and into United, with United surviving; and
(ii)
United
will, as a result, become wholly-owned by FMG.
United’s
members will receive consideration of up to $100,000,000 consisting
of:
(i)
$25,000,000 in cash;
(ii)
8,750,000 shares of FMG common stock, par value $.0001 per share (assuming
an
$8.00 per share value); and
(iii)
up to
$5,000,000 of additional consideration will be paid to the members of United
in
the event certain net income targets are met by United, as set forth more
particularly herein.
Our
units, common stock and warrants are traded on the OTC Bulletin Board under
the
symbols FMGQU, FMGQ and FMGQW, respectively. On July 7, 2008, our units,
common stock and warrants had a closing price of $7.62, $7.33 and $0.34,
respectively. The
registration statement of which this proxy statement/prospectus is a part
relates to the offering by FMG of up to 8,750,000 shares of FMG common
stock.
IF
YOU RETURN YOUR PROXY CARD WITHOUT AN INDICATION OF HOW YOU DESIRE TO VOTE,
YOU
WILL NOT BE ELIGIBLE TO HAVE YOUR STOCK CONVERTED INTO A PRO RATA PORTION OF
THE
TRUST ACCOUNT IN WHICH A SUBSTANTIAL PORTION OF OUR IPO NET PROCEEDS ARE HELD.
YOU MUST AFFIRMATIVELY VOTE AGAINST THE MERGER PROPOSAL AND DEMAND WE CONVERT
YOUR STOCK INTO CASH NO LATER THAN THE VOTE ON THE MERGER PROPOSAL TO EXERCISE
YOUR CONVERSION RIGHTS. IN ORDER TO CONVERT YOUR SHARES OF COMMON STOCK, YOU
MUST ALSO PRESENT OUR STOCK TRANSFER AGENT WITH YOUR PHYSICAL STOCK CERTIFICATE
AT OR PRIOR TO THE SPECIAL MEETING. SEE “SPECIAL MEETING OF
STOCKHOLDERS—CONVERSION RIGHTS” FOR MORE SPECIFIC
INSTRUCTIONS.
SEE
ALSO “RISK FACTORS”, BEGINNING ON PAGE 20 FOR
A DISCUSSION OF VARIOUS FACTORS YOU SHOULD CONSIDER IN CONNECTION WITH THE
MERGER.
Enclosed
is our Notice of
Special Meeting and proxy statement and proxy card. Your vote is very important.
Whether or not you plan to attend the Special Meeting, please take the time
to
vote by marking your vote on your proxy card, signing and dating the proxy
card,
and returning it to us in the enclosed envelope. The Special Meeting will be
held
at on
at .
The
Company’s Board of Directors unanimously recommends Company stockholders vote
FOR approval and adoption of the Merger Agreement, as well as all other
proposals contained herein.
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Very
truly yours,
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Gordon
G. Pratt
Chairman,
President and Chief Executive
Officer
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Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if the attached proxy
statement/ prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
UNTIL ,
2008, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT
PARTICIPATING IN THIS 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.
FMG
ACQUISITION CORP.
Four
Forest Park
Farmington,
Connecticut 06032
NOTICE
OF SPECIAL MEETING OF STOCKHOLDERS
TO
BE HELD
ON ,
2008
TO
THE
STOCKHOLDERS OF FMG ACQUISITION CORP.:
NOTICE
IS HEREBY GIVEN that a Special Meeting of stockholders of FMG Acquisition Corp.,
a Delaware corporation (“FMG” or the “Company”), relating to the proposed
acquisition of all of the issued and outstanding membership units of United
Insurance Holdings, L.C., which Special Meeting will be held at 10:00 a.m.
Eastern Time, on
,
2008, at the offices
of .
At
the Special Meeting, you will be asked to consider and vote upon the
following:
(i)
the Merger Proposal—the proposed acquisition of all of the issued membership
units of United Insurance Holdings, L.C., a Florida limited liability company,
pursuant to the Agreement and Plan of Merger, dated as of April 2, 2008, by
and
among the Company, United and United Subsidiary, and the transactions
contemplated thereby (“Proposal 1” or the “Merger Proposal”);
(ii)
the First Amendment Proposal—the amendment to the Company’s amended and restated
certificate of incorporation (the “First Certificate of Incorporation
Amendment”), to remove certain provisions containing procedural and approval
requirements applicable to the Company prior to the consummation of the business
combination that will no longer be operative following consummation of the
Merger (“Proposal 2” or the “First Amendment Proposal”);
(iii)
the Second Amendment Proposal—the amendment to the Company's amended and
restated certificate of incorporation (the “Second Certificate of Incorporation
Amendment”), to increase the amount of authorized shares of common stock from
20,000,000 to 50,000,000 (“Proposal 3” or the “Second Amendment
Proposal”);
(iv)
the Third Amendment Proposal—the amendment to the Company’s amended and restated
certificate of incorporation (the “Third Certificate of Incorporation
Amendment”), to change the name of the Company to United Insurance Holdings
Corp. (“Proposal 4” or the “Third Amendment Proposal”);
(v)
Director Proposal—to elect three (3) directors to the Company’s Board of
Directors to hold office until their successors are elected and qualified
(“Proposal 5” or the “Director Proposal”);
(vi)
the Adjournment Proposal—to consider and vote upon a proposal to adjourn the
Special Meeting to a later date or dates, if necessary, to permit further
solicitation and vote of proxies in the event that, based upon the tabulated
vote at the time of the Special Meeting, the Company would not have been
authorized to consummate the Merger—which we refer to as the adjournment
proposal (“Proposal 6” or the “Adjournment Proposal”); and
(vii)
such other business as may properly come before the meeting or any adjournment
or postponement thereof.
These
proposals are described in the attached proxy statement/prospectus which the
Company urges you to read in its entirety before voting. The Board of Directors
of the Company has fixed the close of business
on ,
2008, as the record date (the “Record Date”) for the determination of
stockholders entitled to notice of and to vote at the Special Meeting and at
any
adjournment thereof.
Your
vote is important.
Please
sign, date and return your proxy card as soon as possible to make sure your
shares are represented at the Special Meeting. If you are a stockholder of
record of the Company’s common stock, you may also cast your vote in person at
the Special Meeting. If your shares are held in an account at a brokerage firm
or bank, you must instruct your broker or bank on how to vote your shares.
|
By
Order of the Board of Directors,
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|
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Gordon
G. Pratt
Chairman
of the Board, President and Chief Executive Officer
,
2008
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Page
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QUESTIONS
AND ANSWERS ABOUT THE PROPOSALS
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1
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SUMMARY
OF THE PROXY STATEMENT
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8
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THE
MERGER PROPOSAL
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8
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THE
PARTIES
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8
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OUR
INSIDER STOCKHOLDERS
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9
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COMPANY
SHARES ENTITLED TO VOTE
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9
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UNITED
MEMBERSHIP UNITS ENTITLED TO VOTE
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9
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TAX
CONSIDERATIONS
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9
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CONDITIONS
TO CLOSING THE MERGER
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9
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DIRECTOR
NOMINEES
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10
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ACCOUNTING
TREATMENT
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10
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RISK
FACTORS
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10
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CONVERSION
RIGHTS
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10
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APPRAISAL
OR DISSENTERS’ RIGHTS
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11
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STOCK
OWNERSHIP
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11
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REASONS
FOR THE MERGER
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12
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COMPANY
BOARD OF DIRECTORS RECOMMENDATIONS
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12
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INTERESTS
OF THE COMPANY DIRECTORS AND OFFICERS IN THE MERGER
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13
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INTERESTS
OF UNITED IN THE MERGER
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14
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INTERESTS
OF PALI CAPITAL IN THE MERGER; FEES
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14
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FAIRNESS
OPINION
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14
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REGULATORY
MATTERS
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14
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OVERVIEW
OF THE MERGER
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14
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DIRECTORS
AND MANAGEMENT
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15
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FIRST
AMENDMENT PROPOSAL
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15
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SECOND
AMENDMENT PROPOSAL
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15
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THIRD
AMENDMENT PROPOSAL
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15
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DIRECTOR
PROPOSAL
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15
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ADJOURNMENT
PROPOSAL
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15
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THE
SPECIAL MEETING
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15
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DATE,
TIME AND PLACE OF SPECIAL MEETING OF OUR STOCKHOLDERS
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15
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RECORD
DATE; WHO IS ENTITLED TO VOTE
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15
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QUORUM
AND VOTE REQUIRED
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16
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VOTING
YOUR SHARES
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16
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FMG
ACQUISITION CORP. SELECTED FINANCIAL DATA
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17
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MARKET
PRICE INFORMATION AND DIVIDEND DATA FOR COMPANY SECURITIES
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19
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RISK
FACTORS
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20
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RISKS
PARTICULAR TO THE MERGER
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20
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RISKS
RELATED TO UNITED’ S BUSINESS
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22
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RISKS
RELATING TO THE COMPANY’S CURRENT STATUS AS A BLANK CHECK
COMPANY
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27
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FORWARD-LOOKING
STATEMENTS
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30
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THE
COMPANY SPECIAL MEETING OF STOCKHOLDERS
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31
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THE
COMPANY SPECIAL MEETING
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31
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DATE,
TIME AND PLACE
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31
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PURPOSE
OF THE SPECIAL MEETING
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31
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RECORD
DATE, WHO IS ENTITLED TO VOTE
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32
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VOTING
YOUR SHARES
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32
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WHO
CAN ANSWER YOUR QUESTIONS ABOUT VOTING YOUR SHARES
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32
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NO
ADDITIONAL MATTERS MAY BE PRESENTED AT THE SPECIAL MEETING
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32
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REVOKING
YOUR PROXY
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32
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QUORUM;
VOTE REQUIRED
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33
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ABSTENTIONS
AND BROKER NON-VOTES
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33
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CONVERSION
RIGHTS
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33
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APPRAISAL
OR DISSENTER RIGHTS
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34
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SOLICITATION
COSTS
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35
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STOCK
OWNERSHIP
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35
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PROPOSAL 1—THE
MERGER PROPOSAL
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38
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GENERAL
DESCRIPTION OF THE MERGER
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38
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BACKGROUND
OF THE MERGER
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39
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INTERESTS
OF UNITED DIRECTORS AND OFFICERS IN THE MERGER
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44
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INTERESTS
OF FMG DIRECTORS AND OFFICERS IN THE MERGER
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44
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COMPANY’S
REASONS FOR THE MERGER AND RECOMMENDATION OF THE COMPANY’ S
BOARD
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45
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UNITED'S
REASONS FOR THE MERGER WITH THE COMPANY
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46
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FAIRNESS
OPINION OF PIPER JAFFRAY & CO.
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46
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THE
MERGER AGREEMENT
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51
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UNITED
STATES FEDERAL INCOME TAX CONSIDERATIONS OF THE MERGER
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55
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SATISFACTION
OF THE 80% REQUIREMENT
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58
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REGULATORY
MATTERS
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58
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CONSEQUENCES
IF MERGER PROPOSAL IS NOT APPROVED
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58
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REQUIRED
VOTE
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59
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ABSTENTIONS
AND BROKER NON-VOTES
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59
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DISSENTERS’
RIGHTS
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60
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ACCOUNTING
TREATMENT
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60
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RECOMMENDATION
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60
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PROPOSAL 2
- THE FIRST AMENDMENT PROPOSAL
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61
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RECOMMENDATION
|
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64
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PROPOSAL 3
- THE SECOND AMENDMENT PROPOSAL
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65
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RECOMMENDATION
|
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66
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PROPOSAL
4 - THE THIRD AMENDMENT PROPOSAL
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67
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RECOMMENDATION
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67
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PROPOSAL 5
- DIRECTOR PROPOSAL
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68
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INFORMATION
ABOUT THE NOMINEES
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68
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COMPLIANCE
WITH SECTION 16(a)
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71
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BOARD
OF DIRECTORS AND COMMITTEES OF THE BOARD
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71
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CODE
OF CONDUCT AND ETHICS
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71
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COMPENSATION
ARRANGEMENTS FOR DIRECTORS
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71
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EXECUTIVE
COMPENSATION
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71
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OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
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73
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DIRECTOR
COMPENSATION
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73
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BENCHMARKS
OF CASH AND EQUITY COMPENSATION
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74
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COMPENSATION
COMPONENTS
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74
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CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF FMG
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74
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CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF UNITED
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76
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RECOMMENDATION
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77
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PROPOSAL 6
- THE ADJOURNMENT PROPOSAL
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78
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RECOMMENDATION
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78
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UNITED
MEMBER APPROVAL
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79
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INFORMATION
ABOUT THE INSURANCE INDUSTRY
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80
|
INFORMATION
ABOUT FMG ACQUISITION CORP.
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83
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MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF FMG ACQUISITION CORP.
|
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85
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INFORMATION
ABOUT UNITED INSURANCE HOLDINGS, L.C.
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88
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF UNITED INSURANCE HOLDINGS, L.C.
|
|
97
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UNAUDITED
PRO FORMA COMBINED FINANCIAL INFORMATION AS OF MARCH 31, 2008 AND
DECEMBER 31, 2007
|
|
122
|
DIRECTORS
AND MANAGEMENT OF THE COMPANY FOLLOWING THE MERGER
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|
129
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CURRENT
DIRECTORS AND MANAGEMENT OF UNITED SUBSIDIARY CORP.
|
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130
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BENEFICIAL
OWNERSHIP OF SECURITIES
|
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130
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BENEFICIAL
OWNERSHIP FOLLOWING THE MERGER
|
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132
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PRICE
RANGE OF SECURITIES AND DIVIDENDS
|
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135
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DESCRIPTION
OF FMG ACQUISTION CORP. SECURITIES
|
|
136
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COMPARISON
OF RIGHTS OF FMG STOCKHOLDERS AND UNITED MEMBERS
|
|
140
|
SHARES
ELIGIBLE FOR FUTURE SALE
|
|
144
|
EXPERTS
|
|
146
|
LEGAL
MATTERS
|
|
146
|
STOCKHOLDER
PROPOSALS AND OTHER MATTERS
|
|
146
|
WHERE
YOU CAN FIND MORE INFORMATION
|
|
146
|
INDEX
TO FINANCIAL STATEMENTS
|
|
F-1
|
ANNEXES
|
|
|
Annex A—Agreement
and Plan of Merger
|
|
|
Annex B—Second
Amended and Restated Certificate of Incorporation
|
|
|
Annex C—Opinion
of Piper Jaffray & Co.
|
|
|
QUESTIONS
AND ANSWERS ABOUT THE PROPOSALS
Why
am I receiving this proxy statement?
Because
you are a stockholder of FMG. FMG, United and United Subsidiary have agreed
to a
business transaction under the terms of an Agreement and Plan of Merger dated
April 2, 2008, pursuant to which FMG will purchase all of the membership units
of United. A copy of the Merger Agreement is attached to this proxy
statement/prospectus as Annex A, which we encourage you to review in its
entirety. The Merger is structured such that United will become wholly-owned
by
FMG in a series of steps as outlined below. FMG and United will merge pursuant
to a merger transaction summarized as follows:
(i)
FMG will create a transitory merger subsidiary, United Subsidiary Corp., and
will merge such subsidiary with and into United, with United surviving;
and
(ii)
United will, as a result, become wholly-owned by FMG.
United’s
members will receive consideration of up to $100,000,000 consisting
of:
(i)
$25,000,000 in cash;
(ii)
8,750,000 shares of FMG common stock, par value $.0001 per share (assuming
an
$8.00 per share value); and
(iii)
up
to $5,000,000 of additional consideration will be paid to the members of United
in the event certain net income targets are met by United, as set forth more
particularly herein.
In
order to consummate the Merger, a majority of the shares issued in the IPO
voting at the meeting (whether in person or by proxy) must vote to approve
and
adopt the Merger Agreement and the transactions contemplated thereby. Further,
the Merger may not be consummated if more than 29.99% of such shares vote
against the Merger and elect to convert their shares to cash from the trust
account established with the proceeds of our IPO.
The
Company will hold a Special Meeting of its stockholders to obtain these
approvals. In connection with the Merger, this proxy statement/prospectus
contains important information about the proposed Merger, the proposed First
Certificate of Incorporation Amendment, the proposed Second Certificate of
Incorporation Amendment, the proposed Third Certificate of Incorporation
Amendment and the Director Proposal.
This
proxy statement/prospectus also contains important information about the
proposed Director election and proposed Adjournment. You should read it
carefully; in particular the section entitled “Risk Factors.”
Your
vote is important. We encourage you to vote as soon as possible after carefully
reviewing this proxy statement.
What
is being voted on?
There
are six proposals on which you are being asked to vote. The first proposal
is to
approve the Merger among FMG, United and United Subsidiary and the transactions
contemplated thereby.
The
second proposal is to approve the First Amendment to our Certificate of
Incorporation to remove certain provisions that are specific to blank check
companies. This proposal is conditioned upon approval of the Merger
Proposal.
The
third
proposal is to approve the Second Amendment to our Certificate of Incorporation
to increase the amount of authorized shares of common stock from 20,000,000
to
50,000,000. This proposal is conditioned upon approval of the Merger
Proposal.
The
fourth proposal is to approve the Third Amendment to our Certificate of
Incorporation to change the name of the Company to United Insurance Holdings
Corp. This proposal is conditioned upon approval of the Merger
Proposal.
The
fifth proposal is to elect additional members to the Company’s Board of
Directors. We have nominated the Class B directors (consisting of Messrs.
Gregory C. Branch, Alec L. Poitevint, II and Kent G. Whittemore) for election.
Under the Merger Agreement, United has the right to nominate, and the Company
has agreed to cause the appointment and election of, the foregoing three
additional members to the Board of Directors of FMG. If the Merger is approved,
then the directors of FMG will be Gregory C. Branch, Alec L. Poitevint, II,
Gordon G. Pratt, Larry G. Swets, Jr., Kent G. Whittemore and James R. Zuhlke.
In
the event the fifth proposal is approved by the stockholders, two of the
Company’s current directors, Thomas D. Sargent and David E. Sturgess, will
immediately resign from the Board of Directors upon consummation of the Merger.
This proposal is conditioned upon approval of the Merger Proposal.
The
sixth proposal is to approve the adjournment of the Special Meeting to a later
date or dates, if necessary, to permit further solicitation and vote of proxies
in the event that, based upon the tabulated vote at the time of the Special
Meeting, the Company would not have been authorized to consummate the
Merger.
It
is important for you to note that in the event the Merger Proposal does not
receive the necessary vote to approve such proposal, then the Company will
not
consummate the Merger or be permitted to implement the First, Second or Third
Amendment or director proposals.
Are
the proposals conditioned on one another?
Yes.
Proposals 2, 3 and 5 are all conditioned upon approval of Proposal 1, The
Merger Proposal, and consummation of the Merger is conditioned on Proposals
1,
2, 3 and 5 being approved in accordance herewith.
What
happens if I vote against the Merger?
Each
Company stockholder who holds shares of common stock issued in the Company’s IPO
or purchased following such offering in the open market has the right to vote
against the Merger Proposal and, at the same time, demand the Company convert
such stockholder’s shares into cash equal to a pro rata portion of the trust
account. These shares will be converted into cash only if a stockholder votes
against a business combination, affirmatively elects to have its shares of
common stock converted and such business combination is consummated. Based
upon
the amount of cash held in the trust account as of March 31, 2008, without
taking into account any interest or income taxes accrued after such date,
stockholders who vote against the Merger Proposal and elect to convert such
stockholder’s shares as described above will be entitled to convert each share
of common stock it holds into approximately $7.91 per share (after a provision
for payment of working capital costs and taxes). However, if the holders of
1,419,615 or more shares of common stock issued in the Company’s IPO (an amount
equal to 29.99% of the total number of shares issued in the IPO) vote against
the Merger and demand conversion of their shares into a pro rata portion of
the
trust account, then the Company will not be able to consummate the Merger and,
assuming the Company is not able to consummate another business combination
by
October 4, 2009, stockholders will only receive cash upon the liquidation
of the Company. Furthermore, if more than 29.99% of the total number of shares
issued in the IPO vote against the Merger Proposal, the Merger will not
occur.
Why
is the Company proposing the First Amendment to its Certificate of
Incorporation?
Currently,
the Company’s certificate of incorporation contains provisions specific to blank
check companies. Specifically, the Third, Fifth and Sixth Articles of the
Company’s amended and restated certificate of incorporation contain provisions
that will not apply to the Company following consummation of the Merger. Article
Third limits the powers and privileges conferred upon the Company to dissolving
and liquidating in the event a business combination is not consummated prior
to
October 4, 2009. Article Fifth provides that the Company’s corporate
existence will terminate on October 4, 2009 and mandates that an amendment
to this Article allowing continued corporate existence be submitted to
stockholders along with the Merger Proposal. Article Sixth provides the
procedural steps required for the approval of a business combination and the
exercise of conversion rights. Assuming the Merger is consummated, the
provisions of Articles Third and Sixth will no longer apply to the Company,
and
the Company will be obligated to amend Article Fifth in order to extend the
corporate life of the Company beyond October 4, 2009.
Why
is the Company proposing the Second Amendment to its Certificate of
Incorporation and are there any other issuances of common stock contemplated
by
the Company other than in connection with the Merger
Proposal?
Currently,
the Company is authorized to issue up to 20,000,000 shares of common stock.
There are 5,917,031 shares of common stock currently outstanding and 6,883,625
shares of common stock issuable upon the exercise of our outstanding warrants
and the underwriters purchase option. In order to have sufficient authorized
shares of common stock to cover the common stock issuable pursuant to the Merger
Agreement and for general corporate purposes, the Company will need to increase
its authorized common stock if the Merger is approved. Other than in connection
with the Merger, there are no plans to issue any other shares of common stock
or
other securities convertible into common stock.
Why
is the Company proposing the Third Amendment to its Certificate of
Incorporation?
In
the judgment of our Board of Directors, the change of our corporate name to
United Insurance Holdings Corp. is desirable to maintain the branding of the
insurance operations and to reflect our merger with United.
If
I am not going to attend the Special Meeting in person, should I return my
proxy
card instead?
Yes.
Whether or not you plan to attend the Special Meeting, after carefully reading
and considering the information contained in this proxy statement, please
complete and sign your proxy card. Then return the enclosed proxy card in the
return envelope provided herewith as soon as possible, so your shares may be
represented at the Special Meeting.
What
will happen if I abstain from voting or fail to vote at the Special
Meeting?
The
Company will count a properly executed proxy marked ABSTAIN with respect to
a
particular proposal as present for purposes of determining whether a quorum
is
present. For purposes of approval, an abstention or failure to vote on the
Merger will have no effect on the proposal, provided a quorum is present, and
will not have the effect of converting your shares into a pro rata portion
of
the trust account in which a substantial portion of the net proceeds of the
Company’s IPO are held. In order for a stockholder to convert his or her shares,
he or she must cast a vote against the Merger Proposal and make an affirmative
election on the proxy card to convert such shares of common stock. An abstention
from voting on any of the First Amendment Proposal, Second Amendment Proposal
or
Third Amendment Proposal, or the Adjournment Proposal, will have the same effect
as a vote against these proposals. An abstention from the Director Proposal
will
not have the effect of voting against such proposals.
What
will happen if I sign and return my proxy card without indicating how I wish
to
vote?
Stockholders
will not be entitled to exercise their conversion rights if such stockholders
return proxy cards to the Company without an indication of how they desire
to
vote with respect to the Merger Proposal or, for stockholders holding their
shares in street name, if such stockholders fail to provide voting instructions
to their brokers. Proxies received by the Company without an indication of
how
the stockholders intend to vote on a proposal will be voted in favor of such
proposal.
If
my shares are held in “street name” by my broker, will my broker vote my shares
for me?
If
you hold your shares in “street name,” your bank or broker cannot vote your
shares with respect to the Merger Proposal, the First Amendment Proposal, the
Second Amendment Proposal, the Third Amendment Proposal or the Adjournment
Proposal without specific instructions from you, which are sometimes referred
to
in this proxy statement as the broker “non-vote” rules. If you do not provide
instructions with your proxy, your bank or broker may deliver a proxy card
expressly indicating that it is NOT voting your shares; this indication that
a
bank or broker is not voting your shares is referred to as a “broker non-vote.”
Broker non-votes will be counted for the purpose of determining the existence
of
a quorum, but will not count for purposes of determining the number of votes
cast at the Special Meeting. Your broker can vote your shares only if you
provide instructions on how to vote. You should instruct your broker to vote
your shares in accordance with directions you provide to your
broker.
What
do I do if I want to change my vote?
If
you desire to change your vote, please send a later-dated, signed proxy card
to
our corporate Secretary, Larry G. Swets, Jr. at FMG Acquisition Corp. prior
to
the date of the Special Meeting or attend the Special Meeting and vote in
person. You also may revoke your proxy by sending a notice of revocation to
Larry G. Swets, Jr. at the address of the Company’s corporate headquarters,
provided such revocation is received prior to the Special Meeting.
Will
I receive anything in the Merger?
If
the Merger is consummated and you vote your shares against the Merger Proposal
but do not affirmatively elect conversion or you abstain, you will not receive
a
cash conversion of your shares upon the completion of the Merger. If the Merger
is consummated but you have voted your shares against the Merger Proposal and
have elected a cash conversion, your shares of Company common stock will be
cancelled and you will be entitled to receive cash equal to a pro rata portion
of the trust account, which, as of March 31, 2008, was equal to approximately
$7.91 per share (after a provision for payment of working capital costs and
taxes); provided, however, you must deliver your physical certificates to the
Company’s stock transfer agent prior to the date of the Special
Meeting.
How
is the Company paying for the Merger?
The
$95,000,000 cost of the Merger will be funded with $25,000,000 of cash drawn
from the cash currently in the Company’s trust account and by the Company
issuing 8,750,000 shares of common stock, valued at $70,000,000, based on a
price of $8.00 per share.
Will
I experience dilution as a result of the Merger?
Prior
to the Merger, those stockholders who hold shares issued in the Company’s IPO
owned approximately 80.0% of our issued and outstanding common stock. After
giving effect to the Merger and to the shares of common stock to be issued
to
United in connection with the Merger, and assuming no exercise of the warrants
then outstanding, the Company’s current public stockholders will own
approximately 32.3% of the Company post-Merger.
Do
I have conversion rights in connection with the Merger?
If
you
hold shares of common stock issued in the Company’s IPO, then you have the right
to vote against the Merger Proposal and demand the Company convert your shares
of Company common stock into a pro rata portion of the cash in the trust
account. The right to vote against the Merger and demand conversion of your
shares into a pro rata portion of the trust account is sometimes referred to
herein as conversion rights.
If
I have conversion rights, how do I exercise them?
If
you
desire to exercise your conversion rights, you must vote against the Merger
Proposal and, at the same time, demand the Company convert your shares
into cash
by marking the appropriate space on the proxy card. If, notwithstanding
your
vote, the Merger is consummated, then you will be entitled to receive a
pro rata
share of the trust account in which a substantial portion of the net proceeds
of
the Company’s IPO are held, including any pro rated interest earned thereon
through the date of the Special Meeting. Based on the amount of cash held
in the
trust account as of July 8, 2008, without taking into account any interest
or
income taxes accrued after such date, you would be entitled to convert
each
share of Company common stock that you hold into approximately $7.91 per
share
(after a provision for payment of working capital costs and taxes). If
you
exercise your conversion rights, then you will be exchanging your shares
of
Company common stock for cash and will no longer own these shares of common
stock. You will only be entitled to receive cash for these shares if you
tender
your stock certificates to the Company’s stock transfer agent at any time at or
prior to the vote at the Special Meeting. If you convert your shares of
common
stock but you remain in possession of the warrants and have not sold or
transferred them, you will still have the right to exercise the warrants
received as part of the units purchased in the IPO in accordance with the
terms
thereof. If the Merger is not consummated: (i) then your shares will not be
converted into cash at this time, even if you so elected, and (ii) assuming
we are unable to consummate another business combination by October 4,
2009, we
will commence the liquidation process and you will be entitled to distribution
upon liquidation. See “Conversion Rights” at
page 33.
You
will
be required, whether you are a record holder or hold your shares in “street
name”, either to tender your certificates to our transfer agent or to deliver
your shares to the Company’s transfer agent electronically using the Depository
Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at your option,
at any time at or prior to the vote at the Special Meeting. There is typically
a
$35 cost associated with this tendering process and the act of certificating
the
shares or delivering them through the DWAC system. The transfer agent will
typically charge the tendering broker this $35, and the broker may or may not
pass this cost on to you.
As
the delivery process can be accomplished by you, whether or not you are a record
holder or your shares are held in “street name”, within a business day, by
simply contacting the transfer agent or your broker and requesting delivery
of
your shares through the DWAC System, we believe you will have sufficient time
from the time we send out this proxy statement through the date of the Special
Meeting to deliver your shares if you wish to exercise your conversion
rights.
Any
request for conversion, once made, may be withdrawn at any time up to
immediately prior to the vote on the Merger Proposal at the Special Meeting
(or
any adjournment or postponement thereof). Furthermore, if you delivered a
certificate for conversion and subsequently decided prior to the meeting not
to
elect conversion, you may simply request that the transfer agent return the
certificate (physically or electronically) to you. The transfer agent will
typically charge an additional $35 for the return of the shares through the
DWAC
system.
Please
note, however, that once the vote on the Merger Proposal is held at the Special
Meeting, you may not withdraw your request for conversion and request the return
of your stock certificate (either physically or electronically). If the Merger
is not completed, your stock certificate will be automatically returned to
you.
How
much time do I have to decide whether to exercise my conversion
rights?
You
will
have approximately twenty days from the date of this proxy
statement/prospectus to determine whether to exercise your conversion rights,
at
which time you must vote on the Merger Proposal and, if voting against the
Merger Proposal, also vote to exercise your conversion rights. You may not
exercise your conversion rights following the stockholder vote on the Merger
Proposal at the Special Meeting.
What
happens to the funds deposited in the trust account after completion of the
Merger?
Upon
consummation of the Merger, a portion of the funds remaining in the trust
account after payment of amounts, if any, to stockholders demanding and
exercising their conversion rights, will be used to pay expenses associated
with
the Merger and to fund working capital of the combined company. In addition,
up
to $1,514,760 will be used to pay deferred underwriter’s compensation from the
Company’s IPO.
What
happens if the Merger is not consummated?
If
the Merger is not consummated, the Company may seek another suitable business
combination. Depending upon the timing and success of such efforts, the Company
may be forced to liquidate if it cannot consummate another business combination
by October 4, 2009. If a liquidation were to occur by approximately October
4, 2009 (the last day on which the Company would be permitted to consummate
an
acquisition under its amended and restated certificate of incorporation), the
Company estimates approximately $850,000 in interest, less applicable federal,
state and Delaware franchise taxes, would accrue on the amounts that are held
in
trust through such date, which would yield a trust balance of approximately
$38.1 million or $8.05 per share (before taking into account disbursements
for
working capital purposes). This estimate includes the $2,764,760 proceeds from
the sale of the Company’s sponsor warrants and deferred underwriter fees owed to
the underwriters from IPO. This amount, less any liabilities not indemnified
by
certain officers and members of the Company’s Board and not waived by the
Company’s creditors, would be distributed to the holders of the 4,733,625 shares
of common stock purchased in the Company’s IPO.
Separately,
the Company estimates the liquidation process would cost approximately $50,000.
FMG Investors LLC, our sponsor, has acknowledged and agreed that such costs
are
covered by its existing indemnification agreement. We do not believe there
would
be any claims or liabilities in excess of the funds out of the trust against
which would be required to indemnify the trust account in the event of such
liquidation. In the event our sponsor is unable to satisfy its indemnification
obligation or in the event there are subsequent claims such as subsequent
non-vendor claims for which our sponsor has no indemnification obligation,
the
amount ultimately distributed to stockholders may be reduced even further.
However, the Company currently has no basis to believe there will be any such
liabilities or to provide an estimate of any such liabilities since to date
the
Company has only entered into a limited number of agreements and has obtained
waivers whenever possible. The only cost of dissolution the Company is aware
of
that would not be indemnified against by such officers and directors of the
Company is the cost of any associated litigation for which officers and
directors obtained a valid and enforceable waiver. Should the Merger Agreement
be terminated due to a breach of such agreement by any of the Company, United
Subsidiary, or United or due to the Company’s failure to obtain the Company
stockholder approval, then each party would be responsible for its own expenses;
provided, however, if the Merger Agreement is not consummated as a result of
the
failure to obtain the consent of United’s members, United shall be obligated to
pay the Company for all costs, expenses and fees incurred in connection with
the
Merger, up to a maximum of $500,000.
When
do you expect the Merger to be completed?
Assuming
the approval of the Merger Proposal, it is currently anticipated the Merger
and
other proposals will be completed as promptly as practicable following the
Special Meeting of to be held
on ,
2008.
What
do I need to do now?
The
Company urges you to read carefully and consider the information contained
in
this proxy statement/prospectus, including the annexes, and to consider how
the
Merger will affect you as a stockholder of the Company. You should then vote
as
soon as possible in accordance with the instructions provided in this proxy
statement/prospectus and on the enclosed proxy card.
How
can I obtain a list of stockholders entitled to vote?
A
list of
the stockholders entitled to vote as of the Record Date at the Special Meeting
will be open to examination by any stockholder for any purpose germane to the
meeting, during ordinary business hours for a period of ten calendar days before
the Special Meeting at the offices of FMG Acquisition Corp., Four Forest Park,
Second Floor, Farmington, Connecticut 06032, telephone number of
(860) 677-2701; Secretary Larry G. Swets, Jr., and at the time and place of
the Special Meeting during the duration of the Special Meeting.
Do
I need to send in my stock certificates?
The
Company stockholders who vote against adoption of the Merger Proposal and elect
to have their shares converted into a pro rata share of the funds in the trust
account must send their physical stock certificates to our stock transfer agent
prior to the Special Meeting. The Company stockholders who vote in favor of
the
adoption of the Merger Proposal, or who otherwise do not elect to have their
shares converted, should retain their stock certificates.
What
should I do if I receive more than one set of voting
materials?
You
may receive more than one set of voting materials, including multiple copies
of
this proxy statement/prospectus and multiple proxy cards or voting instruction
cards, if your shares are registered in more than one name or are registered
in
different accounts. For example, if you hold your shares in more than one
brokerage account, you will receive a separate voting instruction card for
each
brokerage account in which you hold shares. Please complete, sign, date and
return each proxy card and voting instruction card that you receive in order
to
cast a vote with respect to all of your Company shares.
How
can I communicate with FMG’s Board of Directors?
Stockholders
may communicate with our Board of Directors by sending a letter addressed to
the
Board of Directors, all independent directors or specified individual directors
to: FMG Acquisition Corp., Four Forest Park, Second Floor, Farmington,
Connecticut 06032; Attention: Larry G. Swets, Jr., Secretary. All communications
will be compiled by the Corporate Secretary and submitted to the Board or the
specified directors on a periodic basis.
SUMMARY
This
summary highlights certain information from this proxy statement/prospectus
including information with respect to each of the proposals, although the
Merger
is the primary reason for the calling of the Special Meeting. This summary
does
not contain all of the information that is important to you. All of the
proposals are described in detail elsewhere in this proxy statement and this
summary discusses the material items of each of the proposals. You should
carefully read this entire proxy statement and the other documents to which
this
proxy statement refers you. See, “Where You Can Find Additional Information.” on
page 146.
THE
MERGER PROPOSAL
The
Parties
FMG
Acquisition Corp.
FMG
Acquisition Corp. is a blank check company formed specifically as a vehicle
to
effect a merger, acquisition or similar business combination with one or more
operating businesses without limitation to a particular industry or to any
geographic location, although our efforts have been focused on seeking a
business combination within the insurance industry and selected small business
insurance. The principal executive offices of FMG are located at Four Forest
Park, Second Floor, Farmington, Connecticut 06032, and its telephone number
is
(860) 677-2701, Larry G. Swets, Jr., Secretary.
United
Insurance Holdings, L.C. (“United”)
United
is
a Florida limited liability company and is the parent company of United Property
& Casualty Insurance Company (“United Insurance”), a licensed insurer which
provides homeowners insurance and selected small business insurance in the
State
of Florida. Since 2000, United Insurance has received a Financial Stability
Rating of “A” for Exceptional Financial Stability by Demotech, Inc. This is the
third highest Financial Stability Rating of the six Financial Stability Ratings
(A’’ – Unsurpassed; A’ – Unsurpassed; A – Exceptional; S – Substantial; M –
Moderate; L – Licensed) utilized by Demotech, Inc. These Financial Stability
Ratings provide an objective baseline for assessing solvency and should not
be
interpreted as (and are not intended to serve as) an assessment of an insurance
company’s securities or a recommendation to buy, sell, or hold an insurance
company’s securities. Our Demotech Financial Stability Rating is recognized by
federal mortgage backed loan programs such as HUD, Fannie Mae and FHA. If the
Merger is consummated, United Subsidiary will merge with and into United,
whereupon United will be the surviving entity and a wholly-owned subsidiary
of
FMG. United’s principal executive offices are located at 700 Central Avenue,
Suite 302, Saint Petersburg, Florida 33701, and its phone number is (727)
895-7737.
United
Subsidiary Corp.
United
Subsidiary Corp. is a Florida corporation recently incorporated solely for
the
purpose of effectuating the Merger. United Subsidiary is a wholly-owned
subsidiary of FMG. As part of the Merger, United Subsidiary will be merged
with
and into United, with United remaining as the surviving entity and a
wholly-owned subsidiary of FMG.
Following
the effective date of the Merger, United and its members are expected to own
approximately 60% of the issued and outstanding shares of common stock of FMG,
depending upon the shares of the Company’s common stock redeemed for cash. See
“Description of FMG Acquisition Corp. Securities—Common Stock.”
The
Merger Proposal (Page 38 )
On
April 2, 2008, the Company entered into the Merger Agreement pursuant to which
United Subsidiary has agreed to merge with and into United, and United has
agreed, subject to receipt of the Merger consideration from FMG, to become
a
wholly-owned subsidiary of FMG. If the stockholders of the Company and the
members of United approve the transactions contemplated by the Merger Agreement,
FMG, through United Subsidiary, will purchase all of the membership units of
United in a series of steps as outlined below.
FMG
and United will merge pursuant to a merger transaction summarized as
follows:
(i)
FMG will create a transitory merger subsidiary, United Subsidiary Corp., and
will merge such subsidiary with and into United, with United surviving;
and
(ii)
United will, as a result, become wholly-owned by FMG.
United’s
members will receive consideration of up to $100,000,000 consisting
of:
(i)
$25,000,000 in cash;
(ii)
8,750,000 shares of FMG common stock, par value $.0001 per share (assuming
an
$8.00 per share value); and
(iii)
up
to $5,000,000 of additional consideration will be paid to the members of United
in the event certain net income targets are met by United, as set forth more
particularly herein.
The
aggregate consideration will be paid pursuant to the Merger Agreement for the
purchase of the membership units of United. The aggregate market value of
the consideration to be paid pursuant to the Merger Agreement on the last
trading day prior to the public announcement of the Merger Agreement was
$93,350,000 (based on a share price of $7.24 as of such date) and includes
$5,000,000 in contingent consideration and such amount will fluctuate based
on
the then-current trading price of the Company’s common stock. The Company’s
Board of Directors has determined United has a fair market value that is equal
to at least 80% of the Company’s net assets held in trust.
The
Company, United and United Subsidiary plan to consummate the Merger as promptly
as practicable after the Special Meeting, provided that:
•
the Company’s stockholders have approved the Merger Agreement and the
transactions contemplated thereby;
•
not less than 66% of all membership units of United approve the Merger Agreement
and the transactions contemplated thereby;
•
holders of not more than 29.99% of the shares of common stock issued in the
Company’s IPO vote against the Merger and demand conversion of their stock into
cash;
•
the Securities and Exchange Commission has declared effective the registration
statement and prospectus which form a part of this proxy statement;
and
•
the other conditions specified in the Merger Agreement have been satisfied
or
waived.
See
the description of the Merger Agreement in the section entitled “The Merger
Agreement” beginning on page 51. The Merger Agreement is included as
Annex A to this proxy statement/prospectus. We encourage you to read the
Merger Agreement in its entirety.
Under
the terms of the Company’s amended and restated certificate of incorporation,
the Company may proceed with the Merger provided that not more than
29.99% of the Company’s public stockholders elect to convert their shares
of common stock to cash. The shares converted, if any, will reduce the shares
of
our common stock outstanding after the Merger and will reduce the amount
available to us from the trust account.
Our
“Insider” Stockholders
As of the Record Date, the Company’s initial stockholders, including all of its
directors, officers and a special advisor, who purchased or received shares
of
common stock prior to the Company’s IPO, presently, together with their
affiliates, own an aggregate of approximately 20% of the outstanding shares
of
the Company common stock (an aggregate of 1,183,406 shares). All of these
persons have agreed to vote all of the shares acquired prior to the IPO in
accordance with the vote of the majority of all other voting Company
stockholders on the Merger Proposal. Moreover, all of these persons have agreed
to vote all of their shares which were acquired in or following the IPO in
favor
of the Merger Proposal. As of the date hereof, no members of management
purchased any shares in or following the IPO. Management will also vote “FOR”
Proposal 2, the First Amendment Proposal; “FOR” Proposal 3, the Second
Amendment Proposal; “FOR” Proposal 4, the Third Amendment Proposal; “FOR”
Proposal 5, the Director Proposal; and “FOR” Proposal 6, the
Adjournment Proposal.
Company
Shares Entitled to Vote
Holders
of all issued and outstanding shares of Company common stock are entitled to
vote on all matters at the Special Meeting. Approval of the Merger Proposal
will
require the affirmative vote of a majority of the shares of common stock
purchased in the IPO which vote at the Special Meeting. Approval of the Merger
Proposal requires that no more than 1,419,614 shares of common stock purchased
in the IPO vote against the Merger and elect to convert their common stock
into
their pro rata portion of the cash from the trust account.
United
Membership Units Entitled to Vote
As
of
March 31, 2008, there were 100,000 United membership units issued and
outstanding. The holders of these membership units are entitled to one vote
per
unit on all matters to be voted upon by the members. In accordance with Florida
law, the affirmative vote of a majority of the units represented and voting
at a
duly held meeting at which a quorum is present (which units voting affirmatively
also constitute at least a majority of the required quorum) shall be the act
of
the members, except that approval of certain business transactions, including
the Merger, requires the affirmative vote of 66% of the units issued and
outstanding.
The
managers and officers of United, presently, together with their affiliates,
own
an aggregate of approximately 59% of United’s outstanding membership units, all
of which are entitled to vote on the Merger. Approval of the Merger Proposal
will require the affirmative vote of not less than 66% of all membership units
outstanding, which means United needs only an additional 7% of the aggregate
outstanding membership units in order to approve the Merger, provided that
the
current managers and officers of United approve the Merger
Proposal.
United
is
not soliciting proxies for approval of the Merger at this time, however, in
accordance with Florida law, United does intend to solicit written consents
from
its members in favor of the Merger and the Merger Agreement. When United
solicits written consents from its members, it will also send notice pursuant
to
Florida Statute 608.4354 to its members who are entitled to appraisal
rights.
Tax
Considerations (Page 55)
There
will be no tax consequences to our stockholders resulting from the Merger,
except to the extent they exercise their conversion rights. A stockholder who
exercises conversion rights will generally be required to recognize capital
gain
or loss upon the conversion, if such shares were held as a capital asset on
the
date of the conversion. This gain or loss will be measured by the difference
between the amount of cash received and the stockholder’s tax basis in the
converted shares. If you purchased shares in our IPO, the gain or loss will
be
short-term gain or loss if the Merger closes as scheduled. If you purchased
shares in the aftermarket and have held such shares for less than a year, the
gain or loss will be short term gain or loss.
Conditions
to Closing the Merger (Page 52)
The
obligations of the Company, United and United Subsidiary to consummate the
Merger are subject to the satisfaction or waiver of the following specified
conditions set forth in the Merger Agreement before completion of the
Merger:
(i)
the accuracy in all material respects on the date of the Merger Agreement and
the Closing Date of all of United’s representations and warranties;
(ii)
United’s
performance in all material respects of all covenants and obligations required
to be performed by the Closing Date (as more fully described below in “Covenants
of the Parties”);
(iii)
a
majority of the Company’s stockholders must vote in favor of approving the
Merger;
(iv)
not more than 29.99% of the shares of the common stock issued in the Company’s
IPO vote against the Merger and demand conversion of their stock into
cash;
(v)
stockholder approval of the First and Second Amendment Proposals;
(vi)
the
Securities and Exchange Commission has declared effective the registration
statement and prospectus which form a part of this proxy statement;
(vii)
no
governmental authority has enacted, issued, promulgated, enforced or entered
any
law or order that is in effect and has the effect of making the Merger illegal
or otherwise preventing or prohibiting consummation of the Merger;
(viii)
the officers are, and the Board of Directors of FMG following the Merger is
constituted, as set forth as the Board of Directors recommends, as fully
described herein; and
(ix)
the consent of not less than 66% of the membership units of United to the Merger
and no more than ten percent (10%) of the outstanding membership units of United
shall constitute dissenting membership units under Florida law.
Conditions
(i), (ii) and (viii), as well as the Third Amendment Proposal, are waivable
by
the Company or United, as applicable.
United’s
obligation to close on the Merger is further contingent upon:
(i)
the accuracy in all material respects on the date of the Merger Agreement and
the Closing Date of all of FMG’s representations and warranties;
and
(ii)
FMG’s performance in all material respects of all covenants and obligations
required to be performed by the Closing Date (as more fully described below
in
“Covenants of the Parties”).
Director
Nominees (Page 68)
Under
the
Merger Agreement, United or its designated affiliate has the right to nominate,
and the Company has agreed to cause the appointment and election of, three
additional members of the Board of Directors of the Company.
Accounting
Treatment (Page 60)
The
Merger will be accounted for as a reverse merger and recapitalization since
United and its members will control FMG immediately following the completion
of
the Merger. United will be deemed to be the accounting acquirer in the Merger
and, consequently, the Merger is treated as a recapitalization of United.
Accordingly, the assets and liabilities and the historical operations that
are
reflected in the financial statements will be those of United and will be
recorded at the historical cost basis of United. FMG’s assets, liabilities and
results of operations will be consolidated with the assets, liabilities and
results of operations of United after consummation of the Merger.
Risk
Factors (Page 20)
Before
you grant your proxy or vote or instruct the vote with respect to the Merger,
you should be aware that the occurrence of the events described in the “Risk
Factors” section and elsewhere in this proxy statement could have a material
adverse effect on the Company, United and United Subsidiary. Principal risks
include dilution which our stockholders will suffer as a consequence of the
Merger, the concentration of ownership of FMG common stock following the Merger,
the fact one or more conditions to the Merger may be waived by FMG without
resoliciting stockholder approval, risks inherent to providers of homeowners
insurance in the southeast United States, our failure following the Merger
to
collect all amounts due from reinsurers and the potential lack of availability
of reinsurance coverage, heavy regulation of the insurance industry by various
federal and state governments and disruptions to United’s relationships with its
independent agents and brokers.
Conversion
Rights (Page 33)
Pursuant
to the Company’s existing amended and restated certificate of incorporation, a
holder of shares of the Company’s common stock issued in its IPO may, if the
stockholder votes against the Merger Proposal, demand the Company convert such
shares into a pro rata portion of the trust account. This demand must be made
on
the proxy card at the same time the stockholder votes against the Merger
Proposal. We issued a total of 4,733,625 shares in our IPO and, other than
the
1,183,406 shares issued to our management, we have no other shares of common
stock issued and outstanding. If properly demanded in connection with a vote
against the Merger Proposal, the Company will convert each share of common
stock
as to which such demand has been made into a pro rata portion of the trust
account in which a substantial portion of the net proceeds of the Company’s IPO
are held, plus all pro rata interest earned thereon. If you exercise your
conversion rights, then you will be exchanging your shares of the Company common
stock for cash and will no longer own these shares. Based on the amount of
cash
held in the trust account as of March 31, 2008, without taking into account
any
interest or income taxes accrued after such date, you would be entitled to
convert each share of common stock that you hold into approximately $7.91 (after
a provision for payment of working capital costs and taxes) per share. You
will
only be entitled to receive cash for these shares if you tender your stock
certificate to the Company’s stock transfer agent at or prior to the vote at the
Special Meeting on the Merger Proposal. If the Merger is not consummated, then
these shares will not be converted into cash immediately. If you convert your
shares of common stock, you will still have the right to exercise the warrants
received as part of the units purchased in our IPO in accordance with the terms
thereof. If the Merger is not consummated, then your shares will not be
converted to cash after the Special Meeting, even if you so elected, and your
shares will be converted into cash upon liquidation of the trust in the event
we
do not propose a subsequent business combination.
The
Merger will not be consummated if the holders of 1,419,615 or more shares of
common stock issued in the Company’s IPO, an amount equal to more than
29.99% of such shares, vote against the Merger Proposal and exercise their
conversion rights.
No
dissenter’s or appraisal rights are available under the Delaware General
Corporation Law for the stockholders of the Company in connection with the
proposals. Under Florida law, the members of United will be entitled to dissent
from the Merger and obtain cash payment for the fair value of their membership
units instead of the consideration provided for in the Merger Proposal. For
a
more complete description of the rights of United’s members, see “ United Member
Approval. ”
Stock
Ownership (Page 35)
The
following table sets forth information as of July 7, 2008, based on information
obtained from the persons named below, with respect to the beneficial ownership
of shares of the Company’s common stock by: (i) each person known by us to
be the owner of more than 5% of our outstanding shares of the Company’s common
stock, (ii) each officer and director, and (iii) all officers and
directors as a group.
Except
as
indicated in the footnotes to the table, the persons named in the table have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them.
|
|
Common Stock
|
|
Name and Address of Beneficial Owners(1)
|
|
Number of Shares (2)
|
|
Percentage of Common
Stock
|
|
|
|
|
|
|
|
FMG
Investors LLC(3)
|
|
|
1,099,266
|
|
|
18.57
|
%
|
Gordon
G. Pratt,
Chairman,
Chief
Executive
Officer and
President
|
|
|
1,099,266
|
(3)
|
|
18.57
|
%
|
Larry
G. Swets, Jr., Chief
Financial
Officer,
Secretary,
Treasurer,
Executive
Vice
President
|
|
|
1,099,266
|
(3)
|
|
18.57
|
%
|
Thomas
D. Sargent,
Director
|
|
|
21,035
|
|
|
0.36
|
%
|
David
E. Sturgess,
Director(4)
|
|
|
21,035
|
|
|
0.36
|
%
|
James
R. Zuhlke, Director
|
|
|
21,035
|
|
|
0.36
|
%
|
HBK
Investments L.P.(5)
|
|
|
547,250
|
|
|
9.2
|
%
|
Brian
Taylor (6)
|
|
|
437,500
|
|
|
7.4
|
%
|
Bulldog
Investors(7)
|
|
|
1,282,167
|
|
|
21.67
|
%
|
Millenco
LLC(8)
|
|
|
189,375
|
|
|
3.2
|
%
|
D.B.
Zwirn Special
Opportunities
Fund, L.P.(9)
|
|
|
178,500
|
|
|
3.02
|
%
|
D.B.
Zwirn Special
Opportunities
Fund, Ltd. (9)
|
|
|
246,500
|
|
|
4.17
|
%
|
D.B.
Zwirn & Co., L.P. (9)
|
|
|
425,000
|
|
|
7.18
|
%
|
DBZ
GP, LLC(9)
|
|
|
425,000
|
|
|
7.18
|
%
|
Zwirn
Holdings, LLC(9)
|
|
|
350,000
|
|
|
5.92
|
%
|
Daniel
B. Zwirn(9)
|
|
|
350,000
|
|
|
5.92
|
%
|
Weiss
Asset Management, LLC(10)
|
|
|
255,002
|
|
|
4.3
|
%
|
Weiss
Capital, LLC(10)
|
|
|
130,435
|
|
|
2.2
|
%
|
Andrew
M. Weiss, Ph.D.(10)
|
|
|
385,437
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
All
Directors and Officers as a Group (5 persons)
|
|
|
1,162,371
|
|
|
19.64
|
%
|
(1)
|
Unless
otherwise indicated, the business address of each of the stockholders
is
Four Forest Park, Second Floor, Farmington, Connecticut
06032.
|
|
|
(2)
|
Unless
otherwise indicated, all ownership is direct beneficial
ownership.
|
|
|
(3)
|
Each
of Messrs. Pratt and Swets are the managing members of our sponsor,
FMG Investors LLC, and may be deemed to each beneficially own the
1,099,266 shares owned by FMG Investors LLC.
|
|
|
(4)
|
The
business address of David E. Sturgess is c/o Updike, Kelly & Spellacy,
P.C., One State Street, Hartford, Connecticut
06103.
|
(5)
|
Based
on information contained in a Statement on Schedule 13G filed by
HBK
Investments L.P., HBK Services LLC, HBK Partners II L.P., HBK Management
LLC and HBK Master Fund L.P. on February 12, 2008. The address of
all such
reporting parties is 300 Crescent Court, Suite 700, Dallas, Texas
75201.
HBK Investments L.P. has delegated discretion to vote and dispose
of the
Securities to HBK Services LLC (“Services”). Services may, from time to
time, delegate discretion to vote and dispose of certain of the Securities
to HBK New York LLC, a Delaware limited liability company, HBK Virginia
LLC, a Delaware limited liability company, HBK Europe Management
LLP, a
limited liability partnership organized under the laws of the United
Kingdom, and/or HBK Hong Kong Ltd., a corporation organized under
the laws
of Hong Kong (collectively, the “Subadvisors”). Each of Services and the
Subadvisors is under common control with HBK Investments L.P. The
Subadvisors expressly declare that the filing of the statement on
Schedule
13G shall not be construed as an admission that they are, for the
purpose
of Section 13(d) or 13(g), beneficial owners of the Securities. Jamiel
A.
Akhtar, Richard L. Booth, David C. Haley, Lawrence H. Lebowitz, and
William E. Rose are each managing members (collectively, the "Members")
of
HBK Management LLC. The Members expressly declare that the filing
of the
statement on Schedule 13G shall not be construed as an admission
that they
are, for the purpose of Section 13(d) or 13(g), beneficial owners
of the
Securities.
|
(6)
|
Based
on information contained in a Statement on Schedule 13D filed by
Brian
Taylor, Pine River Capital Management L.P. and Nisswa Master Fund
Ltd. on
October 12, 2007. All reporting parties have shared voting and dispositive
power over such securities. The address of all such reporting parties
is
800 Nicollet Mall, Suite 2850, Minneapolis, MN 55402.
|
|
|
(7)
|
Based
on information contained in a Statement on Schedule 13D filed by
Bulldog
Investors, Phillip Goldstein and Andrew Dakos on February 13, 2008.
All
reporting parties have shared voting and dispositive power over such
securities. The address of all such reporting parties is Park 80
West,
Plaza Two, Saddle Brook, NJ 07663.
|
|
|
(8)
|
Based
on information contained in a Statement on Schedule 13G filed by
Millenco
LLC, Millenium Management LLC and Israel A. Englander on December
11,
2007. All reporting parties have shared voting and dispositive power
over
such securities. The address of all such reporting parties is 666
Fifth
Avenue, New York, NY 10103.
|
|
|
(9)
|
Based
on information contained in a Statement on Schedule 13G/A filed by
D.B.
Zwirn & Co., L.P., DBZ GP, LLC, D.B. Zwirn Special Opportunities Fund,
L.P. and D.B. Zwirn Special Opportunities Fund, Ltd. on January 25,
2008.
D.B. Zwirn & Co., L.P., DBZ GP, LLC, Zwirn Holdings, LLC, and Daniel
B. Zwirn may each be deemed the beneficial owner of (i) 178,500 shares
of
common stock owned by D.B. Zwirn Opportunities Fund, L.P. and (ii)
246,500
shares of common stock owned by D.B. Zwirn Special Opportunities Fund,
Ltd. (each entity referred to in (i) through (ii) is herein referred
to as
a "Fund" and, collectively, as the "Funds"). D.B. Zwirn & Co., L.P. is
the manager of the Funds, and consequently has voting control and
investment discretion over the shares of common stock held by the
Fund.
Daniel B. Zwirn is the managing member of and thereby controls Zwirn
Holdings, LLC, which in turn is the managing member of and thereby
controls DBZ GP, LLC, which in turn is the general partner of and
thereby
controls D.B. Zwirn & Co., L.P. The foregoing should not be construed
in and of itself as an admission by any Reporting Person as to beneficial
ownership of shares of common stock owned by another Reporting Person.
In
addition, each of D.B. Zwirn & Co., L.P., DBZ GP, LLC, Zwirn Holdings,
LLC and Daniel B. Zwirn disclaims beneficial ownership of the shares
of
common stock held by the Funds.
|
|
|
(10)
|
Based
on information contained in a Statement on Schedule 13G filed by
Weiss
Asset Management, LLC, Weiss Capital, LLC and Andrew M. Weiss, Ph.D.
on
March 24, 2008. Shares reported for Weiss Asset Management, LLC include
shares beneficially owned by a private investment partnership of
which
Weiss Asset Management, LLC is the sole general partner. Shares reported
for Weiss Capital, LLC include shares beneficially owned by a private
investment corporation of which Weiss Capital is the sole investment
manager. Shares reported for Andrew Weiss include shares beneficially
owned by a private investment partnership of which Weiss Asset Management
is the sole general partner and which may be deemed to be controlled
by
Mr. Weiss, who is the Managing Member of Weiss Asset Management,
and also
includes shares held by a private investment corporation which may
be
deemed to be controlled by Dr. Weiss, who is the managing member
of Weiss
Capital, the Investment Manager of such private investment corporation.
Dr. Weiss disclaims beneficial ownership of the shares reported herein
as
beneficially owned by him except to the extent of his pecuniary interest
therein. Weiss Asset Management, Weiss Capital, and Dr. Weiss have
a
business address of 29 Commonwealth Avenue, 10th Floor, Boston,
Massachusetts 02116.
|
Reasons
for the Merger (Page 45)
The
Company is a blank check company formed specifically as a vehicle to effect
a
merger, acquisition or similar business combination with one or more operating
businesses in the insurance industry. In the course of the Company’s search for
a business combination partner, the Company investigated the potential
acquisition of numerous candidates in the insurance industry, along with United,
and considered United to be an attractive merger candidate because of, among
other things, the market in which United operates, growth prospects and the
ability to leverage the expertise and contacts of the Company’s and United’s
management. The value attributed to United derives from both the extensive
analysis the Company’s Board of Directors undertook in connection with its own
evaluation of United and the prior acquisition experience of each of the
Company’s board members. As a result, the Company believes the Merger will
provide Company stockholders with an opportunity to participate in a business
and industry with growth potential. Our Board of Directors has obtained a
fairness opinion from Piper Jaffray & Co., which states that the
consideration to be paid by FMG for all the issued membership units of United
is
fair, from a financial point of view, to holders of FMG common
stock.
In
reaching its decision with respect to the Merger and the transactions
contemplated thereby, the Company’s Board of Directors reviewed various
materials. Also, in reaching its decision to approve the Merger, the Board
of
Directors considered a number of factors and believes such factors support
its
determination and recommendation to approve the Merger.
The
Company’s Board of Directors’ Recommendations (Pages 60, 64, 66, 67, 77,
and 78)
After
careful consideration of the terms and conditions of the Merger Agreement,
the
Company’s Board of Directors has determined unanimously that the Merger
Agreement and the transactions contemplated thereby including the Merger, is
in
the best interests of the Company and its stockholders. Accordingly, the
Company’s Board has unanimously approved and declared advisable the Merger and
unanimously recommends that you vote or instruct your vote to be cast “FOR” the
Merger Proposal.
The
Company’s Board of Directors has also determined unanimously that the First
Amendment Proposal is in the best interest of the Company and its stockholders.
Accordingly, the Company’s Board of Directors has unanimously approved and
declared advisable the First Amendment Proposal and unanimously recommends
you
vote or instruct your vote to be cast “FOR” the approval of the First Amendment
Proposal.
The
Company’s Board of Directors has also determined unanimously that the Third
Amendment Proposal is in the best interest of the Company and its stockholders.
Accordingly, the Company’s Board of Directors has unanimously approved and
declared advisable the Third Amendment Proposal and unanimously recommends
you
vote or instruct your vote to be cast “FOR” the approval of the Third Amendment
Proposal.
The
Company’s Board of Directors has also determined unanimously that the Director
Proposal is in the best interest of the Company and its stockholders.
Accordingly, the Company’s Board of Directors has unanimously approved and
declared advisable the Director Proposal and unanimously recommends that you
vote or instruct your vote to be cast “FOR” the approval of the Director
Proposal.
The
Company’s Board of Directors has also determined unanimously that the
Adjournment Proposal is in the best interest of the Company and its
stockholders. Accordingly, the Company’s Board of Directors has unanimously
approved and declared advisable the Adjournment Proposal and unanimously
recommends that you vote or instruct your vote to be cast “FOR” the approval of
the Adjournment Proposal.
Interests
of the Company Directors and Officers in the Merger (Page
44)
When
you consider the recommendation of the Company’s Board of Directors that you
vote in favor of the Merger Proposal, you should keep in mind that certain
of
the Company’s Directors and officers have interests in the Merger that are
different from, or in addition to, your interests as a stockholder. If the
Merger is not approved, the Company may be required to liquidate, and the
warrants owned by certain of the Company’s officers and directors and the shares
of common stock issued at an effective price per share of $0.021 prior to the
Company’s IPO and held by the Company’s executives and directors may be
worthless because the Company’s executives and directors are not entitled to
receive any of the net proceeds of the Company’s IPO that are held in trust and
will be distributed upon liquidation of the Company. Additionally, the Company’s
officers and directors who acquired shares of Company common stock prior to
the
Company’s IPO at a price per share of $0.021, after giving effect to the forward
stock split and the forfeiture of shares of common stock following the IPO,
will
benefit if the Merger is approved because they will continue to hold their
shares.
The
table below sets forth the value of the shares and warrants owned by the
officers and directors of the Company upon consummation of the Merger and
the
unrealized profit from such securities based on the market price of the common
stock and the warrants of the Company, as of July 7, 2008, of $7.33 and $0.34,
respectively.
|
|
Common Stock(a)
|
|
Warrants(b)
|
|
|
|
Owned
|
|
Amount
Paid ($)
|
|
Current
Market
Value ($)
|
|
Unrealized
Profit ($)
|
|
Owned
|
|
Amount
Paid ($)
|
|
Current
Market
Value ($)
|
|
Unrealized
Profit
(Loss) ($)
|
|
Gordon
G. Pratt, Chairman, Chief Executive Officer and President
|
|
|
1,099,266
|
|
$
|
0.021
|
|
$
|
8,057,620
|
|
$
|
8,034,535
|
|
|
1,250,000
|
|
$
|
1,250,000
|
|
$
|
425,000
|
|
$
|
(825,000
|
)
|
Larry
G. Swets, Jr., Chief Financial Officer, Secretary, Treasurer, Executive
Vice President
|
|
|
1,099,266
|
|
$
|
0.021
|
|
$
|
|
|
$
|
|
|
|
1,250,000
|
|
$
|
1,250,000
|
|
$
|
|
|
$
|
|
)
|
Thomas
D. Sargent, Director
|
|
|
21,035
|
|
$
|
0.021
|
|
$
|
154,186
|
|
$
|
153,744
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
David
E. Sturgess, Director
|
|
|
21,035
|
|
$
|
0.021
|
|
$
|
|
|
$
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
James
R. Zuhlke, Director
|
|
|
21,035
|
|
$
|
0.021
|
|
$
|
|
|
$
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
(a)
The
weighted average purchase price per share for this common stock was $0.021
per
share. Pursuant to escrow agreements signed by these stockholders, these shares
may not be sold or pledged until one year after the consummation of a business
combination. Additionally, these shares are currently not registered, although
after the release from escrow, these stockholders may demand the Company use
its
best efforts to register the resale of such shares.
(b)
These
warrants were purchased in a private placement that closed concurrently with
the
Company IPO. The exercise price of the warrants is $6.00. These warrants may
not
be sold or transferred until 90 days after the consummation of a business
combination
All
of the shares of the Company common stock and the warrants acquired by our
officers, directors and special advisor prior to the Company’s IPO were placed
in escrow with Continental Stock Transfer & Trust Company, as escrow
agent. During the escrow period, the holders of these shares are not able to
sell or transfer their securities except to their spouses and children or trusts
established for their benefit, but will retain all other rights as our
stockholders, including, without limitation, the right to vote their shares
of
common stock and the right to receive cash dividends, if declared. If dividends
are declared and payable in shares of common stock, such dividends will also
be
placed in escrow. If we are unable to effect a business combination and
liquidate, none of these stockholders will receive any portion of the
liquidation proceeds with respect to common stock owned by them prior to the
Company’s IPO.
Interests
of United in the Merger
Upon
completion of the Merger, the members of United will beneficially own, in the
aggregate, approximately 60% of the issued shares of FMG.
In
addition, certain of United’s directors will be directors of the surviving
company after the Merger.
Interests
of Pali Capital in the Merger; Fees
Pali
Capital, Inc. served as the representative of the underwriters in our IPO and
agreed to defer $1,514,760 of the underwriting discounts and commissions until
after the consummation of a business combination. The deferred amount payable
in
connection with the IPO will be paid out of the trust account established for
the proceeds of the IPO only if we consummate the Merger. Pali Capital, Inc.,
therefore, has an interest in our consummating the Merger that will result
in
the payment of its deferred compensation. Further, Pali Capital, Inc. owns
an
option to purchase 450,000 units (comprised of one share of common stock and
one
warrant) at an exercise price of $10.00 per unit, received as consideration
as
the representative of the underwriters in our IPO. Additionally, upon
consummation of the Merger Pali Capital, Inc. shall be entitled to a $200,000
investment banking fee.
Fairness
Opinion (Page 46)
Pursuant
to an engagement letter dated March 4, 2008, we engaged Piper Jaffray to render
an opinion that the consideration to be paid for the Merger on the terms and
conditions set forth in the Merger Agreement is fair, from a financial point
of
view, to the holders of the common stock of the Company. Our Board of Directors
decided to use the services of Piper Jaffray because it is an investment banking
firm that regularly evaluates businesses and their securities in connection
with
acquisitions, corporate restructurings, private placements and for other
purposes.
Piper
Jaffray delivered its oral opinion to our Board of Directors on March 20, 2008,
which stated that, as of March 20, 2008 and based upon and subject to the
assumptions made, matters considered and limitations on its review as set forth
in the opinion that the consideration to be paid for United is fair, from a
financial point of view, to the holders of Company common stock. The amount
of
such consideration was determined pursuant to negotiations between us and United
and its members and not pursuant to recommendations of Piper Jaffray. The Piper
Jaffray opinion is not a recommendation as to how any stockholder should vote
or
act with respect to any matters relating to the Merger (including, without
limitation, with respect to the exercise of rights to convert the Company common
stock into cash). Further, the Piper Jaffray opinion does not in any manner
address the underlying business decision of the Company to engage in the Merger
or the relative merits of the Merger as compared to any alternative business
transaction or strategy (including, without limitation, liquidation of the
Company after not completing a business combination transaction within the
allotted time). The decision as to whether to approve the Merger or any related
transaction may depend on an assessment of factors unrelated to the financial
analysis on which the Piper Jaffray opinion is based. The full text of the
Piper
Jaffray written opinion, attached hereto as Annex C, is incorporated by
reference into this proxy statement/prospectus. You are encouraged to read
the
Piper Jaffray opinion carefully and in its entirety for a description of the
assumptions made, matters considered, procedures followed and limitations on
the
review undertaken by Piper Jaffray in rendering its opinion. The summary of
the
Piper Jaffray opinion set forth in this proxy statement is qualified in its
entirety by reference to the full text of the opinion.
Regulatory
Matters (Page 58)
The
Company does not expect that the Merger will be subject to any state or federal
regulatory requirements other than approval of the Florida Office of Insurance
Regulation, filings under applicable securities laws and the effectiveness
of
the registration statement of the Company of which this proxy
statement/prospectus is part. The Company intends to comply with all such
requirements. We do not believe that, in connection with the completion of
the
Merger, any further consent, approval, authorization or permit of, or filing
with, any acquisition control authority will be required in any
jurisdiction.
Overview
of the Merger (Page 51)
As
part of the Merger, and pursuant to the Merger Agreement, United and United
Subsidiary will engage in a reverse merger as outlined below pursuant to which
United Subsidiary will merge with and into United, and United will become a
wholly-owned subsidiary of the Company and the current members of United will
become stockholders of FMG. As part of the Merger, FMG will be renamed United
Insurance Holdings Corp. (“UIH”).
After
giving effect to the Merger, the members of United will own approximately 60%
of
the outstanding shares of UIH, and the current stockholders of FMG will own
the
remaining 40% without regard to exercise of any outstanding
warrants.
Directors
and Management (Page 129)
Upon
completion of the Merger, the Board of Directors of the Company and its
wholly-owned subsidiary will consist of six members. Assuming the consummation
of the Merger, three of the Company’s current directors: Messrs. Gordon G.
Pratt, Larry G. Swets, Jr. and James R. Zuhlke will serve as directors of the
Company and United. Additionally, assuming the consummation of the Merger,
Messrs. Gregory C. Branch, Alec L. Poitevint, II and Kent G. Whittemore
will also serve as directors of the Company and United. Upon completion of
the
Merger, Donald J. Cronin will serve as President and Chief Executive Officer
and
Nicholas W. Griffin will serve as Chief Financial Officer of the Company. Melvin
A. Russell, Jr. will serve as Chief Underwriting Officer of United.
FIRST
AMENDMENT TO CERTIFICATE OF INCORPORATION PROPOSAL
(PAGE 61)
We
are seeking your approval to authorize the Board of Directors to amend and
restate our Certificate of Incorporation to delete provisions in the certificate
of incorporation that are specific to blank check companies. This proposal
to
approve the amendment to our Certificate of Incorporation is conditioned upon
and subject to the approval of the Merger Proposal. See the section entitled
“
The
First Amendment Proposal
.”
SECOND
AMENDMENT TO CERTIFICATE OF INCORPORATION PROPOSAL
(PAGE 65)
We
are seeking your approval to authorize the Board of Directors to amend and
restate our Certificate of Incorporation to increase the amount of authorized
shares of common stock from 20,000,000 to 50,000,000. This proposal to approve
the amendment to our Certificate of Incorporation is conditioned upon and
subject to the approval of the Merger Proposal. See the section entitled “
The
Second Amendment Proposal
.”
THIRD
AMENDMENT TO CERTIFICATE OF INCORPORATION PROPOSAL
(PAGE 67)
We
are seeking your approval to authorize the Board of Directors to amend and
restate our Certificate of Incorporation to change the name of the Company
to
United Insurance Holdings Corp. This proposal to approve the amendment to our
Certificate of Incorporation is conditioned upon and subject to the approval
of
the Merger Proposal. See the section entitled “ The
Third Amendment Proposal
.”
DIRECTOR
PROPOSAL (PAGE 68)
Director
Proposal—to elect three (3) directors to the Company’s Board of Directors
to hold office until the next annual meeting of stockholders and until their
successors are elected and qualified. This proposal to elect three directors
to
our Board of Directors is conditioned upon and subject to the approval of the
Merger Proposal. See the section entitled “ The
Director Proposal
.”
ADJOURNMENT
PROPOSAL (PAGE 78)
If,
based on the tabulated vote, there are not sufficient votes at the time of
the
Special Meeting authorizing the Company to consummate the Merger, the Company’s
Board of Directors may submit a proposal to adjourn the Special Meeting to
a
later date or dates, if necessary, to permit further solicitation of proxies.
See the section entitled “ The
Adjournment Proposal
.”
Prior
to the record date for this Special Meeting, the officers, directors or
affiliates of the Company may purchase outstanding securities of the Company
in
open market transactions and the shares so acquired would be voted in favor
of
the Merger. In the event an adjournment proposal is presented at the Special
Meeting and approved by the stockholders, the officers, directors or affiliates
of the Company may, during such adjournment period, make investor presentations
telephonically and/or in person to investors who have indicated their intent
to
vote against the Merger Proposal. Such investor presentations would be
informational only, and would be filed publicly on Current Report on
Form 8-K prior to or concurrently with presentation to any third party. The
Company will not conduct any such activities in violation of applicable federal
securities laws, rules or regulations.
THE
SPECIAL MEETING
Date,
Time and Place of Special Meeting of Our Stockholders
(Page 31)
The
Special Meeting of our stockholders will be held at 10:00 a.m. Eastern
Time,
on ,
2008, at the offices
of .
Record
Date; Who is entitled to Vote (Page 32)
You
will be entitled to vote or direct votes to be cast at the Special Meeting
if
you owned shares of our common stock at the close of business on
,
2008, which is the record date for the Special Meeting. You will have one vote
for each share of our common stock you owned at the close of business on the
record date. On the record date, there were 5,917,031 shares of our common
stock
outstanding, of which 4,733,625 shares were IPO shares. The remaining 1,183,406
shares were issued to our founders prior to our IPO.
Voting
Your Shares (Page 32)
You
can vote by signing and returning the enclosed proxy card. If you vote by proxy
card, your “proxy,” whose name is listed on the proxy card, will vote your
shares as you instruct on the proxy card. If you sign and return the proxy
card,
but do not give instructions on how to vote your shares, your shares will be
voted, as recommended by the FMG Board of Directors, “FOR” Proposal 1, the
Merger Proposal, “FOR” Proposal 2, the First Amendment Proposal; “FOR”
Proposal 3, the Second Amendment Proposal; “FOR” Proposal 4, the Third
Amendment Proposal; “FOR” Proposal 5, the Director Proposal; and “FOR”
Proposal 6, the Adjournment Proposal.
Proxies
may be solicited by mail, telephone or in person.
If
you grant a proxy, you may still vote your shares in person if you revoke your
proxy at or before the Special Meeting. If you hold your shares in street name
you can obtain physical delivery of your shares into your name, and then vote
the shares yourself. In order to obtain shares directly into your name, you
must
contact your brokerage firm representative. Brokerage firms may assess a fee
for
your conversion; the amount of such fee varies.
Quorum
and Vote Required (Page 33)
A
quorum of our stockholders is necessary to hold a valid stockholders meeting.
A
quorum will be present at the Special Meeting if a majority of the shares of
our
common stock outstanding as of the record date are presented in person or by
proxy. Abstentions and broker non-votes will count as present for the purposes
of establishing a quorum.
For
purposes of Proposal 1, under our amended and restated certificate of
incorporation, approval of the Merger Proposal will require: (i) the
affirmative vote of a majority of the shares of the Company’s common stock
issued in the IPO who vote on this proposal at the Special Meeting, and
(ii) not more than 29.99% of the shares of the Company’s common stock
issued in the IPO vote against the Merger Proposal and elect a cash conversion
of their shares. For the purposes of Proposal 2, the affirmative vote of
the majority of the Company’s issued and outstanding common stock as of the
Record Date is required to approve the First Amendment Proposal. For the
purposes of Proposal 3, the affirmative vote of the majority of the
Company’s issued and outstanding common stock as of the Record Date is required
to approve the Second Amendment Proposal. For the purposes of Proposal 4,
the affirmative vote of the majority of the Company’s issued and outstanding
common stock as of the Record Date is required to approve the Third Amendment
Proposal. For purposes of Proposal 5, the affirmative vote of the holders
of a plurality of the shares of common stock cast in the election of directors
is required. Proposals 2, 3, 4 and 5 are contingent upon our stockholders’
approval of the Merger. For purposes of Proposal 6 the affirmative vote of
a majority of the shares of the Company’s common stock that are present in
person or by proxy and entitled to vote is required to approve the
adjournment.
As
long as a quorum is established at the Special Meeting, if you return your
proxy
card without an indication of how you desire to vote, it: (i) will have the
same effect as a vote in favor of the Merger Proposal and will not have the
effect of converting your shares into a pro rata portion of the trust account
(in order for a stockholder to convert his or her shares, he or she must cast
an
affirmative vote against the Merger Proposal and make an affirmative election
on
the proxy card to convert such shares of common stock); (ii) will have the
same effect as a vote in favor of the First Amendment Proposal; (iii) will
have the same effect as a vote in favor of the Second Amendment Proposal; (iv)
will have the same effect as a vote in favor of the Third Amendment Proposal;
(v) will have no effect on the Director Proposal; and (vi) will have the same
effect as a vote in favor of the Adjournment Proposal.
FMG
ACQUISITION CORP. SELECTED FINANCIAL DATA
The
Company is providing the following selected financial information to assist
you
in your analysis of the financial aspects of the Merger. The following selected
financial and other operating data should be read in conjunction with FMG
Acquisition Corp.’s Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and its financial statements and the related notes to
those statements included elsewhere in this proxy statement. The statement
of
operations data for the period from May 22, 2007 (inception) through December
31, 2007 and the balance sheet data as of December 31, 2007 have been derived
from the Company’s audited financial statements included elsewhere in this proxy
statement prospectus. The statements of operations data for the three
months ended March 31, 2008, and the balance sheet data as
of March 31, 2008 have been derived from the Company’s unaudited financial
statements included elsewhere in this proxy statement/prospectus. Interim
results are not necessarily indicative of results for the full fiscal year
and
historical results are not necessarily indicative of results to be expected
in
any future period.
STATEMENTS
OF OPERATIONS
|
|
May
22, 2007 (inception) to December 31,
2007
|
|
For
the three months ended March 31, 2008
|
|
|
|
(Audited)
|
|
|
|
Interest
Income
|
|
$
|
268,228
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Operating
costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
|
|
|
|
|
Net
(loss)/income
|
|
$
|
|
|
$
|
(253,358
|
)
|
|
|
|
|
|
|
|
|
Maximum
number of shares subject to possible redemption:
|
|
|
|
|
|
|
|
Weighted
average number of common shares, basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share,
for shares subject to possible redemption
|
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Approximate
weighted average number of common shares
outstanding (not subject to possible redemption)
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share not subject to possible
redemption,
|
|
|
|
|
|
|
|
Basic
|
|
$
|
|
|
$
|
(0.043
|
)
|
Diluted
|
|
|
0.027
|
|
|
(0.043
|
)
|
BALANCE
SHEET
FMG
ACQUISITION CORP.
(a
corporation in the development stage)
|
|
December
31,
2007
|
|
March 31,
2008
|
|
|
|
(Audited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
Cash
|
$
|
71,274
|
|
$
|
55,042
|
|
Prepaid
expenses
|
|
54,075
|
|
|
42,000
|
|
|
|
|
|
|
|
|
|
|
125,349
|
|
|
97,042
|
|
|
|
|
|
|
|
|
Other
assets
|
|
|
|
|
|
|
Cash
held in Trust Account
|
|
37,720,479
|
|
|
37,737,092
|
|
Deferred
tax asset
|
|
32,210
|
|
|
32,210
|
|
|
|
|
|
|
|
|
|
|
37,752,689
|
|
|
37,769,302
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
$
|
37,878,038
|
|
$
|
37,866,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities,
accounts payable and accrued expenses
|
$
|
174,344
|
|
$
|
416,008
|
|
|
|
|
|
|
|
|
Long-term
liabilities,
deferred underwriters' fee
|
|
1,514,760
|
|
|
1,514,760
|
|
|
|
|
|
|
|
|
Common
stock, subject to possible redemption, 1,419,614 shares, at redemption
value
|
|
11,232,133
|
|
|
11,232,133
|
|
|
|
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
|
|
Preferred
stock, $.0001 par value; 1,000,000 shares authorized; none
issued
|
|
|
|
|
-
|
|
Common
stock, $.0001 par value, authorized 20,000,000 shares; 5,917,031
shares
issued and outstanding, (including 1,419,614 shares subject to
possible
redemption)
|
|
602
|
|
|
602
|
|
Additional
paid-in capital
|
|
24,873,742
|
|
|
24,873,742
|
|
Earnings
(deficit) accumulated during the development stage
|
|
82,457
|
|
|
(170,901
|
) |
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
24,956,801
|
|
|
24,703,443
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
37,878,038
|
|
$
|
37,866,344
|
|
MARKET
PRICE INFORMATION AND DIVIDEND DATA FOR COMPANY SECURITIES
The
Company consummated its IPO on October 4, 2007. In the IPO, the Company sold
4,733,625 units, each consisting of one share of the Company’s common stock and
one warrant to purchase common stock. The units were quoted on the OTC Bulletin
Board from the consummation of the IPO under the symbol FMGQU. On November
7,
2007, the common stock and warrants included in the units began trading
separately and the trading in the units continued. The shares of the Company’s
common stock and warrants are currently quoted on the OTC Bulletin Board under
the symbols “FMGQ” and “FMGQW”, respectively. The closing prices per unit, per
share of common stock and per warrant of the Company on April 1, 2008, the
last
trading day before the announcement of the execution of the Merger Agreement,
were $7.62, $7.24 and $0.36, respectively. Each warrant entitles the holder
to
purchase from the Company one share of common stock at an exercise price of
$6.00 commencing on the later of the consummation of a business combination
(if
consummated) or October 4, 2008. The Company warrants will expire at
5:00 p.m., New York City time, on October 4, 2011, or earlier upon
redemption. Prior to October 4, 2007, there was no established public trading
market for the Company’s securities.
The
following table sets forth, for the calendar quarter indicated, the quarterly
high and low sales prices of the Company’s common stock, warrants and units as
reported on the OTC Bulletin Board. The over-the-counter market quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and
may not necessarily represent actual transactions.
|
|
Common
Stock
|
|
Warrants
|
|
Units
|
|
Quarter
Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2008
|
|
$
|
7.40
|
|
$
|
7.23
|
|
$
|
0.50
|
|
$
|
0.27
|
|
$
|
7.65
|
|
$
|
7.52
|
|
March
31, 2008
|
|
$
|
7.25
|
|
$
|
7.12
|
|
$
|
0.70
|
|
$
|
0.35
|
|
$
|
7.93
|
|
$
|
7.62
|
|
December
31, 2007
|
|
$
|
7.30
|
|
$
|
7.15
|
|
$
|
0.70
|
|
$
|
0.70
|
|
$
|
8.00
|
|
$
|
7.90
|
|
On July 7, 2008 the closing prices of our units, common stock and
warrants were $7.62, $7.33 and $0.34, respectively.
Holders
As
of ,
2008, the Record Date of the Special Meeting, there were
[ ] holders of record of
units, [ ] holders of record of the common
stock and [ ] holders of record of the
warrants. We estimate there are [ ] beneficial
owners of our units, [ ] beneficial owners of our
common stock and [ ] beneficial owners of our
warrants. Upon consummation of the Merger, FMG will be obligated to issue
8,750,000 shares of common stock to the members of United as partial
consideration for the membership units of United. For more information on
the
shares to be issued to United, see the section entitled “The Merger
Proposal—Consideration”. For more information on the effect of the issuance of
the 8,750,000 shares of common stock on the amount and percentage of present
holdings of the Company’s common equity owned beneficially by (i) each person
known by us to be the owner of more than 5% of our outstanding shares of
the
Company’s common stock, (ii) each officer and director and (iii) all officers
and directors as a group see the section entitled “Beneficial Ownership
following the Merger” on page 132.
Dividends
The
Company has not paid any cash dividends on its common stock and does not intend
to pay dividends prior to consummation of the Merger.
RISK
FACTORS
You
should consider carefully all of the material risks described below, together
with the other information contained elsewhere in this proxy statement, before
you decide whether to vote or instruct your vote to be cast to adopt the Merger.
Additional risks and uncertainties that we are unaware of, or that we currently
deem immaterial, also may become important factors that affect us. If any of
the
following risks occur, our business, financial conditions or results of
operating may be materially and adversely affected.
RISKS
PARTICULAR TO THE MERGER
FMG’s
and United Subsidiary’s businesses are difficult to evaluate due to a lack of
operational history.
FMG
was formed on May 22, 2007 for the purpose of effecting a merger, capital stock
exchange, asset or stock acquisition, exchangeable share transaction, joint
venture or other similar business combination with one or more domestic or
international operating businesses. On October 4, 2007, the Company consummated
its IPO. Accordingly, we have limited operational history which consists of
the
founding of the Company and the evaluation of potential acquisitions. United
Subsidiary was formed solely for the purpose of the Merger and has no operating
history. FMG’s, and United Subsidiary’s operating history, to date, is not
indicative of future operating or financial performance.
Our
stockholders will experience immediate dilution as a consequence of the issuance
of common stock as consideration in the Merger. Having a minority share position
may reduce the influence our current stockholders have on the management of
the
combined company.
Following
the consummation of the Merger, the influence of our public stockholders, in
their capacity as stockholders of FMG following the Merger, will be
significantly reduced. Our current stockholders will hold, in the
aggregate, approximately 40% of the issued and outstanding common stock of
FMG
(excluding as outstanding for purposes of the calculation securities issuable
upon the exercise of our outstanding warrants and upon the exercise of the
purchase option issued to underwriters in our IPO).
Concentration
of ownership of our common stock after the Merger could delay or prevent a
change of control.
Our
directors, executive officers and principal stockholders will beneficially
own a
significant percentage of our common stock after the Merger. They also have,
through the exercise of warrants, the right to acquire additional shares
of
common stock. As a result, these stockholders, if acting together, have the
ability to significantly influence the outcome of corporate actions requiring
stockholder approval. Additionally, under the terms of the Merger Agreement,
United and its members shall have the right to appoint up to three designees
to
serve on the Company’s Board of Directors after the Merger is consummated. The
concentration of ownership among management may have the effect of delaying
or
preventing a change in control of the post-acquisition company even if such
a
change in control would be in your interest. As of July 7, 2008, our directors,
officers and principal stockholders beneficially owned approximately 20%
of
FMG’s common stock. Following the Merger, former members of United will
beneficially own approximately 15% of the common stock of FMG, and our
reconstituted Board of Directors, management and principal stockholders will
beneficially own approximately 23% of the common stock of
FMG.
We
may waive one or more conditions to the Merger without resoliciting stockholder
approval for the Merger.
One
or more conditions to our obligation to complete the Merger may be waived in
whole or in part to the extent legally allowable either unilaterally or by
agreement of FMG, United and United Subsidiary. Waivable conditions include
the
accuracy of the representations and warranties contained in the Merger
Agreement, performance of all covenants and obligations required to be performed
prior to consummation of the Merger (other than approval of the required number
of our stockholders and United’s members and conversion of not more than 29.99%
of our shares issued in the Company's IPO). These conditions may be waived
unilaterally by any of the parties to the Merger Agreement. Depending upon
the
condition, our Board of Directors will evaluate the materiality of any such
waiver to determine whether amendment to this proxy statement and
re-solicitation of proxies is necessary. FMG will act in compliance with
relevant state laws and U.S. securities laws with respect to determining whether
an amendment to the proxy statement and re-solicitation of the proxies is
necessary. In the event our Board of Directors determines any such waivers
are
not significant enough to require re-solicitation of stockholders, we would
have
the discretion to complete the Merger without seeking further stockholder
approval.
There
may be a conflict of interest between our management and our stockholders,
which
may have influenced management’s decision to enter into the Merger Agreement and
recommending our stockholders to vote in favor of the
Merger.
Our
officers and directors will not receive reimbursement for any out-of-pocket
expenses incurred by them to the extent such expenses exceed the amount of
proceeds available to the Company for working capital, unless a business
combination is completed. In addition, if we do not complete the Merger or
another business combination and are forced to liquidate, the trust account
proceeds may be subject to claims that could take priority over the claims
of
our public stockholders. Gordon G. Pratt, our current President and Chief
Executive Officer, and Larry G. Swets, Jr., our current Chief Financial Officer
and Secretary, have each entered into separate indemnity agreements under which
they will be personally liable under certain circumstances to ensure that the
proceeds of the trust account are not reduced by the claims of various vendors
that are owed money by us for services rendered or contracted for, or claims
of
other parties with which we have contracted. Further, all of our directors
own
common stock and warrants purchased in private placements consummated prior
to
our IPO, but have waived their right to proceeds from the liquidation of the
trust account if we are unable to complete a business combination. The shares
of
common stock and warrants owned by our officers and directors and their
affiliates will be worthless if we do not consummate a business combination.
The
financial interests of all of our officers and directors may have influenced
their motivation in causing us to enter into the Merger Agreement and
recommending our stockholders to vote in favor of the Merger.
Completion
of the Merger is subject to a number of conditions.
The
obligations of FMG, United and United Subsidiary to consummate the Merger are
subject to the satisfaction or waiver of specified conditions set forth in
the
Merger Agreement. Such conditions include, but are not limited to, satisfaction
by all parties of covenants and obligations contained in the Merger Agreement,
the accuracy in all material respects on the date of the Merger Agreement and
the Closing Date of all of FMG’s and United’s representations and warranties,
non-existence of legal action against FMG, United and United Subsidiary,
effectiveness of the registration statement of which this proxy
statement/prospectus is part, obtaining material consents, approval of the
required number of our stockholders and United’s members and conversion of not
more than 29.99% of our shares issued in the Company's IPO, stockholder approval
of the First and Second Amendment Proposals, and execution of ancillary
agreements. It is possible some or all of these conditions will not be satisfied
or waived by any of FMG, United or United Subsidiary, and therefore, the Merger
may not be consummated. See “Conditions to the Consummation of the Merger.” In
the event the Merger is not consummated, we will seek to effectuate a different
business combination.
The
sale or even the possibility of sale of the common stock to be issued to United
and its members could have an adverse effect on the price of FMG’s securities
and make it more difficult to obtain financing in the
future.
In
connection with the Merger, we agreed to grant to United and their members,
8,750,000 shares of common stock as part of the consideration. The sale or
even
the possibility of sale of these shares could have an adverse effect on the
price of our securities on the equity market and on our ability to obtain
financing in the future, in the event such financing is required. We do not
expect to seek debt or equity financing for at least the first twelve months
following consummation of the Merger. At the time any financing is required,
we
will make a determination of the preferred form of such financing and the type
of financing source to approach (e.g. debt or equity or bank line of credit).
In
the event a substantial percentage of our public stockholders vote against
the
Merger and seek conversion of their common stock, we may need to borrow
additional funds to consummate the Merger.
The
Merger may still be consummated as long as less than 30% of the common stock
initially purchased in the initial public offering is voted against the Merger
and the holders of such shares seek conversion of their common stock into a
pro
rata portion of the amount held in the trust account. In such case, those
stockholders seeking conversion shall be entitled to payments out of the trust
account prior to our paying the $25,000,000 cash portion of the Merger
consideration to United. Accordingly, we may need to arrange third party
financing to help fund the Merger or issue additional shares of common stock
to
United to make up for a shortfall in funds in the event a larger percentage
of
stockholders exercise their conversion rights than we expect. Raising additional
funds to cover any shortfall may involve dilutive equity financing or incurring
indebtedness at higher than desirable levels. The issuance of additional
securities may result in further dilution to our existing stockholders. In
the
event we are unable to raise such additional funds or United refuses to accept
additional securities in lieu of cash, we may be unable to consummate the
Merger. In the event the Merger is consummated, the combined company will have
less cash available to fund its operations. However, the current cash flow
of
United is adequate to support its operations for at least twelve
months following the Merger. In the event we are able to secure financing,
the incurrence of debt could result in:
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default
and foreclosure on our assets if our operating cash flow after the
Merger
were insufficient to pay our debt
obligations;
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acceleration
of our obligations to repay the indebtedness even if we have made
all
principal and interest payments when due, if the debt security contained
covenants that required the maintenance of certain financial ratios
or
reserves and any such covenant were breached without a waiver or
renegotiation of that covenant;
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our
immediate payment of all principal and accrued interest, if any,
if the
debt security was payable on
demand;
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covenants
that limit our ability to pay dividends on our common stock, to acquire
capital assets or make additional acquisitions;
and
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our
inability to obtain additional financing, if necessary, if the debt
security contained covenants restricting our ability to obtain additional
financing while such security was
outstanding.
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Management
of the Company following the Merger will have broad discretion with respect
to
the specific application of the net proceeds of the trust
account.
In
the
event the Merger is consummated, the amounts then-remaining in the trust account
will be released to the Company, which will have unlimited discretion as to
the
use of such proceeds. Management may use these proceeds in a manner with which
you may not agree.
We
May Pay Cash Dividends On Our Common Stock.
We
have
not paid or declared any dividends on our common stock and do not currently
intend to do so. However, we may determine to pay dividends in the future,
including prior to the consummation of the Merger. In the event we pay any
dividends prior to the Merger, such payment, whether alone or when taken
together with any payments required to be made to holders of common stock
seeking conversion, may leave us with insufficient funds remaining in the trust
account to pay to the members of United as part of the Merger consideration.
In
such event, we may have to raise additional funds from third parties through
the
sale of equity or debt securities, which could, among other things, encumber
our
assets, place restrictions on our ability to manage our business or further
dilute your ownership interest in FMG. In the event any dividend is paid
following consummation of the Merger, it would have the effect of reducing
the
amount of cash available to the Company.
RISKS
RELATED TO UNITED’S BUSINESS
Exposure
to natural and man-made catastrophes could materially and adversely affect
United’s results of operations, financial condition and
liquidity.
United’s
property and casualty insurance operations expose it to claims arising out
of
catastrophes. Catastrophes can be caused by various natural events, including
hurricanes, windstorms, earthquakes, hail, severe winter weather and fires.
Catastrophes can also be man-made, such as terrorist attacks (including those
involving nuclear, biological, chemical or radiological events) or consequences
of war or political instability. The incidence and severity of catastrophes
are
inherently unpredictable. It is possible that both the frequency and severity
of
natural and man-made catastrophic events will increase. Although the trend
of
increased severity and frequency of storms was not evident in the United States
in 2007 and 2006, it is possible the overall trend of increased severity and
frequency of storms experienced in the United States in 2005 and 2004, and
in
the Caribbean during 2007, may continue in the foreseeable future.
Catastrophes
can result in losses in United’s property insurance lines and may generally
result in both an increase in the number of claims incurred and an increase
in
the dollar amount of each claim asserted. The occurrence of such claims from
natural and man-made catastrophes could therefore materially and adversely
affect United’s results of operations for any year and may materially harm its
financial position, which in turn could adversely affect its financial strength
and impair its ability to raise capital on acceptable terms or at all. In
addition, catastrophic events could cause United to exhaust its available
reinsurance limits and could adversely impact the cost and availability of
reinsurance. Such events can also impact the credit of its reinsurers.
Catastrophic events could also adversely impact the credit of the issuers of
securities, such as states or municipalities, in whom United has invested,
which
could materially and adversely affect United’s results of
operations.
In
addition to catastrophes, the accumulation of losses from smaller
weather-related events in a fiscal quarter or year could materially and
adversely impact United’s results of operations in those periods.
United’s
ability to manage its exposure to catastrophic events may be limited by new
legislation and regulations.
States
have from time to time passed legislation, and regulators have taken action,
that has the effect of limiting the ability of insurers to manage catastrophe
risk, such as legislation prohibiting insurers from reducing exposures or
withdrawing from catastrophe-prone areas or mandating that insurers participate
in residual markets. In addition, following catastrophes, there are sometimes
legislative initiatives and court decisions which seek to expand insurance
coverage for catastrophe claims beyond the original intent of the policies.
Further, United’s ability to increase pricing to the extent necessary to offset
rising costs of catastrophes requires approval of regulatory authorities.
United’s ability or willingness to manage its catastrophe exposure by raising
prices, modifying underwriting terms or reducing exposure to certain geographies
may be limited due to considerations of public policy, the evolving political
environment and United’s ability to penetrate other geographic markets. United
cannot predict whether and to what extent new legislation and regulations that
would affect its ability to manage its exposure to catastrophic events will
be
adopted, the timing of adoption or the effects, if any, they would have on
United’s ability to manage its exposure to catastrophic events.
Because
United currently conducts business in only one state, its financial results
may
be disproportionately affected by catastrophes and other conditions in that
state.
United’s
business is currently concentrated in only one state – the State of
Florida. Therefore, its revenues and profitability are subject to prevailing
regulatory, legal, economic, political, demographic, competitive, weather and
other conditions in the State of Florida. Changes in any of these conditions
could make it less attractive for United to do business in Florida and would
have a more pronounced effect on United than it would on other insurance
companies that are geographically diversified. In addition, the fact United’s
business is concentrated only in the State of Florida subjects it to increased
exposure to certain catastrophic events such as hurricanes and floods. This
increased exposure to catastrophic events also results in an increased risk
of
losses as the extent of losses from a catastrophic event is a function of both
the total amount of insured exposure in the area affected by the event and
the
severity of the event. Because United’s business is concentrated in Florida, the
occurrence of one or more catastrophic events or other conditions affecting
losses in Florida could have a material adverse effect on United’s financial
condition and results of operations.
If
market conditions increase the cost or decrease the availability of reinsurance,
United may be required to bear increased risks or reduce the level of its
underwriting commitment.
As
part
of United’s risk management strategy, it purchases reinsurance coverage from
third-party reinsurers. Market conditions beyond United’s control, including
catastrophic events, determine the availability and cost of the reinsurance
it
purchases, which may in turn affect the growth of its business and its
profitability. United may be unable to maintain its current reinsurance
coverage, to obtain additional reinsurance coverage in the event its current
reinsurance limits are exhausted by a catastrophic event, or to obtain other
reinsurance coverage in adequate amounts or at acceptable rates. Similar risks
exist whether United is seeking to replace coverage terminated during the
applicable coverage period or to renew or replace coverage upon the expiration
of such coverage. If United is unable to renew its expiring coverage or to
obtain new reinsurance coverage, either its net exposure to risk would increase
or, if it is unwilling to accept an increase in net risk exposures, United
would
have to reduce the amount of risk it underwrites.
A
single catastrophe could cause us to exhaust available reinsurance limits and
could adversely impact the cost and availability of reinsurance.
In
the
event United exhausts its available reinsurance limits, it may have to pay
any
future claims out of its own pocket. Alternatively, they could seek additional
sources of reinsurance, which can be expected to be a costly and time consuming
process which may not ultimately be successful. In the event United is
successful in finding an additional or replacement reinsurer, such reinsurance
policy can be expected to be costly. Catastrophic events can also impact the
credit of United’s reinsurers and the credit of the issuers of securities, such
as states or municipalities, in whom United has invested, any of which could
materially and adversely affect United’s results of operations.
If
United’s actual claims exceed its loss reserves, its financial results could be
materially and adversely affected.
If
actual
claims exceed United’s loss reserves, or if changes in the estimated level of
loss reserves are necessary, United’s financial results could be materially and
adversely affected. Claims and claim adjustment expense reserves (loss reserves)
represent management's estimate of ultimate unpaid costs of losses and loss
adjustment expenses for claims that have been reported and claims that have
been
incurred but not yet reported. Loss reserves do not represent an exact
calculation of liability, but instead represent management estimates, generally
utilizing actuarial expertise and projection techniques, at a given accounting
date. These loss reserve estimates are expectations of what the ultimate
settlement and administration of claims will cost upon final resolution in
the
future, based on United’s assessment of facts and circumstances then known,
reviews of historical settlement patterns, estimates of trends in claims
severity and frequency, expected interpretations of legal theories of liability
and other factors. In establishing reserves, United has also taken into account
estimated recoveries from reinsurance, salvage and subrogation.
The
process of estimating loss reserves involves a high degree of judgment and
is
subject to a number of variables. These variables can be affected by both
internal and external events, such as changes in claims handling procedures,
economic inflation, legal trends and legislative changes, and varying judgments
and viewpoints of the individuals involved in the estimation process, among
others. The impact of many of these items on ultimate costs for claims and
claim
adjustment expenses is difficult to estimate. Loss reserve estimation
difficulties also differ significantly by product line due to differences in
claim complexity, the volume of claims, the potential severity of individual
claims, the determination of occurrence date for a claim and reporting lags
(the
time between the occurrence of the policyholder event and when it is actually
reported to the insurer).
United
continually refines its loss reserve estimates in a regular, ongoing process
as
historical loss experience develops and additional claims are reported and
settled. Informed judgment is applied throughout the process, including the
application of various individual experiences and expertise to multiple sets
of
data and analyses. Different experts may choose different assumptions when
faced
with material uncertainty, based on their individual backgrounds, professional
experiences and areas of focus. Hence, such experts may at times produce
estimates materially different from each other. Experts providing input to
the
various estimates and underlying assumptions include actuaries, underwriters,
claims personnel and lawyers. Therefore, management may have to consider varying
individual viewpoints as part of its estimation of loss reserves.
United
attempts to consider all significant facts and circumstances known at the time
loss reserves are established. Due to the inherent uncertainty underlying loss
reserve estimates, the final resolution of the estimated liability for claims
and claim adjustment expenses will likely be higher or lower than the related
loss reserves at the reporting date. Therefore, actual paid losses in the future
may yield a materially different amount than is currently reserved.
Because
of the uncertainties set forth above, additional liabilities resulting from
one
insured event, or an accumulation of insured events, may exceed the current
related reserves. In addition, our estimate of claims and claim adjustment
expenses may change. These additional liabilities or increases in estimates,
or
a range of either, cannot now be reasonably estimated and could materially
and
adversely affect United’s results of operations.
There
are inherent difficulties in estimating the ultimate costs of catastrophes,
which further complicate our ability to estimate reserves.
There
are
inherent difficulties in estimating risks that impact the estimation of ultimate
costs for catastrophes. These difficulties also affect United’s ability to
estimate reserves for catastrophes. For example, the estimation of reserves
related to hurricanes can be affected by the inability to access portions of
the
impacted areas, the complexity of factors contributing to the losses, the legal
and regulatory uncertainties and the nature of the information available to
establish the reserves. Complex factors include, but are not limited to,
determining whether damage was caused by flooding versus wind; evaluating
general liability and pollution exposures; estimating additional living
expenses; the impact of demand surge; infrastructure disruption; fraud; the
effect of mold damage; business interruption costs; and reinsurance
collectibility. The timing of a catastrophe's occurrence, such as at or near
the
end of a reporting period, can also affect the information available to United
in estimating reserves for that reporting period. The estimates related to
catastrophes are adjusted as actual claims emerge and additional information
becomes available. Because of the inherent uncertainty in estimating reserves
for catastrophes, we cannot be sure that our ultimate losses and loss adjustment
expenses will not exceed our reserves. If and to the extent that our reserves
are inadequate, we will be required to increase our reserves for losses and
loss
adjustment expenses and incur a charge to earnings in the period during which
our reserves are increased, which could materially and adversely affect our
financial condition and results of operations.
United's business
is cyclical, which affects its financial performance and may affect the
market price of the combined company's common stock.
Historically,
the financial performance of the property and casualty insurance
industry has been cyclical, characterized by periods of severe price
competition and excess underwriting capacity, or soft markets, followed by
periods of high premium rates and shortages of underwriting capacity, or hard
markets. The profitability of most property and casualty insurance
companies, including United, tend to follow this cyclical pattern.
This cyclicality is due in large part to the actions of United's
competitors and to general economic factors that are not within United's
control, and therefore, United cannot predict how long any given hard or
soft market will last. If United has to reduce premiums or limit premium
increases due to competitive pressures on pricing in a softening
market, United may experience a reduction in its premiums written and
in its profit margins and revenues, which could adversely
affect United's financial results and the market price of the combined
company's common stock.
United's business
is seasonal, which affects its financial performance and may affect the
market price of the combined company’s common
stock.
United’s
business has historically been seasonal. We generally experience higher
losses during the third quarter of the year as a result of an increase
in claims due to weather conditions in Florida during hurricane
season. For example, storms may cause property damage that impacts claim
incidence and severity. The recurrence of these seasonal patterns, or any
deviation from them, could affect the market price of our common stock.
The
market price of our common stock may be volatile.
The
trading price of our common stock following the Merger may fluctuate
substantially, depending on many factors, some of which are beyond our control
and may not be related to our operating performance. Factors that could cause
such fluctuations include, but are not limited to, the following:
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variations
in actual or anticipated operating results or changes in the expectations
of financial market analysts with respect to our
results;
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investor
perception of the property and casualty insurance industry in general
and
us in particular;
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market
conditions in the insurance industry and any significant volatility
in the
market price and trading volume of insurance
companies;
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major
catastrophic events, especially
hurricanes;
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sales
of large blocks of Company stock or sales by Company insiders;
or
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departures
of key personnel.
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United
has debt outstanding and failure to comply with the terms of its loan agreements
could have an adverse effect on United’s ability to grow and write additional
insurance policies.
As
of May
26, 2008, United’s total long-term debt outstanding was approximately $26.2
million. Its long-term debt includes the following:
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$6.2
million in principal amount outstanding under the loan agreement
between
Columbus Bank and Trust Company (“CB&T”), United, and United Insurance
Management, L.C. (“UIM”)
consisting
of a term loan in the principal amount of $33 million;
and
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$20.0
million in principal and interest under UPCIC’s surplus note with the
State Board of Administration of Florida
(“SBA”).
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These
loan agreements contain certain significant covenants, including covenants
requiring the maintenance of minimum specified financial ratios and balances.
United’s failure to meet its payment obligations or to comply with any of these
covenants could result in an event of default which, if not cured or waived,
could result in increased interest rates on United’s indebtedness or the
acceleration of United’s outstanding debt obligations or both. In addition, if
an event of default occurs under one of these loan agreements, CB&T can
elect to take possession of, sell, lease or otherwise dispose of any of United’s
assets that were pledged as collateral for its loan.
As
of
December 31, 2007 and March 31, 2008, UPCIC was not in compliance with the
ratio
of net written premium to surplus requirement of 2:1 (the “Minimum Writing
Ratio”) contained in the SBA loan agreement. As a result, the SBA increased
UPCIC’s interest rate on the SBA loan from the stated rate of interest by 450
basis points to 8.60% for the quarter ended March 31, 2008 and 7.97% for
the
quarter ended June 30, 2008. If UPCIC is not in compliance with the Minimum
Writing Ratio by June 30, 2008, it will continue to incur an increased rate
of
interest on the SBA loan of up to 450 basis points depending on the amount
of
the deficiency. United’s management expects that UPCIC’s ratio of net written
premium to surplus will be at least 1.5:1 at June 30, 2008, and, as a result,
UPCIC will incur an interest rate charge of 25 basis points above the stated
rate of interest for the third quarter of 2008. If UPCIC’s ratio of net written
premium to surplus is below 1.5:1 for three consecutive quarters following
December 31, 2007, UPCIC will be obligated to repay a portion of the SBA
note
such that the Minimum Writing Ratio will be obtained for the following quarter.
The
SBA
note provides that the SBA may, among other things, declare its loan immediately
due and payable for all defaults existing under the SBA note. Acceleration
of the principal and interest under the SBA loan would limit, but not preclude,
United Insurance’s ability to write additional insurance policies.
The
effects of emerging claim and coverage issues on the insurance business are
uncertain.
As
industry practices and legal, judicial, social and other environmental
conditions change, unexpected and unintended issues related to claim and
coverage may emerge. These issues may adversely affect United’s business
following the Merger by either extending coverage beyond its underwriting intent
or by increasing the number or size of claims. Examples of emerging claims
and
coverage issues include, but are not limited to:
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adverse
changes in loss cost trends, including inflationary pressures in
medical
costs and home repair costs;
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judicial
expansion of policy coverage and the impact of new theories of liability;
and
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plaintiffs
targeting property and casualty insurers, in purported class action
litigation relating to claims-handling and other
practices.
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In
some
instances, these emerging issues may not become apparent for some time after
issuance of the affected insurance policies. As a result, the full extent of
liability under insurance policies we may issue following the Merger may not
be
known for many years after the policies are issued.
The
effects of these and other unforeseen emerging claim and coverage issues are
extremely hard to predict and could harm United’s business and materially and
adversely affect our results of operations and future operations.
United
may not be able to collect all amounts due to it from reinsurers, and
reinsurance coverage may not be available in the future at commercially
reasonable rates or at all.
United
uses, and we expect to continue to use following the Merger, reinsurance to
help
manage our exposure to property and casualty risks. The availability and cost
of
reinsurance are each subject to prevailing market conditions which can affect
business volume and profitability. Although reinsurers are liable to United
to
the extent of the ceded reinsurance, United remains liable as the direct insurer
on all risks reinsured. As a result, ceded reinsurance arrangements do not
eliminate United’s obligation to pay claims. Accordingly, United is subject to
credit risk with respect to its ability to recover amounts due from reinsurers.
In the past, certain reinsurers have ceased writing business and entered into
runoff. Some of United’s reinsurance claims may be disputed by the reinsurers,
and United may ultimately receive partial or no payment.
In
a
number of jurisdictions, particularly the European Union and the United Kingdom,
a reinsurer is permitted to transfer a reinsurance arrangement to another
reinsurer, which may be less creditworthy, without a counterparty's consent,
provided that the transfer has been approved by the applicable regulatory and/or
court authority. United does not currently have any reinsurance arrangements
that permit such a transfer. However, United may enter into such arrangements
in
the future, in which case the ability of reinsurers to transfer their risks
to
other, less creditworthy reinsurers would impact United’s risk of collecting
amounts due to it.
Based
on
the foregoing, United may not be able to collect all amounts due to it from
reinsurers, and reinsurance coverage may not be available to it in the future
at
commercially reasonable rates or at all, and thus United’s results of operations
and future operations could be materially and adversely affected.
We
will be exposed to credit risk in certain of our business operations and in
our
investment portfolio.
We
will
be exposed to credit risk in several areas of our business operations, including
credit risk relating to reinsurance, as discussed above, and credit risk
associated with commissions paid to independent agents. We pay commissions
to
our agents in advance, on an annual basis. Therefore, if an insurer cancels
a
policy during the policy year, the agent will owe us a pro rata portion of
the
commission we paid to such agent, based on the number of months during the
policy year that the policy was not in force. Typically, we deduct any such
commissions owed to us from commissions on other policies we owe to the agent.
If we do not owe the agent any other commissions, then we will be subject to
the
risk that the agent may not be able to repay us the balance of a commission,
which could adversely affect our financial position.
The
value
of our investment portfolio will also be subject to the risk that certain
investments may become impaired due to a deterioration in the financial position
of one or more issuers of securities held in our portfolio, or due to a
downgrade of the credit ratings of an insurer that guarantees an issuer's
payments of such investments in our portfolio. In addition, defaults by the
issuer and, where applicable, its guarantor, of certain investments that result
in the failure of such parties to fulfill their obligations with regard to
any
of these investments could reduce our net investment income and net realized
investment gains or result in investment losses.
While
we
will attempt to manage these risks through underwriting and investment
guidelines, collateral requirements and other oversight mechanisms, our efforts
may not be successful. To a large degree, the credit risk we face is a function
of the economy; accordingly, we face a greater risk in an economic downturn
or
recession. As a result, our exposure to any of the above credit risks could
materially and adversely affect our results of operations.
Competition
could harm our ability to maintain or increase United’s profitability and
premium volume following the Merger.
The
property and casualty insurance industry is highly competitive, and we believe
it will remain highly competitive for the foreseeable future. We compete with
both regional and national insurers as well as Florida domestic property and
casualty companies, some of which have greater financial resources than we
do.
Based on legislation passed in 2007, Citizens Property Insurance Corporation
(“Citizens”), a Florida state-supported insurer, is also authorized to compete
with us. Our primary competitors include Universal Insurance Company of North
America, Olympus Insurance Group and Universal Property & Casualty. The
principal competitive factors in our industry are price, service, commission
structure and financial condition. In addition, our competitors may offer
products for alternative forms of risk protection. If competition limits our
ability to retain existing business or write new business at adequate rates,
our
results of operations could be materially and adversely affected.
The
insurance industry is the subject of a number of investigations by state and
federal authorities in the United States. We cannot predict the outcome of
these
investigations or the impact on our business practices or financial
results.
As
part
of ongoing, industry-wide investigations, we may from time to time receive
subpoenas and written requests for information from government agencies and
authorities, including from the Attorney General of the State of Florida,
Florida insurance and business regulators and the Securities and Exchange
Commission. If we are subpoenaed for information by government agencies and
authorities, potential outcomes could include enforcement proceedings or
settlements resulting in fines, penalties and/or changes in business practices
that could materially and adversely affect our results of operations and future
growth prospectus. In addition, these investigations may result in changes
in
laws and regulations affecting the industry in general which could, in turn,
also materially and adversely affect our results of operations.
The
insurance business is heavily regulated and changes in regulation may reduce
our
profitability and limit our growth following the Merger.
Following
the Merger, we will be extensively regulated and supervised in the jurisdictions
in which we conduct business, including licensing and supervision by government
regulatory agencies in such jurisdictions. This regulatory system is generally
designed to protect the interests of policyholders, and not necessarily the
interests of insurers, their stockholders and other investors. This regulatory
system also addresses authorization for lines of business, capital and surplus
requirements, limitations on the types and amounts of certain investments,
underwriting limitations, transactions with affiliates, dividend limitations,
changes in control, premium rates and a variety of other financial and
non-financial components of an insurer's business.
In
recent
years, the state insurance regulatory framework has come under increased federal
scrutiny, and some state legislatures have considered or enacted laws that
may
alter or increase state authority to regulate insurance companies and insurance
holding companies. Further, the National Association of Insurance Commissioners
(“NAIC”) and state insurance regulators continually reexamine existing laws and
regulations, specifically focusing on modifications to holding company
regulations, interpretations of existing laws and the development of new laws
and regulations. In addition, Congress and some federal agencies from time
to
time investigate the current condition of insurance regulation in the United
States to determine whether to impose federal or national regulation or to
allow
an optional federal charter, similar to the option available to most banks.
We
cannot predict the effect any proposed or future legislation or NAIC initiatives
may have on the conduct of our business following the Merger.
Although
the United States federal government does not directly regulate the insurance
business, changes in federal legislation, regulation and/or administrative
policies in several areas, including changes in financial services regulation
(e.g., the repeal of the McCarran-Ferguson Act) and federal taxation, can
significantly harm the insurance industry.
Insurance
laws or regulations that are adopted or amended may be more restrictive than
current laws or regulations and may result in lower revenues and/or higher
costs
and thus could materially and adversely affect our results of operations and
future growth prospectus.
A
downgrade in United’s financial strength rating could adversely impact our
business volume, adversely impact our ability to access the capital markets
and
increase our borrowing costs, following the Merger.
Financial
strength ratings have become increasingly important to an insurer's competitive
position. Rating agencies review their ratings periodically, and our current
ratings may not be maintained in the future. A downgrade in our rating following
the Merger could negatively impact our business volumes, as it is possible
demand for certain of our products in certain markets may be reduced or our
ratings could fall below minimum levels required to maintain existing business.
Additionally, we may find it more difficult to access the capital markets and
we
may incur higher borrowing costs. If significant losses, such as those resulting
from one or more major catastrophes, or significant reserve additions were
to
cause our capital position to deteriorate significantly, or if one or more
rating agencies substantially increase their capital requirements, we may need
to raise equity capital in the future in order to maintain our ratings or limit
the extent of a downgrade. For example, a continued trend of more frequent
and
severe weather-related catastrophes may lead rating agencies to substantially
increase their capital requirements.
Our
investment portfolio may suffer reduced returns or losses.
Investment
returns are expected to be an important part of our overall profitability
following the Merger. Accordingly, fluctuations in interest rates or in the
fixed income, real estate, equity or alternative investment markets could
materially and adversely affect our results of operations.
Changes
in the general interest rate environment will affect our returns on, and the
market value of, our fixed income and short-term investments following the
Merger. A decline in interest rates reduces the returns available on new
investments, thereby negatively impacting our net investment income. Conversely,
rising interest rates reduces the market value of existing fixed income
investments. In addition, defaults under, or impairments of, any of these
investments as a result of financial problems with the issuer and, where
applicable, its guarantor of the investment could reduce our net investment
income and net realized investment gains or result in investment
losses.
We
may
decide to invest a portion of our assets following the Merger in equity
securities or other investments, which are subject to greater volatility than
fixed income investments. General economic conditions, stock market conditions
and many other factors beyond our control can adversely affect the value of
our
non-fixed income investments and the realization of net investment income.
As a
result of these factors, we may not realize an adequate return on our
investments, we may incur losses on sales of our investments and we may be
required to write down the value of our investments, which could reduce our
net
investment income and net realized investment gains or result in investment
losses.
The
value
of our investment portfolio can be subject to valuation uncertainties when
the
investment markets are dislocated. The valuation of investments is more
subjective when the markets are illiquid and may increase the risk that the
estimated fair value (i.e., the carrying amount) of the investment portfolio
is
not reflective of prices at which actual transactions would occur.
Our
investment portfolio may be invested, in significant part, in tax-exempt
obligations. Our portfolio may also benefit from certain other tax laws,
including, but not limited to, those governing dividends-received deductions
and
tax credits. Federal and/or state tax legislation could be enacted that would
lessen or eliminate some or all of these tax advantages and could adversely
affect the value of our investment portfolio. This result could occur in the
context of deficit reduction or various types of fundamental tax
reform.
United
depends on its network of independent agents for revenues, and therefore,
United’s business may be materially and adversely affected if it cannot retain
and attract independent agents or if it experiences disruptions in its
relationships with its independent agents.
United’s
network of 1,400 independent agents accounts for approximately 64% of the gross
premiums on insurance policies that it writes and constitutes its primary
distribution channel for its products. Many of United’s competitors also rely on
independent agents. Independent agents are not obligated to market or sell
United’s insurance products or consult with United. As a result, United must
compete with other insurers for independent agents’ business. Some of
United’s competitors may offer a larger variety of products, lower prices for
insurance coverage and higher commissions for independent agents. If United’s
products, pricing and commissions do not remain competitive, United may find
it
more difficult to attract business from independent agents to sell its
products. A material reduction in the amount of United’s products that
independent agents sell would negatively affect its results of operations.
A
certain portion of United’s business is concentrated with relatively few agents.
For example, for the three months ended March 31, 2008, and the year ended
December 31, 2007, our top five agents produced 36% and 25%, respectively,
of our gross premiums written. Loss of all or a substantial portion of the
business provided through such agents and brokers could materially and adversely
affect United’s future business volume and results of operations.
United
relies on Internet applications for the marketing and sale of certain products
through its agents, and may increasingly rely on Internet applications and
toll-free numbers for distribution following the Merger. If Internet disruptions
occur causing United’s independent agents frustration with its business
platforms or distribution initiatives, the resulting loss of business could
materially and adversely affect United’s future business volume and results of
operations.
We
could be adversely affected if United’s controls to ensure compliance with
guidelines, policies and legal and regulatory standards are not effective.
United’s
business is highly dependent on its ability to engage on a daily basis in a
large number of insurance underwriting, claim processing and investment
activities, many of which are highly complex and are subject to state laws
and
regulations in Florida. These activities, involve, among other things:
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the
use of non-public consumer information and related privacy
issues;
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the
use of credit history in
underwriting;
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limitations
on the ability to charge additional policy
fees;
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limitations
on the payment of dividends;
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limitations
on types and amounts of
investments;
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the
acquisition or disposition of an insurance company or of any company
controlling an insurance company;
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the
purchase of reinsurance;
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reporting
with respect to financial condition;
and
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periodic
financial and market conduct examinations performed by state insurance
department examiners.
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United
develops internal guidelines and policies in an effort to ensure compliance
with
legal and regulatory standards governing its business. A control system, no
matter how well designed and operated, can provide only reasonable assurance
that the control system's objectives will be met. If United’s controls prove to
be ineffective, it could lead to financial loss, unanticipated risk exposure
(including underwriting, credit and investment risk) or damage to United’s
reputation.
United’s
failure to implement and maintain adequate internal controls over financial
reporting in its business could have a material adverse effect on its business,
financial condition, results of operations and stock price.
If
the
Merger is consummated, United expects to comply with Section 404 of the
Sarbanes-Oxley Act of 2002 no later than the time it is required to file its
annual report for fiscal year 2008 with the Securities and Exchange Commission.
Section 404 requires annual management assessments of the effectiveness of
United’s internal controls over financial reporting and a report by United’s
independent auditors on the effectiveness of our internal controls. United
is in
the process of documenting its internal control procedures in order to satisfy
the requirements of Section 404. United has begun to take measures to
address and improve its financial reporting and compliance capabilities and
it
is in the process of instituting changes to satisfy its obligations as a public
company, including the requirements associated with the Sarbanes-Oxley Act
of
2002.
If
United
fails to achieve and maintain the adequacy of its internal controls in
accordance with applicable standards as then in effect, and as supplemented
or
amended from time to time, United may be unable to conclude on an ongoing basis
that it has effective internal controls over financial reporting in accordance
with Section 404. Moreover, effective internal controls are necessary for
United to produce reliable financial reports. If United cannot produce reliable
financial reports or otherwise maintain appropriate internal controls, its
business, financial condition and results of operations could be harmed,
investors could lose confidence in its reported financial information, and
the
market price for its stock could decline.
If
we experience difficulties with technology, data security and/or outsourcing
relationships following the Merger our ability to conduct our business could
be
negatively impacted.
While
technology can streamline many business processes and ultimately reduce the
cost
of operations, technology initiatives present certain risks. United’s business
is highly dependent upon its contractors and third-party administrators ability
to perform, in an efficient and uninterrupted fashion, necessary business
functions, such as the processing of new and renewal business, and the
processing and payment of claims. Because our information technology and
telecommunications systems interface with and depend on these third-party
systems, we could experience service denials if demand for such service exceeds
capacity or a third-party system fails or experiences an interruption. If
sustained or repeated, such a business interruption, system failure or service
denial could result in a deterioration of our ability to write and process
new
and renewal business, provide customer service, pay claims in a timely manner
or
perform other necessary business functions. Computer viruses, hackers and other
external hazards could expose our data systems to security breaches. These
increased risks, and expanding regulatory requirements regarding data security,
could expose us to data loss, monetary and reputational damages and significant
increases in compliance costs. As a result, our ability to conduct our business
might be adversely affected.
Attempts
to grow our business could have an adverse effect on the
Company.
Although
rapid growth may not occur, to the extent that it does occur, it could place
a
significant strain on our financial, technical, operational and administrative
resources. Our planned growth may result in increased responsibility for both
existing and new management personnel. Effective growth management will depend
upon our ability to integrate new personnel, to improve our operational,
management and financial systems and controls, to train, motivate and manage
our
employees, and to increase our services and capabilities. Our ability to
effectively manage our future growth may have a material and adverse effect
on
our results of operations, financial condition, and viability as a business.
In
addition, growth may not occur or growth may not produce profits for the
Company.
United
has entered into certain debt agreements, which may reduce our financial
flexibility following the Merger.
In
February of 2007, United and UIM entered into a loan agreement with CB&T
which provides for a term loan in the amount of $33 million. The CB&T term
note provides for accrual and monthly payment of interest on the amount of
principal then outstanding under the note and provides for principal to be
paid
in 36 equal monthly installments of approximately $0.9 million. The entire
unpaid principal balance, as well as all accrued and unpaid interest thereon,
will be due and payable no later than February 20, 2010.
On
September 22, 2006, UPCIC entered into a surplus note with the SBA (the “SBA
note”). Under the SBA note, which has a 20 year term, UPCIC is required to make
quarterly payments (October 1, January 1, April 1, and July 1). For the first
three years of the SBA note, UPCIC is only required to make interest payments.
Because United Insurance failed to meet certain financial covenants contained
in
the SBA note, the interest rate under the SBA note was 8.6% for the first
quarter of 2008 and 7.97% for the second quarter of 2008. Management
believes that United Insurance’s Minimum Writing Ratio will be at or above 1.5:1
at June 30, 2008 and United Insurance’s interest rate will be 25 basis points
above the stated rate which is the 10-Year Constant Treasury rate for third
quarter of 2008. UPCIC has no debt service obligation under the SBA note
until September 2009 and
management does not anticipate making any debt payments on the loan during
the
fiscal year ended December 31, 2008.
We
expect
we will continue to have outstanding debt obligations under both the CB&T
loan agreement and the SBA note following the Merger. This level of debt may
affect our operations in several important ways, including the following:
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a
portion of our cash flow from operations is likely to be dedicated
to the
payment of the principal of and interest on this
indebtedness;
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our
ability to obtain additional financing in the future for working
capital,
capital expenditures or acquisitions may be
limited;
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we
may be unable to refinance this indebtedness on terms acceptable
to us, or
at all; and
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we
may default on our obligations and the lenders may accelerate the
indebtedness or foreclose on their security interests that secure
their
loans.
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From
time to time we may enter into additional secured credit facilities to finance
any or all of the Company’s capital requirements. Any such secured credit
facility may have a material and adverse effect on the
Company.
From
time
to time following the Merger, we may enter into additional secured credit
facilities to finance any or all of our capital requirements. As part of a
secured credit facility, we would likely be required to make periodic payments
of principal and interest to the lender. We can provide no assurance we will
have cash flow in an amount sufficient to repay our debt obligations under
any
or all of such secured credit facilities. Furthermore, these secured credit
facilities normally contain numerous default provisions and may or may not
provide us with the possibility to cure a default before accelerating the due
date. If this were to happen, we might not be able to repay any or all of our
secured debts in full and might be forced to declare bankruptcy. If the lender
is a secured lender, the lender would have a priority right to receive repayment
from a bankruptcy estate or may have the right to foreclose on the secured
assets if we are not in bankruptcy but are in default of its secured contract.
In addition, a default under any secured credit facility may force us to seek
bankruptcy protection. As such, the fact that we may, from time to time, enter
into secured credit facilities with any person, business, or organization,
whether related or unrelated, may have a material and adverse effect on the
financial position, results of operations and viability of the
Company.
Our
sponsor warrants are non-redeemable provided they are held by the initial
purchasers or their permitted transferees, which could provide such purchasers
the ability to realize a larger gain than our public warrants
holders.
As set forth above, the warrants held by our public warrant holders may be
called for redemption at any time after the warrants become exercisable upon
satisfaction of certain conditions. However, the 1,250,000 warrants purchased
by
our founders are not subject to redemption. As a result, holders of the insider
warrants, or their permitted transferees, could realize a larger gain than
our
public warrant holders.
Our
directors may not be considered "independent" under the policies of the North
American Securities Administrators Association, Inc. and we thus may not
have the benefit of independent directors examining our financial statements
and
the propriety of expenses incurred on our behalf subject to
reimbursement.
All
of our officers and directors own shares of our common stock and will own common
stock following consummation of the Merger. No salary or other compensation
has
been or will be paid to our officers or directors for services rendered by
them
on our behalf prior to or in connection with the Merger. Although we believe
three of the members of our Board of Directors are “independent” as that term is
commonly used, under the policies of the North American Securities
Administrators Association, Inc., because our directors may receive
reimbursement for out-of-pocket expenses incurred by them in connection with
activities on our behalf such as identifying potential merger partners and
performing due diligence on suitable business combinations, it is likely state
securities administrators would take the position we do not have the benefit
of
independent directors examining the propriety of expenses incurred on our behalf
and subject to reimbursement. Additionally, there is no limit on the amount
of
out-of-pocket expenses that could be incurred and there is no review of the
reasonableness of the expenses by anyone other than our Board of Directors,
which would include persons who may seek reimbursement, or a court of competent
jurisdiction if such reimbursement is challenged. Although we believe all
actions taken by our directors on our behalf have been and will be in our best
interests, whether or not any directors are deemed to be "independent," we
cannot assure you this will actually be the case. If actions are taken or
expenses are incurred that are actually not in our best interests, it could
have
a material adverse effect on our business and operations and the price of our
stock held by the public stockholders.
Our
outstanding warrants may have an adverse effect on the market price of common
stock and make it more difficult to obtain public financing in the
future.
In
connection with the IPO, we issued warrants to purchase 4,733,625 shares of
common stock. Furthermore certain of our directors own an aggregate of 1,099,266
shares of common stock and 1,250,000 warrants. The sale or even the possibility
of sale, of the shares underlying these warrants, could have an adverse effect
on the price for our securities on the equity market and on our ability to
obtain public financing in the future. If and to the extent these warrants
are
exercised, you may experience dilution to your holdings which may correspond
with a decline in value of the market price for our stock.
If
our initial stockholders exercise their registration rights, it may have an
adverse effect on the market price of our common stock.
Our
initial stockholders are entitled to require us to register the resale of their
shares of common stock at any time after the date on which their shares are
released from escrow, which, except in limited circumstances, will not be before
the one year anniversary of the consummation of a business combination. If
our
initial stockholders exercise their registration rights with respect to all
of
their 1,183,406 shares of common stock and the shares of common stock underlying
the 1,250,000 warrants, then there will be an additional 2,433,406 shares of
common stock eligible for trading in the public market, assuming the Merger
is
approved. The presence of this additional number of shares of common stock
eligible for trading in the public market may have an adverse effect on the
market price of our common stock.
Provisions
in our charter documents and Delaware law may inhibit a takeover of us, which
could limit the price potential investors might be willing to pay in the future
for our common stock and could entrench management.
Our
charter and bylaws contain provisions that may discourage unsolicited takeover
proposals that stockholders may consider to be in their best interests. Our
Board of Directors is divided into two classes, each of which will generally
serve for a term of two years with only one class of directors being elected
in
each year. As a result, at any annual meeting not all of the Board of Directors
will be considered for election. Since our "staggered board" could prevent
our
stockholders from replacing a majority of our Board of Directors at any annual
meeting, it may entrench management and discourage unsolicited stockholder
proposals that may be in the best interests of stockholders.
Moreover,
our Board of Directors has the ability to designate the terms of and issue
new
series of preferred stock which could be issued to create different or greater
voting rights which may affect an acquiror's ability to gain control of the
Company.
We
are also subject to anti-takeover provisions under Delaware law, which could
delay or prevent a change of control. Together these provisions may make more
difficult the removal of management and may discourage transactions that
otherwise could involve payment of a premium over prevailing market prices
for
our securities.
If
we are forced to declare bankruptcy prior to consummation of our initial
business combination, you may receive less than $7.91 per share from the
trust
account.
If
we are forced to file a bankruptcy case or an involuntary bankruptcy case is
filed against us under Chapters 7 or 11 of the United States Bankruptcy
Code, and that claim is not dismissed, the funds held in our trust account
will
be subject to applicable bankruptcy law and may be included in our bankruptcy
estate. Furthermore, the estate may be subject to administrative expenses,
including but not limited to post-petition legal fees including court costs,
the
securitization of cash collateral to maintain the business as a going concern,
obtaining additional financing, taxes owed, and claims of both secured and
unsecured third parties with priority over those claims of our public
stockholders. To the extent bankruptcy claims deplete the trust account; we
cannot assure you we will be able to return to our public stockholders the
liquidation amounts due to them. Accordingly, the actual per share amount
distributed from the trust account to our public stockholders could be
significantly less than approximately $7.91 per share due to the claims of
creditors. This amount has been calculated without taking into account interest
earned on the trust account. Claims by creditors could cause additional delays
in the distribution of trust accounts to the public stockholders beyond the
time
periods required to comply with the Delaware General Corporation Law procedures
and federal securities laws and regulations.
FORWARD-LOOKING
STATEMENTS
We
believe some of the information in this proxy statement/prospectus constitutes
forward-looking statements. You can identify these statements by forward-looking
words such as “may,” “expect,” “anticipate,” “contemplate,” “believe,”
“estimate,” “intends,” and “continue” or similar words. You should read
statements that contain these words carefully because they:
· discuss
future expectations;
· contain
projections of future results of operations or financial condition;
and
· state
other “forward-looking” information.
There
may be events in the future the Company is not able to accurately predict or
over which the Company has no control. The risk factors and cautionary language
discussed in this proxy statement/prospectus provide examples of risks,
uncertainties and events which may cause actual results to differ materially
from the expectations described by the Company in its forward-looking
statements, including among other things:
· changing
interpretations of generally accepted accounting principles;
· the
general volatility of the market price of our securities;
· the
availability of qualified personnel;
· changes
in interest rates or the debt securities markets
· outcomes
of government reviews, inquiries, investigations and related
litigation;
· continued
compliance with government regulations;
· legislation
or regulatory environments, requirements or changes adversely affecting the
businesses in which United is engaged;
· statements
about industry trends;
· general
economic conditions; and
· geopolitical
events.
You
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of this proxy statement/prospectus.
All
forward-looking statements included herein attributable to the Company, United
or any person acting on either party’s behalf are expressly qualified in their
entirety by the cautionary statements contained or referred to in this section.
We caution you that these statements are based on a combination of facts
currently known by FMG and United and our projections of the future, about
which
we cannot be certain. Except to the extent required by applicable laws and
regulations, the Company undertakes no obligation to update these
forward-looking statements to reflect events or circumstances after the date
of
this proxy statement/prospectus or to reflect the occurrence of unanticipated
events.
Before
you grant your proxy or instruct how your vote should be cast or vote on the
approval of the Merger you should be aware that the occurrence of the events
described in the “Risk Factors” section and elsewhere in this proxy
statement/prospectus could have a material adverse effect on the Company, or
United, upon completion of the Merger.
THE
COMPANY SPECIAL MEETING OF STOCKHOLDERS
The
Company Special Meeting
The
Company is furnishing this proxy statement to you as part of the solicitation
of
proxies by the Company Board of Directors for use at the Special Meeting in
connection with the proposed Acquisition, the proposed First Amendment, the
proposed Second Amendment, the proposed Third Amendment, the proposed Director
elections and the proposed Adjournment. This proxy statement provides you with
the information you need to be able to vote or instruct your vote to be cast
at
the Special Meeting.
Date,
Time and Place
The
Special Meeting will be held
at ,
Eastern Time,
on ,
2008, at the offices
of ,
to vote on each of the Merger Proposal, the First Amendment Proposal, the Second
Amendment Proposal, the Third Amendment Proposal, the Director Proposal and
the
Adjournment Proposal.
Purpose
of the Special Meeting
At
the Special Meeting, you will be asked to consider and vote upon the
following:
(i) the
Merger Proposal—the proposed acquisition of all of the membership units of
United Insurance Holdings, L.C., a limited liability company formed under the
laws of the State of Florida, pursuant to the Merger Agreement, dated as of
April 2, 2008, by and among the Company, United and United Subsidiary and the
transactions contemplated thereby (“Proposal 1” or the “Merger
Proposal”);
(ii) the
First
Amendment Proposal—the amendment to the Company’s amended and restated
certificate of incorporation (the “First Amendment”), to remove certain
provisions containing procedural and approval requirements applicable to the
Company prior to the consummation of the business combination that will no
longer be operative after the consummation of the Merger (“Proposal 2” or
the “First Amendment Proposal”);
(iii) the
Second Amendment Proposal—the amendment to the Company’s amended and restated
certificate of incorporation (the “Second Amendment”), to increase the amount of
authorized shares of common stock from 20,000,000 to 50,000,000
(“Proposal 3” or the “Second Amendment Proposal”);
(iv) the
Third
Amendment Proposal—the amendment to the Company’s amended and restated
certificate of incorporation (the “Third Certificate of Incorporation
Amendment”), to change the name of the Company to United Insurance Holdings
Corp. (“Proposal 4” or the “Third Amendment Proposal”);
(v) Director
Proposal—to elect three (3) directors to the Company’s Board of Directors
to hold office until the next annual meeting of stockholders and until their
successors are elected and qualified (“Proposal 4” or the “Director
Proposal”);
(vi) the
Adjournment Proposal—to consider and vote upon a proposal to adjourn the special
meeting to a later date or dates, if necessary, to permit further solicitation
and vote of proxies in the event that, based upon the tabulated vote at the
time
of the Special Meeting, the Company would not have been authorized to consummate
the Merger—we refer to this proposal as the adjournment proposal. (“Proposal 5”
or the “Adjournment Proposal”); and
(vii) such
other business as may properly come before the meeting or any adjournment or
postponement thereof.
The
Company’s Board of Directors:
· has
unanimously determined the Merger Proposal, the First Amendment Proposal, the
Second Amendment Proposal, the Third Amendment Proposal, the Director Proposal,
and the Adjournment Proposal are fair to, and in the best interests of, the
Company and its stockholders;
· has
determined the consideration to be paid in connection with the Merger is fair
to
our current stockholders from a financial point of view and the fair market
value of United is equal to or greater than 80% of the value of the net assets
of the Company;
· has
unanimously approved and declared it advisable to approve the Merger Proposal,
the First Amendment Proposal, the Second Amendment Proposal, the Third Amendment
Proposal, the Director Proposal and the Adjournment Proposal; and
· unanimously
recommends the holders of the Company common stock vote “FOR” Proposal 1,
the Merger Proposal, “FOR” Proposal 2, the First Amendment Proposal; “FOR”
Proposal 3, the Second Amendment Proposal; “FOR” Proposal 4, the Third
Amendment Proposal; “FOR” Proposal 5, the Director Proposal; and “FOR”
Proposal 6, the Adjournment Proposal.
Record
Date; Who is Entitled to Vote
The
Record Date for the Special Meeting
is ,
2008. Record holders of the Company common stock at the close of business on
the
Record Date are entitled to vote or have their votes cast at the Special
Meeting. On the Record Date, there
were outstanding
shares of the Company common stock.
Each
share of the Company common stock is entitled to one vote at the Special
Meeting.
Any
shares of the Company common stock held by our officers and directors prior
to
the Company’s IPO will be voted in accordance with the majority of the votes
cast at the Special Meeting with respect to the Merger Proposal. Any shares
of
the Company common stock acquired by our officers and directors in the Company’s
IPO or afterwards will be voted in favor of the Merger. We have a total of
5,917,031 shares outstanding, of which 1,183,406 were issued prior to the IPO
and are held by our officers, directors and special advisor.
The
Company’s issued and outstanding warrants do not have voting rights and record
holders of the Company warrants will not be entitled to vote at the Special
Meeting.
Voting
Your Shares
Each
share of the Company common stock that you own in your name entitles you to
one
vote. Your proxy card shows the number of shares of the Company common stock
that you own.
There
are two ways to vote your shares of Company common stock:
· You
can
vote by signing and returning the enclosed proxy card. If you vote by proxy
card, your “proxy,” whose name is listed on the proxy card, will vote your
shares as you instruct on the proxy card. If you sign and return the proxy
card,
but do not give instructions on how to vote your shares, your shares will be
voted, as recommended by the Company Board, “FOR” Proposal 1, the Merger
Proposal, “FOR” Proposal 2, the First Amendment Proposal; “FOR” Proposal 3,
the Second Amendment Proposal; “FOR” Proposal 4, the Third Amendment Proposal;
“FOR” Proposal 5, the Director Proposal; and “FOR” Proposal 6, the
Adjournment Proposal.
· You
can
attend the Special Meeting and vote in person. The Company will give you a
ballot when you arrive. However, if your shares are held in the name of your
broker, bank or another nominee, you must get a proxy from the broker, bank
or
other nominee. That is the only way the Company can be sure that the broker,
bank or nominee has not already voted your shares.
Who
Can Answer Your Questions About Voting Your Shares
If
you have any questions about how to vote or direct a vote in respect of your
Company common stock, you may call our Secretary, Larry G. Swets, Jr. at
(860) 677-2701.
No
Additional Matters May Be Presented at the Special Meeting
The
Special Meeting has been called only to consider the approval of the Merger
Proposal, the First Amendment Proposal, the Second Amendment Proposal, the
Third
Amendment Proposal, the Director Proposal and the Adjournment Proposal. Under
the Company’s bylaws, other than procedural matters incident to the conduct of
the meeting, no other matters may be considered at the Special Meeting if they
are not included in the notice of the meeting.
Revoking
Your Proxy
If
you give a proxy, you may revoke it at any time before it is exercised by doing
any one of the following:
· You
may
send another proxy card with a later date;
· You
may
notify Corporate Secretary, addressed to the Company, in writing before the
Special Meeting that you have revoked your proxy; and
· You
may
attend the Special Meeting, revoke your proxy, and vote in person.
Quorum;
Vote Required
The
approval and adoption of the Merger Agreement and the transactions contemplated
thereby will require the affirmative vote of a majority of the shares of the
Company’s common stock issued in the Company’s IPO cast at the Special Meeting.
A total of 4,733,625 shares were issued in our IPO. In addition, notwithstanding
the approval of a majority, if the holders of 1,419,615 or more shares of common
stock issued in the Company’s IPO vote against the Merger and demand conversion
of their shares into a pro rata portion of the trust account, then the Company
will not be able to consummate the Merger. Each Company stockholder that holds
shares of common stock issued in the Company’s IPO or purchased following such
offering in the open market has the right, assuming such stockholder votes
against the Merger Proposal and, at the same time, demands the Company convert
such stockholder’s shares into cash equal to a pro rata portion of the trust
account in which a substantial portion of the net proceeds of the Company’s IPO
is deposited. These shares will be converted into cash only if the Merger is
consummated and the stockholder requesting conversion holds such shares until
the date the Merger is consummated and tenders such shares to our stock transfer
agent at or prior to the vote at the Special Meeting on the Merger
Proposal.
For
the purposes of Proposal 2, the affirmative vote of the majority of the
Company’s issued and outstanding common stock as of the Record Date is required
to approve the First Amendment Proposal. For the purposes of Proposal 3,
the affirmative vote of the majority of the Company’s issued and outstanding
common stock as of the Record Date is required to approve the Second Amendment
Proposal. For the purposes of Proposal 4, the affirmative vote of the
majority of the Company’s issued and outstanding common stock as of the Record
Date is required to approve the Third Amendment Proposal. For purposes of
Proposal 5, the affirmative vote of the holders of a plurality of the
shares of common stock cast in the election of directors is required. For
purposes of Proposal 6 the affirmative vote of a majority of the shares of
the Company’s common stock that are present in person or by proxy and entitled
to vote is required to approve the Adjournment Proposal.
It
is important for you to note that in the event the Merger Proposal does not
receive the necessary vote to approve such proposal, the Company will not
consummate that Acquisition or any other proposal, unless the Adjournment
Proposal is approved. None of United or its affiliates own any shares of Company
common stock entitled to vote at the Special Meeting; however, they are not
prohibited from making such purchases in the event they determine to do
so.
Abstentions
and Broker Non-Votes
If
your broker holds your shares in its name and you do not give the broker voting
instructions, under the rules of FINRA, your broker may not vote your shares
on
the proposals to approve the Merger pursuant to the Merger Agreement. If you
do
not give your broker voting instructions and the broker does not vote your
shares, this is referred to as a “broker non-vote.” Abstentions and broker
non-votes are counted for purposes of determining the presence of a
quorum.
As
long as a quorum is established at the Special Meeting, if you return your
proxy
card without an indication of how you desire to vote, it: (i) will have the
same effect as a vote in favor of the Merger Proposal and will not have the
effect of converting your shares into a pro rata portion of the trust account
in
which a substantial portion of the net proceeds of the Company’s IPO are held,
unless an affirmative vote against the Merger Proposal is made and an
affirmative election to convert such shares of common stock is made on the
proxy
card; (ii) will have the same effect as a vote in favor of the First
Amendment Proposal; (iii) will have the same effect as a vote in favor of
the Second Amendment Proposal; (iv) will have the same effect as a vote in
favor of the Third Amendment Proposal; (v) will have no effect on the Director
Proposal; and (vi) will have the same effect as a vote in favor of the
Adjournment Proposal.
Since
the Merger Proposal requires only the affirmative vote of a majority of the
Company shares issued in the IPO that cast a vote at the Special Meeting,
abstentions or broker non-votes will not count towards such number. This has
the
effect of making it easier for the Company to obtain a vote in favor of the
Merger Proposal as opposed to some of the Company’s other proposals or as
opposed to the vote generally required under the Delaware General Corporation
Law, namely a majority of the shares issued and outstanding. Furthermore, in
connection with the vote required for the Merger Proposal, the founding
stockholders of the Company have agreed to vote their shares of common stock
owned or acquired by them at or prior to the IPO in accordance with the majority
of the Company’s shares issued in the IPO.
Conversion
Rights
Any
stockholder of the Company holding shares of common stock issued in the
Company’s IPO who votes against the Merger Proposal may, at the same time,
demand the Company convert his shares into a pro rata portion of the trust
account. You must mark the appropriate box on the proxy card in order to demand
the conversion of your shares. If so demanded, the Company will convert these
shares into a pro rata portion of the net proceeds from the IPO that were
deposited into the trust account, plus your pro rated interest earned thereon
after such date (net of taxes and amounts disbursed for working capital purposes
and excluding the amount held in the trust account representing a portion of
the
underwriters’ discount), if the Merger is consummated. If the holders of
1,419,615 or more shares of common stock issued in the Company’s IPO vote
against the Merger Proposal and demand conversion of their shares into a pro
rata portion of the trust account, the Company will not be able to consummate
the Merger. Based on the amount of cash held in the trust account as of March
31, 2008, without taking into account any interest or income taxes accrued
after
such date, you will be entitled to convert each share of common stock that
you
hold into approximately $7.91 per share (after a provision for payment of
working capital costs and taxes). In addition, the Company will be liquidated
if
a business combination is not consummated by October 4, 2009. In any
liquidation, the net proceeds of the Company’s IPO held in the trust account,
plus any interest earned thereon (net of taxes and amounts disbursed for working
capital purposes and excluding the amount held in the trust account representing
a portion of the underwriters’ discount), will be distributed on a pro rata
basis to the holders of the Company’s common stock other than the officers,
directors, special advisors and sponsor of FMG, none of whom will share in
any
such liquidation proceeds.
If
you exercise your conversion rights, then you will be exchanging your shares
of
Company common stock for cash and will no longer own these shares. You will
only
be entitled to receive cash for these shares if you tender your stock
certificate to the Company at or prior to the Special Meeting. The closing
price
of the Company’s common stock on July 7, 2008, the most recent trading day
practicable before the printing of this proxy statement/prospectus, was $7.33.
The amount of cash held in the trust account was approximately $37.7 million
as
of March 31, 2008 (before taking into account disbursements for working capital
and taxes). If a Company stockholder would have elected to exercise his
conversion rights on such date, then he would have been entitled to receive
$7.91 per share, plus interest accrued thereon subsequent to such date (net
of
taxes and amounts disbursed for working capital purposes and excluding the
amount held in the trust account representing a portion of the underwriters’
discount). Prior to exercising conversion rights, the Company stockholders
should verify the market price of the Company’s common stock as they may receive
higher proceeds from the sale of their common stock in the public market
than
from exercising their conversion rights.
You
will be required, whether you are a record holder or hold your shares in “street
name”, either to tender your certificates to our transfer agent or to deliver
your shares to the Company’s transfer agent electronically using the Depository
Trust Company’s DWAC (Deposit/Withdrawal At Custodian) System, at your option,
at any time at or prior to the vote at the Special Meeting on the Merger
Proposal. There is typically a $35 cost associated with this tendering process
and the act of certificating the shares or delivering them through the DWAC
system. The transfer agent will typically charge the tendering broker this
$35,
and the broker may or may not pass this cost on to you.
You
will have sufficient time from the time we send out this proxy
statement/prospectus through the time of the vote on the Merger Proposal to
deliver your shares if you wish to exercise your conversion rights. However,
as
the delivery process can be accomplished by you, whether or not you are a record
holder or your shares are held in “street name”, within a business day, by
simply contacting the transfer agent or your broker and requesting delivery
of
your shares through the DWAC System, we believe this time period is sufficient
for an average investor.
Any
request for conversion, once made, may be withdrawn at any time up to
immediately prior to the vote on the Merger Proposal at the Special Meeting
(or
any adjournment or postponement thereof). Furthermore, if you delivered a
certificate for conversion and subsequently decided prior to the meeting not
to
elect conversion, you may simply request that the transfer agent return the
certificate (physically or electronically) to you. The transfer agent will
typically charge an additional $35 for the return of the shares through the
DWAC
System.
Please
note, however, that once the vote on the Merger Proposal is held at the Special
Meeting, you may not withdraw your request for conversion and request the return
of your stock certificate (either physically or electronically). If the Merger
is not completed, your stock certificate will be automatically returned to
you.
Stockholders
will not be entitled to exercise their conversion rights if such stockholders
return proxy cards to the Company without an indication of how they desire
to
vote with respect to the Merger Proposal or, for stockholders holding their
shares in street name, if such stockholders fail to provide voting instructions
to their brokers. Proxies received by the Company without an indication of
how
the stockholders intend to vote on a proposal will be voted in favor of such
proposal.
Appraisal
or Dissenters Rights
No
appraisal rights are available under the Delaware General Corporation Law to
the
stockholders of the Company in connection with the Merger Proposal. The only
rights for those stockholders voting against the Merger who wish to receive
cash
for their shares is to simultaneously demand payment for their shares from
the
trust account.
Under
Florida Statute 608.4352 of the Florida Limited Liability Company Act (the
“FLLCA”), the members of United will be entitled to dissent from the Merger and
obtain cash payment for the fair value of their membership units instead of
the
consideration provided for in the Merger Proposal. For a more complete
description of these rights, see “United Member Approval.”
Solicitation
Costs
The
Company is soliciting proxies on behalf of the Company Board of Directors.
This
solicitation is being made by mail but also may be made by telephone or in
person. The Company and its respective directors and officers may also solicit
proxies in person, by telephone or by other electronic means, and in the event
of such solicitations, the information provided will be consistent with this
proxy statement and enclosed proxy card. These persons will not be paid for
doing this. The Company may engage the services of a professional proxy
solicitation firm. The Company will ask banks, brokers and other institutions,
nominees and fiduciaries to forward its proxy statement materials to their
principals and to obtain their authority to execute proxies and voting
instructions. The Company will reimburse them for their reasonable
expenses.
Stock
Ownership
Of
the 5,917,031 outstanding shares of the Company common stock, the Company’s
initial stockholders, including all of its officers, directors and its special
advisor and their affiliates, who purchased shares of common stock prior to
the Company’s IPO and who own an aggregate of approximately 20% of the
outstanding shares of the Company common stock (1,183,406 shares), have agreed
to vote such shares acquired prior to the IPO in accordance with the vote of
the
majority in interest of all other Company stockholders on the Merger Proposal.
Moreover, all of these persons have agreed to vote all of their shares which
were acquired in or following the IPO, if any, in favor of the Merger
Proposal.
The
following table sets forth information regarding the beneficial ownership
of our
common stock as of July 7, 2008 and as adjusted to reflect the sale of founder
securities and the sale of our common stock included in the units offered
by
this prospectus (assuming none of the individuals listed purchase units in
this
offering), by:
· each
person known by us to be the beneficial owner of more than 5% of our outstanding
shares of common stock;
· each
of
our officers and directors; and
· all
our
officers and directors as a group.
Unless
otherwise indicated, we believe all persons named in the table have sole voting
and investment power with respect to all shares of common stock beneficially
owned by them.
|
|
Common
Stock
|
|
Name and Address
of Beneficial
Owners(1)
|
|
Number of Shares (2)
|
|
Percentage of Common
Stock
|
|
|
|
|
|
|
|
FMG
Investors LLC(3)
|
|
|
1,099,266
|
|
|
18.57
|
%
|
Gordon
G. Pratt, Chairman, Chief Executive Officer and President
|
|
|
1,099,266
|
(3)
|
|
18.57
|
%
|
Larry
G. Swets, Jr., Chief Financial Officer, Secretary, Treasurer, Executive
Vice President
|
|
|
1,099,266
|
|
|
18.57
|
%
|
Thomas
D. Sargent, Director
|
|
|
21,035
|
|
|
0.36
|
%
|
David
E. Sturgess, Director(4)
|
|
|
21,035
|
|
|
0.36
|
%
|
James
R. Zuhlke, Director
|
|
|
21,035
|
|
|
0.36
|
%
|
HBK
Investments L.P.(5)
|
|
|
547,250
|
|
|
9.2
|
%
|
Brian
Taylor (6)
|
|
|
437,500
|
|
|
7.4
|
%
|
Bulldog
Investors(7)
|
|
|
1,282,167
|
|
|
21.67
|
%
|
Millenco
LLC(8)
|
|
|
189,375
|
|
|
3.2
|
%
|
D.B.
Zwirn Special Opportunities Fund, L.P.(9)
|
|
|
178,500
|
|
|
3.02
|
%
|
D.B.
Zwirn Special Opportunities Fund, Ltd. (9)
|
|
|
246,500
|
|
|
4.17
|
%
|
D.B.
Zwirn & Co., L.P. (9)
|
|
|
425,000
|
|
|
7.18
|
%
|
DBZ
GP, LLC(9)
|
|
|
425,000
|
|
|
7.18
|
%
|
Zwirn
Holdings, LLC(9)
|
|
|
350,000
|
|
|
5.92
|
%
|
Daniel
B. Zwirn(9)
|
|
|
350,000
|
|
|
5.92
|
%
|
Weiss
Asset Management, LLC(10)
|
|
|
255,002
|
|
|
4.3
|
%
|
Weiss
Capital, LLC(10)
|
|
|
130,435
|
|
|
2.2
|
%
|
Andrew
M. Weiss, Ph.D.(10)
|
|
|
385,437
|
|
|
6.5
|
%
|
|
|
|
|
|
|
|
|
All
Directors and Officers as a Group (5 persons)
|
|
|
1,162,371
|
|
|
19.64
|
%
|
(1)
|
Unless
otherwise indicated, the business address of each of the stockholders
is
Four Forest Park, Second Floor, Farmington, Connecticut
06032.
|
|
|
(2)
|
Unless
otherwise indicated, all ownership is direct beneficial
ownership.
|
|
|
(3)
|
Each
of Messrs. Pratt and Swets are the managing members of our sponsor,
FMG Investors LLC, and may be deemed to each beneficially own the
1,099,266 shares owned by FMG Investors LLC.
|
|
|
(4)
|
The
business address of David E. Sturgess is c/o Updike, Kelly & Spellacy,
P.C., One State Street, Hartford, Connecticut
06103.
|
(5)
|
Based
on information contained in a Statement on Schedule 13G filed by
HBK
Investments L.P., HBK Services LLC, HBK Partners II L.P., HBK Management
LLC and HBK Master Fund L.P. on February 12, 2008. The address of
all such
reporting parties is 300 Crescent Court, Suite 700, Dallas, Texas
75201.
HBK Investments L.P. has delegated discretion to vote and dispose
of the
Securities to HBK Services LLC (“Services”). Services may, from time to
time, delegate discretion to vote and dispose of certain of the Securities
to HBK New York LLC, a Delaware limited liability company, HBK Virginia
LLC, a Delaware limited liability company, HBK Europe Management
LLP, a
limited liability partnership organized under the laws of the United
Kingdom, and/or HBK Hong Kong Ltd., a corporation organized under
the laws
of Hong Kong (collectively, the “Subadvisors”). Each of Services and the
Subadvisors is under common control with HBK Investments L.P. The
Subadvisors expressly declare that the filing of the statement on
Schedule
13G shall not be construed as an admission that they are, for the
purpose
of Section 13(d) or 13(g), beneficial owners of the Securities. Jamiel
A.
Akhtar, Richard L. Booth, David C. Haley, Lawrence H. Lebowitz, and
William E. Rose are each managing members (collectively, the "Members")
of
HBK Management LLC. The Members expressly declare that the filing
of the
statement on Schedule 13G shall not be construed as an admission
that they
are, for the purpose of Section 13(d) or 13(g), beneficial owners
of the
Securities.
|
(6)
|
Based
on information contained in a Statement on Schedule 13D filed by
Brian
Taylor, Pine River Capital Management L.P. and Nisswa Master Fund
Ltd. on
October 12, 2007. All reporting parties have shared voting and dispositive
power over such securities. The address of all such reporting parties
is
800 Nicollet Mall, Suite 2850, Minneapolis, MN 55402.
|
|
|
(7)
|
Based
on information contained in a Statement on Schedule 13D filed by
Bulldog
Investors, Phillip Goldstein and Andrew Dakos on February 13, 2008.
All
reporting parties have shared voting and dispositive power over such
securities. The address of all such reporting parties is Park 80
West,
Plaza Two, Saddle Brook, NJ 07663.
|
|
|
(8)
|
Based
on information contained in a Statement on Schedule 13G filed by
Millenco
LLC, Millenium Management LLC and Israel A. Englander on December
11,
2007. All reporting parties have shared voting and dispositive power
over
such securities. The address of all such reporting parties is 666
Fifth
Avenue, New York, NY 10103.
|
(9)
|
Based
on information contained in a Statement on Schedule 13G/A filed by
D.B.
Zwirn & Co., L.P., DBZ GP, LLC, D.B. Zwirn Special Opportunities Fund,
L.P. and D.B. Zwirn Special Opportunities Fund, Ltd. on January 25,
2008.
D.B. Zwirn & Co., L.P., DBZ GP, LLC, Zwirn Holdings, LLC, and Daniel
B. Zwirn may each be deemed the beneficial owner of (i) 178,500 shares
of
common stock owned by D.B. Zwirn Opportunities Fund, L.P. and (ii)
246,500
shares of common stock owned by D.B. Zwirn Special Opportunities
Fund,
Ltd. (each entity referred to in (i) through (ii) is herein referred
to as
a "Fund" and, collectively, as the "Funds"). D.B. Zwirn & Co., L.P. is
the manager of the Funds, and consequently has voting control and
investment discretion over the shares of common stock held by the
Fund.
Daniel B. Zwirn is the managing member of and thereby controls Zwirn
Holdings, LLC, which in turn is the managing member of and thereby
controls DBZ GP, LLC, which in turn is the general partner of and
thereby
controls D.B. Zwirn & Co., L.P. The foregoing should not be construed
in and of itself as an admission by any Reporting Person as to beneficial
ownership of shares of common stock owned by another Reporting Person.
In
addition, each of D.B. Zwirn & Co., L.P., DBZ GP, LLC, Zwirn Holdings,
LLC and Daniel B. Zwirn disclaims beneficial ownership of the shares
of
common stock held by the Funds.
|
|
|
(10)
|
Based
on information contained in a Statement on Schedule 13G filed by
Weiss
Asset Management, LLC, Weiss Capital, LLC and Andrew M. Weiss, Ph.D.
on
March 24, 2008. Shares reported for Weiss Asset Management, LLC include
shares beneficially owned by a private investment partnership of
which
Weiss Asset Management, LLC is the sole general partner. Shares reported
for Weiss Capital, LLC include shares beneficially owned by a private
investment corporation of which Weiss Capital is the sole investment
manager. Shares reported for Andrew Weiss include shares beneficially
owned by a private investment partnership of which Weiss Asset Management
is the sole general partner and which may be deemed to be controlled
by
Mr. Weiss, who is the Managing Member of Weiss Asset Management,
and also
includes shares held by a private investment corporation which may
be
deemed to be controlled by Dr. Weiss, who is the managing member
of Weiss
Capital, the Investment Manager of such private investment corporation.
Dr. Weiss disclaims beneficial ownership of the shares reported herein
as
beneficially owned by him except to the extent of his pecuniary interest
therein. Weiss Asset Management, Weiss Capital, and Dr. Weiss have
a
business address of 29 Commonwealth Avenue, 10th Floor, Boston,
Massachusetts 02116.
|
PROPOSAL 1
THE
MERGER PROPOSAL
The
discussion in this proxy statement/prospectus of the Merger Proposal and the
principal terms of the Merger Agreement, dated April 2, 2008, by and among
the
Company, United and United Subsidiary Corp., and the associated agreements
are
subject to, and are qualified in their entirety by reference to, the Merger
Agreement, which is attached as Annex A, to this proxy statement/prospectus
and is incorporated in this proxy statement/prospectus by
reference.
General
Description of the Merger
On
April 2, 2008, the Company entered into an Agreement and Plan of Merger (the
“Merger Agreement”) pursuant to which United Subsidiary has agreed to merge with
and into United, and United has agreed, subject to receipt of the Merger
consideration from FMG, to become a wholly-owned subsidiary of FMG (the
“Merger”). If the stockholders of the Company approve the transactions
contemplated by the Merger Agreement, FMG, through United Subsidiary, which
was
newly incorporated in order to facilitate the Merger contemplated thereby,
will
purchase all of the membership units of United in a series of steps as outlined
below.
FMG
and United will merge pursuant to a merger transaction summarized as
follows:
(i) FMG
will
create a transitory merger subsidiary, United Subsidiary Corp., and will merge
such subsidiary with and into United, with United surviving; and
(ii) United
will, as a result, become wholly-owned by FMG.
United’s
members will receive consideration of up to $100,000,000 consisting
of:
(i)
$25,000,000
in cash;
(ii) 8,750,000
shares of FMG common stock, par value $.0001 per share (assuming an $8.00 per
share value); and
(iii) up
to
$5,000,000 of additional consideration will be paid to the members of United
in
the event certain net income targets are met by United, as set forth more
particularly herein.
The
aggregate consideration will paid pursuant to the Merger Agreement for the
purchase of the membership units of United. The Company’s Board of Directors has
determined United has a fair market value equal to at least 80% of the Company’s
net assets held in trust.
The
Company, United and United Subsidiary Corp. plan to consummate the Merger as
promptly as practicable after the Special Meeting, provided that:
· the
Company’s stockholders have approved and adopted the Merger Proposal and the
transactions contemplated thereby;
· holders
of not more than 29.99% of the shares of the common stock issued in the
Company’s IPO vote against the Merger Proposal and demand conversion of their
shares into cash;
· holders
of not less than 66% of the membership units of United vote in favor of the
Merger;
· the
Securities and Exchange Commission has declared effective the registration
statement and prospectus which form a part of this proxy statement/prospectus;
and
· the
other
conditions specified in the Merger Agreement have been satisfied or
waived.
The
obligation of FMG to close on the Merger is contingent on satisfaction or waiver
of the following conditions:
(i) the
accuracy in all material respects on the date of the Merger Agreement and the
Closing Date of all of United’s representations and warranties, when considered
both collectively and individually;
(ii) United’s
performance in all material respects of all covenants and obligations required
to be performed by the Closing Date;
(iii) a
majority of the Company’s stockholders must vote in favor of approving the
Merger;
(iv)
not
more than 29.99% of the shares of the common stock issued in the Company’s
IPO vote against the Merger and demand conversion of their stock into
cash;
(v) stockholder
approval of the First and Second Amendment Proposals;
(vi) the
Securities and Exchange Commission has declared effective the registration
statement and prospectus which form a part of this proxy statement;
(vii) no
governmental authority has enacted, issued, promulgated, enforced or entered
any
law or order that is in effect and has the effect of making the Merger illegal
or otherwise preventing or prohibiting consummation of the Merger;
(viii) the
officers are, and the Board of Directors of FMG following the Merger is
constituted, as set forth as the Board of Directors recommends, as fully
described herein; and
(ix) the
consent of not less than 66% of the membership units of United to the Merger
and
no more than ten percent (10%) of the outstanding membership units of United
shall constitute dissenting membership units under Florida law.
Conditions
(i), (ii) and (viii), as well as the Third Amendment Proposal, are waivable
by
the Company.
United’s
obligation to close on the Merger is contingent upon:
(i) the
accuracy in all material respects on the date of the Merger Agreement and the
Closing Date of all of FMG’s representations and warranties;
(ii) FMG’s
performance in all material respects of all covenants and obligations required
to be performed by the Closing Date;
(iii) a
majority of the Company’s stockholders must vote in favor of approving the
Merger;
(iv)
not
more than 29.99% of the shares of the common stock issued in the Company’s
IPO vote against the Merger and demand conversion of their stock into
cash;
(v) stockholder
approval of the First, Second and Third Amendment Proposals;
(vi) the
Securities and Exchange Commission has declared effective the registration
statement and prospectus which form a part of this proxy statement;
(vii) no
governmental authority has enacted, issued, promulgated, enforced or entered
any
law or order that is in effect and has the effect of making the Merger illegal
or otherwise preventing or prohibiting consummation of the Merger;
and
(viii) the
officers and the Board of Directors of FMG following the Merger is constituted
as set forth as the Board of Directors recommends, as fully described
herein.
Conditions
(i), (ii) and (viii), as well as the Third Amendment Proposal, are waivable
by
United.
See
the
description of the Merger Agreement in the section entitled “The Merger
Agreement” beginning on page 51. The Merger Agreement is included
as Exhibit 1.1 to this proxy statement/prospectus. We encourage you to
read the Merger Agreement in its entirety.
Under
the
terms of the Company’s amended and restated certificate of incorporation, the
Company may proceed with the Merger provided that not more than
29.99% of the Company's public stockholders electing to convert their
shares of common stock to cash and not participate in the Merger.
Background
of the Merger
During
the period immediately subsequent to our initial public offering on October
11,
2007 through March 2008, we were involved in identifying and evaluating
prospective businesses regarding potential business combinations. On October
12,
2007, the day after the consummation of our initial public offering, management
convened a discussion with our Board of Directors to institute centralized
corporate governance procedures and to discuss and begin implementing our
overall plan for identifying, evaluating and, where appropriate, pursuing a
potential business combination. We discussed the most effective means for us
to
solicit and track opportunities, and we determined that we should plan regular
telephonic conferences with our board to discuss our progress. Given our
commitment to source, review and negotiate a transaction, we agreed immediately
to identify and begin the process of making contact with: (i) private companies
we know to be active in the insurance industry and (ii) various prospective
sources of deal flow, including investment banks, actuaries, consultants,
private equity firms and business acquaintances we have established over a
professional lifetime within the insurance industry to encourage them to contact
us with new and old ideas or specific business combination opportunities they
might wish for us to consider and explore. Messrs. Pratt and Swets
discussed with the board various areas within the insurance industry where
they
expected there to be a higher probability of identifying attractive companies
for a business combination, with particular focus on specialty property-casualty
insurance companies, wholesale insurance brokerages and program management
businesses. Messrs. Pratt and Swets discussed with the board some of the
opportunities and risks of a business combination with an insurance company
when
compared to an insurance wholesale broker or program, pointing out that each
type of business holds attractive elements and other elements to
consider.
We
were able to source opportunities both by approaching private companies and
by
responding to inquiries or references from the various sources of deal flow
noted above. We did not limit ourselves to any single transaction structure
(i.e. cash vs. stock issued to potential seller, straight merger, corporate
spin-out or management buy-out). Although the search stayed within the insurance
industry, the definition of insurance remained broad. Active sourcing involved
FMG management, among other things:
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Initiating
conversations, via phone, e-mail or other means (whether directly
or via a
private company’s major stockholders, members, or directors as well as
professionals and industry contacts we have known during our professional
careers) with private companies which management believed could make
attractive business combination
partners;
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Contacting
professional service providers (accountants, attorneys, actuaries
and
consultants);
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Using
their network of business associates and friends for
leads;
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Working
with third-party intermediaries, including investment bankers;
and
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Inquiring
directly of business owners, including private equity firms, of their
interest in having one of their businesses enter into a business
combination.
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Management
also fielded inquiries and responded to solicitations by: (i) companies
looking for capital or investment alternatives and (ii) investment bankers
or other similar professionals who represent companies engaged in a sale or
fund-raising process. We considered numerous companies in various sectors of
the
insurance industry, including underwriting property-casualty insurance
companies, retail insurance brokerage, wholesale insurance brokerage, insurance
program management, United Kingdom-based employee benefits management, critical
care insurance and management, wholesale life insurance brokerage and
professional employer organization workers’ compensation insurance. Several
non-disclosure agreements were signed.
In
considering potential targets, the Company's management considered the following
factors concerning potential business combination partner, as being material
to
their decision:
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Specialty
focus, for example by line of business, geography, product, distribution
or client base;
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Record
of growth and profitability;
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Ability
to operate in difficult, dislocated or fragmented
markets;
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Business
model and approach to building recurring
revenue;
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Ability
to achieve incremental revenue or decrease costs from current core
business;
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Potential
for greater economies of scale or higher profitability through
consolidation;
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Opportunity
to deploy capital at appropriate rates of return in the current business
plan;
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Experience
and skill of management and availability of additional
personnel;
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Capital
requirements;
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Competitive
position;
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Financial
condition;
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Barriers
to entry;
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Stage
of development of the products, processes or services;
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Breadth
of services offered;
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Degree
of current or potential market acceptance of the
services;
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Regulatory
environment of the industry;
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Costs
associated with effecting the business combination; and
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Probability
of successfully negotiating and consummating a business combination
with
the potential
partner.
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The
evaluation relating to the merits of a particular business combination were
based primarily, to the extent relevant, on the above factors. In evaluating
a
prospective business combination partner, we conducted such diligence as we
deemed necessary to understand a particular potential business combination
partner’s business that included, among other things, meetings with the
potential business partner’s management, where applicable, as well as review of
financial and other information made available to us.
As
a
result of these efforts, the Company initiated contact, either directly or
through a third party intermediary, with approximately twelve
(12) potential business combination companies. In addition, we received
business plans, reviewed financial summaries or received presentation books
of
at least ten (10) potential target business combination companies. We
signed non-disclosure agreements relating to several potential business
combination opportunities. We also had discussions with a number of potential
business combination companies with whom a non-disclosure agreement was not
signed. With respect to some of the opportunities, discussions among the
Company's management and the potential business combination partners included
financial disclosures, reviews of potential transaction structures, discussions
of preliminary estimates of transaction values and discussions of management
objectives, business plans, and projections. Discussions, including introductory
meetings attended by some combination of Messrs. Pratt and Swets, occurred
with potential business combination partners on a regular basis during the
period from October 2007 through March 2008. Among
the
potential merger candidates FMG contacted were: five insurance companies in
various segments of the property-casualty business with estimated merger values
of $100 million to $700 million; four wholesale brokers/program managers of
insurance businesses with estimated merger values of $90 million to $400
million; and three retail brokers/service companies of insurance businesses
with
estimated merger values of $100 million to $200 million. Our management
evaluated these candidates in light of the factors described above and discussed
their findings with our Board of Directors, also applying the following
criteria: the state of the insurance markets within which the businesses
operated; the potential merger value of each business; the probability of
negotiating an acceptable business combination; and the timeframe for so doing.
FMG’s board agreed with management’s assessment of United as the best merger
candidate among those discussed. No firm offers were made to any other merger
candidate.
On
November 15, 2007, our Board of Directors met to discuss certain ongoing,
routine corporate matters, including review and approval of our filings with
the
SEC, and to review our progress to date in identifying and discussing candidates
for a potential business combination. Our management: (i) reported concerning
its efforts since the last board meeting to reach out to potential business
combination candidates and their owners and advisors and (ii) reviewed the
results of these efforts, namely more than twelve (12) potential business
combination companies. Among other matters, management reported that, based
on
its research and experience in evaluating insurance markets that offer
specialized risk and reward prospects, the Florida homeowners insurance market
held particular promise.
In
the
first half of 2006, prior to the formation of our company, James R. Zuhlke,
one
of our directors, and a private equity firm with whom he was working had
discussions with representatives of United to consider a possible transaction
with United. This firm ultimately did not make any proposal for a transaction
with United. In the second half of 2006 and early 2007, Mr. Zuhlke and Gordon
Pratt, the Managing Director of Fund Management Group, had discussions with
representatives of United regarding a possible transaction with United. Fund
Management Group specializes in managing investments in, and providing advice
to, privately held insurance related businesses. In late 2006 and early 2007,
Fund Management Group indicated to United’s management an interest in acquiring
United. In February 2007, United notified Fund Management Group only that United
intended to remain independent and was not interested in pursuing a transaction.
There was no further contact between Messrs. Pratt and Zuhlke and United
regarding such a transaction after February 26, 2007.
Mr.
Pratt
reported he had attended a meeting at United’s offices with Messrs. Cronin,
Griffin, and Russell on November 14, 2007, and later that evening attended
a
dinner with several United directors and advisors, including Messrs. Branch,
Whittemore, Savage, and DeLacey. This meeting was initiated when Gordon G.
Pratt
called Don Cronin, the President and CEO of United, on October 19, 2007 to
explore United’s interest in a potential merger with FMG Acquisition Corp. and
to arrange a meeting in person with United’s senior staff. A mutually convenient
date of November 14 was set. Attending the meeting were four persons: Gordon
G.
Pratt and three officers from United, Don Cronin (CEO), Nick Griffin (CFO)
and
Melvin Russell (Chief Underwriting Officer). The nature of the meeting was
exploratory and informational. Mr. Pratt described FMG Acquisition Corp and
how
it functions as a “special purpose acquisition company.” Messrs. Cronin, Griffin
and Russell described United’s business strategy and results through October
2007. The parties agreed that it seemed worthwhile to continue discussing a
possible merger.
At
the
November 15, 2007 Board meeting, Mr. Pratt reported that: (i) in addition to
United, several other companies in the Florida homeowners market may be suitable
candidates for a business combination and (ii) United may be receptive to a
proposal for a business combination. Management also gave reports concerning
other promising companies and markets the Company should consider. Based on
this
report, FMG’s Board concluded that management should continue the process of
meeting with and discussing a possible business combination with several
candidates, including United.
On
November 20,
2007,
the Company and United signed mutual non-disclosure agreements in order to
exchange information and continue discussions on a confidential basis. The
Company began to receive confidential reports concerning United on November
25
and 26, 2007. United and the Company agreed to meet on December 6, 2007 in
United’s offices. There are no direct or indirect business relationships between
any of the officers, directors, or principal stockholders of the Company and
any
of the officers, directors, or principal members of United.
On
December 6, 2007, Messrs. Pratt and Swets met with Messrs. Cronin, Griffin,
Russell and Hearn, all officers of United, in United’s offices. Also in
attendance was Mr. Brian Nestor of Raymond James & Associates in their
capacity as financial advisor to United. During the meeting and throughout
the
day, the parties discussed United’s book of business, underwriting, modeling,
changes to the policies offered to its policyholders, rates, new business
initiatives, claims operations and reinsurance. Messrs. Cronin, Griffin, Pratt,
and Swets continued, over dinner, to discuss items including management of
the
combined companies should a business combination proceed. The participants
concluded that discussions concerning a merger should continue. The following
day, Mr. Patrick DeLacey of Raymond James & Associates (and also a director
of United) spoke with Mr. Pratt concerning a potential business combination
and
informed the Company that any business combination: (i) must meet an appropriate
value for United’s members and (ii) must be negotiated in a timely manner, since
United was considering a number of potential options, including a possible
sale
or merger to other parties or a decision to remain a private company held by
the
current members. Mr. DeLacey provided additional documents concerning United
on
December 13 and 14, 2007. Following analysis of the information from the
December 6 meeting and of the reports provided on December 13 and 14, FMG’s
management concluded it was in FMG’s best interest to express in writing FMG’s
possible interest in a business combination with United.
On
December 16, 2007, after analysis of the information provided by United to
date,
the Company delivered a non-binding letter of interest (“Interest Letter”) to
Messrs. Branch and DeLacey expressing interest in a business combination with
United in the form of a merger with the Company, with the resulting merged
company to be renamed United Insurance Holdings Corp. (“UIH”). A summary of the
material terms of the Interest Letter appears below:
Consideration:
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$25,000,000
in cash consideration at the closing
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8,125,000
shares of the Company
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$5,000,000
in
cash as additional consideration
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625,000
shares of the Company as additional
consideration
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The
additional consideration would be based on UIH’s performance in the first
full four quarters post-merger. Additional consideration begins accruing
when GAAP net income for UIH exceeds $25 million and is fully earned
if
GAAP net income reaches or exceeds $29
million
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The
UIH board would include Mr. Branch and other current United directors
while FMG would name an equal number of directors to the UIH
board.
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The
parties would mutually discuss an appropriate capital and business
plan
for UIH
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The
Interest Letter requested that the parties enter into more detailed discussions
concerning negotiation of a non-binding letter of intent (“LOI”) and the
diligence, timetable and documentation requirements for a merger.
On
December 21, 2007, the Company’s Board convened a discussion by teleconference.
During the discussion, Messrs. Pratt and Swets described meetings held with
United and meetings and discussions with several other candidates concerning
a
potential business combination. With respect to United, management discussed
(i)
preliminary information concerning United’s business and operations gathered
from the December 6 meeting and subsequent information provided by United on
December 13 and 14 and (ii) the Interest Letter management sent to United
concerning which we were awaiting a response. FMG’s board asked questions
concerning United’s business, underwriting approach, use of models, ability to
generate new business, claims handling philosophy and use of reinsurance. Based
on the discussion, FMG’s board concluded (i) management had made good progress
concerning the potential business combination with United; (ii) prior to issuing
an LOI for United or for any other candidate for a business combination, FMG’s
board would meet to consider more detailed information concerning the candidate,
review the proposed LOI, and hold a discussion on these matters; (iii) whether
or not to issue an LOI would be subject to the Board’s discussion and to its
affirmative vote; and (iv) discussions should continue with those potential
candidates for a business combination whom FMG’s board and management agreed
potentially fit the Company’s criteria.
Later
that day, Messrs. Pratt and DeLacey spoke concerning a proposed merger. Mr.
DeLacey reported that United’s board had met on December 18, 2007 to consider
the Interest Letter and concluded that United wished to continue discussions
through Mr. Branch and Mr. DeLacey. Key points of the discussion focused on
issues concerning proposed management of UIH and the constitution of UIH’s board
of directors, the amount of consideration at the closing of a merger, and the
amount, timing, and form of payment for additional consideration. On December
24, 2007, Messrs. Pratt and DeLacey discussed these issues again and agreed
to
speak early in January.
From
January 4, 2008 through January 9, 2008, Messrs. Pratt and DeLacey held a series
of discussions focused on resolving outstanding issues and discussed additional
issues concerning the appropriate representations, warranties, and
indemnification between the parties, the registration rights United’s members
would have concerning Company stock received by United’s members as merger
consideration, “lock-ups” or other restrictions on such stock, the conditions to
a closing, confidentiality and exclusivity, the conduct of each party in the
period prior to any closing, and a waiver by United concerning the Company’s
trust fund. From these discussions, the parties concluded that each issue had
a
range of possible answers. The parties agreed that Mr. DeLacey should send
a
summary of the discussions for Messrs. Pratt and Branch to use for further
negotiation. On January 10, 2008, Messrs. Pratt and Branch continued their
discussions and came to agreement on the issues. Mr. Pratt agreed to document
the parties’ agreement in the form of a draft LOI for consideration by United
and its advisors. Mr. Pratt provided a draft LOI to United and to the Company’s
Board on January 14, 2008. The LOI contemplates a merger of United with FMG
(or
a wholly-owned subsidiary) with FMG to be renamed UIH. A summary of the material
terms of the non-binding LOI appears below:
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$25,000,000
in cash consideration at the closing
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8,750,000
registered shares of FMG
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$5,000,000
in cash as possible additional
consideration
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The
additional consideration would be based on UIH’s performance in the twelve
month period covering either (i) July 1, 2008 to June 30, 2009 or
(ii)
calendar 2009. Additional consideration begins accruing when GAAP
net
income for UIH exceeds $25 million and is fully earned if GAAP net
income
reaches or exceeds $27.5 million
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The
UIH management will include Mr. Cronin (President and Chief Executive
Officer) and Mr. Griffin (Chief Financial Officer). Mr. Russell will
be
Chief Underwriting Officer of
United.
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The
UIH board would be set initially at six members with each of the
Company
and United naming three (3) members. Mr. Branch will serve as Chairman
and
Mr. Pratt as Vice Chairman of UIH.
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As
soon as is practical following the execution of the definitive merger
agreement, FMG will file with the SEC a Form S-4 registration statement
concerning the shares of the Company United’s owners will receive in the
merger.
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Our
officers and directors will continue to be bound by existing share
escrow
arrangements, and certain parties related to United will execute
“lock-up”
agreements.
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Customary
closing conditions will apply, including the negotiation of a definitive
merger agreement with mutually acceptable representations, warranties,
and
indemnification; also, conditions to close will include regulatory
approvals (such as that of the Florida Office of Insurance Regulation
(“OIR”)).
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An
exclusivity period of thirty (30) days during which we could conduct
diligence concerning United and prepare appropriate
documentation.
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Provisions
concerning: (i) United’s waiver of a claim on our trust account and (ii)
mutual promises of confidentiality.
|
On
January 15, 2008, our Board of Directors met to discuss a possible merger with
United and the draft LOI. Management presented a summary of information learned
to date concerning United, and a discussion ensued concerning: (i) United’s
management and its experience; (ii) the proposed valuation of United in a merger
and its relative attractiveness from the point of view of the Company’s
stockholders; (iii) United’s capital structure and ownership; (iv) United’s
market share in Florida and that of the Florida state-owned insurance company,
Citizens Property Insurance Company (Citizens); and (v) the opportunities and
risks in a merger with United. The Board also discussed the draft LOI and the
remaining issues under discussion with United. Due to time constraints, the
Board decided to recess the meeting and reconvene on January 17,
2008.
On
January 17, 2008, the Board continued its discussion concerning United’s
valuation in the proposed merger, and the Board's determination of United's
valuation was based, in large part, on (i) details concerning fundamental
financial results of United and comparisons to publicly-traded insurance
companies; (ii) United’s expected balance sheet at the time of the proposed
merger; (iii) the expected returns and risks in United’s business, including
giving proper account to its exposure to catastrophe risk; and (iv) the
opportunities and risks in expanding United’s business to other states. The
board also considered several direct and indirect comparable companies,
many of
which overlapped with companies used by Piper Jaffray in making its comparisons.
The companies evaluated by both FMG’s board and Piper Jaffray included
21st Century Holding Company, IPC Holdings, Ltd., Universal Insurance
Holdings, Inc., ACE, Ltd., XL Capital Ltd., Axis Capital Holdings Ltd.,
Allied
World Assurance Company Holdings Ltd., Aspen Insurance Holdings Ltd., Allstate
Corp., The Travelers Companies, Inc. and Hartford Financial Services Group,
Inc.
However, each of FMG’s board and Piper Jaffray did their investigation and
analysis independent of one another without discussion of which companies
to use
as the basis for comparable comparisons.
The
Board
concluded that (a) United’s management, its experience in Florida, and its
expected returns (after giving effect to its use of reinsurance and exposure
to
catastrophe risk) were positives for the transaction; (b) the opportunities
for
United were attractive, having given proper account to the risks associated
with
United’s market share size and the existence of the large competitors, including
the state-owned insurance company Citizens; and (c) United’s valuation in the
merger, its financial results to date, and its expected balance sheet at the
time of the merger justified continuing the process of discussing a merger.
Mr.
Pratt also gave his opinion as to how the final issues in the LOI would be
resolved in final negotiation and that such resolution of the issues would
not
differ materially from the draft LOI summarized above and presented to the
Board. Following this discussion, the Board unanimously approved a resolution
authorizing management, on behalf of the Company, to enter into an LOI with
United on substantially the same terms as were presented in the draft LOI (and
as negotiated to final resolution by management). The Board also instructed
management that discussions should continue with those potential candidates
for
a business combination whom the Board and management agreed potentially fit
the
Company’s criteria.
On
January 20, 2008, we sent to United a final LOI (comporting with the summary
above in every material way) that United executed on the following
day.
FMG
and
United arrived at the Merger consideration through mutual negotiation and
discussion. The parties agreed the transaction should contain the following
elements: cash at the time of the Merger; no need for any additional financing
to complete the Merger; the issuance of FMG common stock as the majority of
the
Merger consideration; and an amount of additional cash consideration depending
upon United’s post-Merger performance.
On
January 24, 2008, at the Raymond James headquarters in St. Petersburg, Florida,
Messrs. Pratt and Swets met with Messrs. Cronin, Griffin, Russell and Michael
Farrell, United’s senior financial analyst and Keith Irvine (Raymond James), all
representing United, in order to discuss the process for diligence and
documentation.
Beginning
with the January 24, 2008 meeting and continuing through the signing of the
Agreement and Plan of Merger, we conducted diligence concerning United’s
business, operations and financial results. Messrs. Pratt and Swets actively
participated in numerous telephone conversations and email communications with
officers and other representatives of United. We retained outside advisors
and
consultants who supplemented our work with reports concerning the following
areas or functions: accounting, investments, policy administration, claims,
reinsurance, actuarial computations (including computations of premiums,
reserves for losses, reserves for lost adjustment expenses, unearned premiums
and reinsurance recoverables) corporate structure, ownership and any material
restrictions contained in United’s contracts and governing
documents.
On
February 22, 2008, the Company’s Board convened a discussion by teleconference.
Our management described:
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The
scope of the diligence being conducted by us, including portions
performed
directly by Messrs. Pratt and
Swets;
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The
personnel, backgrounds and references for the firms retained to perform
diligence for us, which including an accounting firm, a law firm,
an
operations and internal audit consultant, a reinsurance broker and
consultant and an actuarial consultant;
and
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Our
findings to date from both management and from our outside retained
firms
and consultants.
|
The
directors discussed the diligence findings and encouraged management to continue
discussions with United, including preparation of a draft definitive merger
agreement (which was delivered to United on March 7, 2008). The directors also
encouraged management to continue discussions with other candidates concerning
a
potential business combination.
On
March
14, 2008 the Company’s Board convened a discussion by teleconference. Management
described its continuing analysis of United, its management, our diligence
and
the state of discussions concerning a definitive merger agreement. In
particular, our management described:
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A
valuation and investment thesis for the merger with
United;
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Management’s
assessment of United and its management, particularly with respect
to
United’s underwriting focus and risk
management;
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An
assessment of United’s profit opportunities and risk to those profits
under various scenarios; and
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An
analysis of the potential combined profits and earnings per share
after a
merger, both in absolute terms and relative to certain publicly-traded
insurance companies.
|
The
directors discussed these matters and encouraged management to continue
discussions with United. We scheduled a meeting on March 20, 2008 to review
(i)
all of the steps taken by us in our discussions with United, (ii) diligence
memoranda concerning United prepared by management and by our counsel (which
were provided to the directors prior to the March 20 meeting) (iii) a draft
definitive merger agreement in a form substantially similar to its final form
(which was provided to directors prior to the March 20 meeting); (iv) a fairness
opinion (prepared by Piper Jaffray) and (v) information concerning the status
of
discussions with other candidates concerning a potential business
combination.
On
March
20, 2008, FMG’s Board of Directors met to evaluate the materials set forth above
in order to consider approval of a merger with United. Management presented
the
diligence findings and a summary of the status of discussions with other
candidates concerning a potential business combination. Representatives of
Piper
Jaffray joined the meeting to discuss their opinion concerning the
transaction.
During
the meeting our directors considered many aspects of a merger with United,
including, but not limited to:
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The
overall state of the Florida homeowners insurance business and the
relative attractiveness of this
market;
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United’s
historical record of success in the Florida
market;
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The
expected return on equity for United’s business in comparison to others
operating in the Florida market;
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The
expected profitability of United’s business after giving proper account to
United’s exposure to, and management of, catastrophe
risk;
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Diligence
reports concerning United’s balance sheet, including a review of its
investment assets, loss reserves, unearned premium reserves and
reinsurance arrangements;
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Confirmations
of United’s loss reserve estimates and claims practices by an independent
actuary and an independent accounting firm retained by the
Company;
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United’s
reinsurance program, underlying contract arrangements, and quality
of
reinsurance providers, including review of the findings of an independent
reinsurance consultant retained by the
Company;
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The
status of discussions with other candidates concerning a potential
business combination, including management’s assessment of those
candidates’ potential value, the probability of negotiating an acceptable
business combination and the timeframe for so doing;
and
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The
amount and form of the consideration to be paid by FMG to effect
the
merger, including the Piper Jaffray opinion that the transaction
is fair,
from a financial point of view, to the Company’s stockholders. From this,
and their own assessment of the transaction, the directors concluded
that
United’s value also exceeds $30,176,383, or 80% of the Company’s assets
held in its trust account.
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FMG’s
board discussed the opportunity and the potential adverse effects of a merger
with United at its board meetings on January 15 and 17, on its conference call
discussions on February 22 and March 14, and again at its meeting on March
20.
Those discussions focused on the value and potential of a merger with United
for
our stockholders and an assessment of the risks and potential adverse effects
of
the merger. As a consequence, our board made a careful review of two primary
areas that could cause adverse effects: (i) the risks of poor performance in
United’s business and financial results, leading to an adverse effect on our
stockholders; and (ii) failure to pursue a better merger candidate (if one
could
be identified), leading to an adverse effect on our stockholders. After due
consideration, we determined to proceed with the merger proposal with
United.
Our
outside counsel, which was hired to assist with our initial public offering
and
has remained our outside counsel through the date hereof, attended all official
meetings of our board of directors as well as board discussions held by
conference call. We initiated contact with Piper Jaffray on approximately
February 15 and officially engaged them on March 4. Piper Jaffray attended
no
meetings between FMG and United. The only meeting of FMG’s board of directors
which Piper Jaffray attended was the March 20 meeting, as described above.
Pali
Capital, Inc., which served as the representative of the underwriters in our
IPO, was retained on February 26, 2008 to render financial advisory and
investment banking services to FMG in connection with the Merger. Pali Capital
attended no meetings between FMG and United, nor did Pali attend any meetings
of
FMG’s board of directors. FMG also retained Actuarial Consultant in late
January, 2008 and were present on some due diligence phone calls between FMG
and
United, but attended no other meetings between the companies or any meetings
of
FMG’s board of directors. FMG retained Blackman Kallick to assist with
accounting due diligence. Blackman Kallick attended due diligence meetings
between FMG and United on February 4 and February 5, but attended no other
meetings. No other consultants have been retained.
During
the March 20 board meeting, FMG’s Board concluded that a merger with United on
the terms described was in the best interests of our stockholders. FMG’s Board
unanimously approved a resolution in favor of the merger with United and a
resolution authorizing Messrs. Pratt and Swets to take all actions they deem
necessary to finalize the Merger Agreement. The Merger Agreement was finalized
and signed on April 2, 2008 and announced to the public on April 3,
2008.
Interests
of United Directors and Officers in the Merger
Gregory
C. Branch, Alec C. Poitevint, and Kent G. Whittemore, directors of United,
will
be directors of the combined company following the Merger.
Interests
of FMG Directors and Officers in the Merger
In
considering the recommendation of the Board of Directors of the Company to
vote
for the proposals to approve and adopt the Merger Agreement and the Merger,
you
should be aware that certain members of the Company’s Board have agreements or
arrangements that provide them with interests in the Merger that differ from,
or
are in addition to, those of the Company stockholders generally. In
particular:
· If
the
Merger is not approved, the Company may be required to liquidate, and the
shares
of common stock and warrants held by the Company’s executive officers and
directors will be worthless because the Company’s executive officers and
directors are not entitled to receive any of the net proceeds of the Company’s
IPO that may be distributed upon liquidation of the Company. The Company’s
executive officers, directors and special advisor own a total
1,183,406 shares of the Company’s common stock that have a market value
of approximately $8,674,366 based on the Company’s share price of
$7.33 as of July 7, 2008. The Company’s executive officers and directors also
own a total of 1,250,000 warrants to purchase shares of the Company’s common
stock that have a market value of $425,000 based on the Company’s warrant price
of $0.34 as of July 7, 2008. The Company’s executive officers, directors and
special advisors are contractually prohibited from selling their shares of
common stock prior to one year after the consummation of a business combination,
during which time the value of the shares may increase or
decrease.
· It
is
currently anticipated that Messrs. Gordon G. Pratt, Larry G. Swets, Jr. and
James R. Zuhlke, all of whom are current directors of the Company, will continue
as directors of the Company after the Merger.
The
Company’s Reasons for the Merger and Recommendation of the Company’s
Board
In
the
prospectus relating to our IPO, we stated our intention to focus our pursuit
of
a business combination on merger partners in the insurance industry. On page
44
of this Proxy Statement/Prospectus, we enumerate all the material factors
considered in pursuing this particular transaction. Other factors used in making
a determination whether to proceed with the Merger, none of which were deemed
factors weighing against pursuing the Merger and none of which were material
in
any event, were results of background checks done on United’s management, the
ability of FMG’s current management team to work with United following the
Merger and the results of the various due diligence investigations undertaken
on
United.
We
believe the Merger meets our original investment objectives. In
light
of the complexity of those factors, our Board of Directors, as a whole, did
not
consider it practicable to, nor did it attempt to, quantify or otherwise assign
relative weights to the specific factors it considered in reaching its decision.
Individual members of our Board of Directors may have given different weight
to
different factors.
Based
upon our evaluation as set forth above, our Board of Directors has unanimously
approved the Merger and determined it is in the best interests of the Company
and our stockholders.
Terms
of the Merger Agreement
The
terms
of the Merger Agreement, including the closing conditions, are customary and
reasonable. It was important to the Company’s Board of Directors that the Merger
Agreement include customary terms and conditions as it believed such terms
and
conditions would allow for a more efficient closing process and lower
transaction expenses.
The
Company’s Board of Directors believes the above factors strongly supported its
determination and recommendation to approve the Merger. The Company’s Board of
Directors did, however, consider the following potentially negative factors,
among others, including the Risk Factors, in its deliberations concerning the
Merger:
The
risk its public stockholders would vote against the Merger and exercise their
conversion rights
The
Company’s Board of Directors considered the risk the current public stockholders
of the Company would vote against the Merger and demand to redeem their shares
for cash upon consummation of the Merger, thereby depleting the amount of cash
available to the combined company following the Merger. For reasons stated
above, the Company’s Board of Directors deemed this risk to be less with regard
to United than it would be for other merger partners and believes the Company
will still be able to implement its business plan, even if the maximum number
of
public stockholders exercised their conversion rights.
Certain
officers and directors of the Company may have different interests in the Merger
than the Company stockholders
The
Company’s Board of Directors considered the fact certain officers and directors
of the Company may have interests in the Merger different from, or in addition
to, the interests of the Company stockholders generally, including the matters
described under “Interests of the Company and Officers in the Merger”
above.
Limitations
on indemnification set forth in the Merger Agreement
The
Company’s Board of Directors considered the limitations on indemnification set
forth in the Merger Agreement. See
“The
Merger Agreement.” The Board of Directors of the Company determined that such
limitations are consistent with what could be expected.
The
risk United and its affiliates would control a significant percentage of our
issued shares stock after the transaction.
Upon
the
consummation of the Merger, the members of United will beneficially own
approximately 60% of the common stock of FMG, assuming no conversion of stock
by
public stockholders, and approximately 68% if the maximum number of shares
is
converted. Therefore, the members of United will be able to exercise significant
control over the operations of FMG and may vote its common stock in ways that
are adverse or otherwise not in the best interest of our stockholders as a
group.
The
risk the Company’s current stockholders will experience substantial dilution
upon consummation of the Merger.
If
we
consummate the Merger, we will issue, in the aggregate, 8,750,000 shares
of our
common stock. Our IPO stockholders currently own approximately 80% of the
Company’s outstanding capital stock. Following the Merger, all current
FMG stockholders will own approximately 40% of our common stock. Our net
income per share, assuming no shares are converted, will increase from $0.03
to
$2.61 on a pro-forma basis (or $2.52 per share on a diluted, pro-forma basis
assuming 29.99% of our public shares convert). We believe, despite the
dilution in ownership our IPO stockholders will experience as a result of
the
Merger, this transaction is still beneficial for them.
The
lack of approval of the Merger from United’s members prior to the execution of
the Merger Agreement.
While
it
would have been preferable to have the required approval of the members of
United upon the execution of the Merger Agreement, such approval is,
necessarily, a closing condition. We expect the vote to be taken by United’s
members following the effectiveness of this proxy but prior to the date of
the
Special Meeting. Additionally, in the event the members of United do not approve
the Merger, we are entitled to terminate the Merger Agreement and receive
reimbursement from United for all costs, expenses and fees incurred in
connection with the transactions contemplated hereby, up to a maximum of
$500,000, within three (3) business days of the date of written notice of
termination of the Merger Agreement. Despite the lack of approval of United’s
members prior to the date hereof, we believe the Merger is beneficial to our
stockholders.
United’s
Reasons for the Merger with the Company
The
United board of managers believes that the proposed merger between the Company
and United is in the best interests of United and its members based on the
following:
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·
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As
of March 31, 2008, the Company had approximately $37.7 million in
its
trust account, including accrued interest (but not taking into account
taxes payable). If the Merger is completed, the funds in the Company’s
trust account will be available for the operations of the Company
following the Merger, less expenses of the Merger and amounts paid
to
holders of up to 29.99% of the shares of the Company’s common stock issued
in the Company’s initial public offering who vote against the Merger
Proposal and properly elect to convert their shares of common stock
into a
pro rata share of the amount held in the trust account (including
the
amount held in the trust account representing the deferred portion
of the
underwriters’ fee), inclusive of any interest earned on their pro rata
share (net of taxes payable). United believes that because following
the
Merger the Company will have substantially greater capitalization
than
United alone, the combined company will be in a better position to
expand
its insurance business.
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·
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The
Merger would allow United to increase the statutory capital and surplus
of
its insurance company subsidiaries providing it the ability to expand
the
number of property and casualty insurance policies that it writes
in the
State of Florida.
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·
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The
abilities and experience of the directors of the Company who are
expected
to remain as directors of the Company after the Merger will be highly
valuable in executing its business strategy. See “ Directors
and Management of the Company Following the Merger.”
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·
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The
Company common stock issued in the Merger will be publicly traded,
which
could provide liquidity to United’s members and provide the business with
access to the public capital markets, the ability to attract, retain
and
incentivize highly qualified employees with grants of options for,
or
other equity awards in the form of, publicly traded
stock.
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·
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The
resulting publicly traded stock will present United with greater
ability
to use stock as acquisition or partnership
currency.
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In
addition to the primary reasons set forth above, United’s board also considered
certain potentially negative factors in its deliberations, including the risk
that the Merger may not be completed, risks associated with a potentially
illiquid trading market for the Company common stock and costs associated with
being a public company, among others.
FAIRNESS
OPINION OF PIPER JAFFRAY
The
Company retained Piper Jaffray to provide a Fairness Opinion to the Company’s
Board of Directors in connection with the Merger.
On
March
20, 2008, our Board of Directors held a meeting to evaluate the proposed Merger
with United. At this meeting, Piper Jaffray reviewed the financial aspects
of the proposed Merger and rendered an oral opinion to our Board of Directors,
which was subsequently confirmed by delivery of a written opinion, dated March
20, 2008, that as of the date of the opinion, and subject to the factors and
assumptions set forth in the written opinion, the consideration to be paid
pursuant to the Merger Agreement was fair, from a financial point of view,
to
the holders of our common stock.
The
full text of the written opinion by Piper Jaffray is attached as Annex C
to this
proxy statement. Stockholders are urged to read the opinion carefully and
in its
entirety for a description of the assumptions made, matters considered,
procedures followed and limitations on the review undertaken by Piper Jaffray
in
rendering its opinion. The summary of the Piper Jaffray opinion set forth
in
this proxy statement is qualified in its entirety by reference to the full
text
of the opinion. The Piper Jaffray opinion is addressed to the Company’s Board of
Directors, by its terms, may not be relied on by FMG’s
stockholders and addresses only the fairness to the Company, from a
financial point of view, of the consideration to be paid by FMG in the Merger.
The Piper Jaffray opinion does not constitute a recommendation to any Company
stockholder as to how that stockholder should vote or act on any matter relating
to the Merger (including, without limitation, with respect to the exercise
of
rights to convert Company shares into cash). Further, the Piper Jaffray opinion
does not in any manner address the underlying business decision of the Company
to engage in the Merger or the relative merits of the Merger as compared
to any
alternative business decision or strategy (including, without limitation,
a
liquidation of the Company after not completing a business combination
transaction within the allotted time). The decision as to whether to approve
the
Merger or any related transaction may depend on an assessment of factors
unrelated to the financial analysis on which the Piper Jaffray opinion is
based.
Piper
Jaffray’s opinion was intended solely for the use and benefit of our Board of
Directors in connection with its consideration of the Merger, does not address
the merits of the underlying decision by us to enter into the Merger Agreement
or any of the transactions contemplated thereby, including the Merger, and
does
not constitute a recommendation to any of our stockholders as to how that
stockholder should vote on, or take any action with respect to, the Merger
or
any related matter. Piper Jaffray was not asked to address nor does its opinion
address, the fairness to, or any other consideration of, the holders of any
other class of securities, creditors or other constituencies of FMG. Any defense
of the Fairness Opinion against claims brought by Company stockholders based
on
the fact such opinion is intended solely for the use and benefit of the
Company’s board of directors is expected to be resolved by a court of competent
jurisdiction. Any such defense will have no effect on the rights and
responsibilities of FMG’s board of directors under applicable state law nor any
effect on the rights and responsibilities of Piper Jaffray
or
FMG’s board of directors under federal securities laws.
In
connection with its opinion, Piper Jaffray reviewed and analyzed the Merger
and
the financial and operating condition of United and us, including, among other
things, the following: